Modelling of uncertainty in the economic development of the Norwegian forest sector

Abstract

Quantitative forest sector modelling includes many model parameters that are treated as being deterministic in the modelling framework, but are in reality often highly uncertain. Few studies have addressed the impacts of this uncertainty and the main objectives of this article are to quantify major market uncertainties in the Norwegian forest sector and analyse their impacts on the results of a forest sector model study for Norway. The uncertainties are derived from historical time series of the prices and exchange rates for international forest products, and their possible impacts are addressed by applying a Monte Carlo approach. A probabilistic approach in modelling is found to have significant impacts on harvest and forest industry production levels. When uncertainty is included, the relative standard deviation for modelled harvest levels varies from 15% to 45%, while for forest products the standard deviations vary from 30% to 80%. We conclude that the most important uncertainty factor for the Norwegian forest sector is the development of international forest product markets, and improved data on demand should be given high priority in future forest sector modelling development.

Modelling of uncertainty in the economic development of the Norwegian forest sector