Under the Clean Development Mechanism (CDM) of the Kyoto Protocol, forest projects
can receive returns for carbon sequestration via two credit instruments: temporary (tCERs) or
long-term certified emission reductions (lCERs). This article develops a theoretical model of
optimal harvesting strategies that compares private optimal harvest decision under these two
instruments. We find that risk neutral landowners are likely to prefer instituting lCERs over
tCERs to maximize surplus. A particular type of early harvest penalty implemented under the
lCERs is critical in determining the length of rotation intervals and the carbon credit supply.
When this penalty is an increasing function of the difference in biomass before and after
harvesting across verification periods, the landowner may choose longer or shorter rotation
intervals compared to the Faustmann rotation. The resulting supply curve may have a backward
bending region over a range of carbon prices