IDEAS home Printed from https://ideas.repec.org/a/eee/ecolec/v88y2013icp232-243.html
   My bibliography  Save this article

Transaction costs of carbon offset projects: A comparative study

Author

Listed:
  • Cacho, Oscar J.
  • Lipper, Leslie
  • Moss, Jonathan

Abstract

The land-use change and forestry sector can be a cost-effective contributor to climate mitigation in at least three ways: providing carbon offsets through carbon sequestration in biomass and soils, reducing emissions of methane and other greenhouse gases, and producing biofuels that replace fossil fuels. The presence of carbon markets should help encourage these activities; however, most carbon trades to date have occurred in the energy sector. A major obstacle to carbon trades from land-use systems is the presence of high transaction costs of converting a carbon offset into a tradable commodity, so the prevailing market carbon prices may not provide enough incentive for adoption. This paper presents a model of the exchange of carbon offsets between a project developer and a group of landholders. The model is solved to derive project feasibility frontiers that show the minimum number of contracts necessary to make a project feasible at any given carbon price. The model is applied to two case studies (smallholder agroforestry in Indonesia and partial reforestation of family farms in Australia) under two types of contract (purchase of carbon flows and rental of carbon stocks). The paper concludes by identifying possible strategies to reduce transaction costs while maintaining project integrity.

Suggested Citation

  • Cacho, Oscar J. & Lipper, Leslie & Moss, Jonathan, 2013. "Transaction costs of carbon offset projects: A comparative study," Ecological Economics, Elsevier, vol. 88(C), pages 232-243.
    • Handle: RePEc:eee:ecolec:v:88:y:2013:i:c:p:232-243
    DOI: 10.1016/j.ecolecon.2012.12.008
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0921800912004910
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ecolecon.2012.12.008?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Galinato, Gregmar I. & Olanie, Aaron & Uchida, Shinsuke & Yoder, Jonathan K., 2011. "Long-term versus temporary certified emission reductions in forest carbon sequestration programs," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 55(4), pages 1-23.
    2. McCann, Laura & Colby, Bonnie & Easter, K. William & Kasterine, Alexander & Kuperan, K.V., 2005. "Transaction cost measurement for evaluating environmental policies," Ecological Economics, Elsevier, vol. 52(4), pages 527-542, March.
    3. John M. Antle & Roberto O. Valdivia, 2006. "Modelling the supply of ecosystem services from agriculture: a minimum‐data approach," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 50(1), pages 1-15, March.
    4. Oscar J. Cacho & Robyn L. Hean & Russell M. Wise, 2003. "Carbon‐accounting methods and reforestation incentives," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 47(2), pages 153-179, June.
    5. Zilberman, David & Lipper, Leslie & Mccarthy, Nancy, 2008. "When could payments for environmental services benefit the poor?," Environment and Development Economics, Cambridge University Press, vol. 13(3), pages 255-278, June.
    6. Oscar Cacho, 2009. "Economics of Carbon Sequestration Projects Involving Smallholders," Natural Resource Management and Policy, in: Leslie Lipper & Takumi Sakuyama & Randy Stringer & David Zilberman (ed.), Payment for Environmental Services in Agricultural Landscapes, chapter 5, pages 77-102, Springer.
    7. Oscar Cacho & Russell Wise & Kenneth MacDicken, 2004. "Carbon Monitoring Costs and their Effect on Incentives to Sequester Carbon through Forestry," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 9(3), pages 273-293, July.
    8. Torres, Arturo Balderas & Marchant, Rob & Lovett, Jon C. & Smart, James C.R. & Tipper, Richard, 2010. "Analysis of the carbon sequestration costs of afforestation and reforestation agroforestry practices and the use of cost curves to evaluate their potential for implementation of climate change mitigat," Ecological Economics, Elsevier, vol. 69(3), pages 469-477, January.
    9. McCann, Laura, 2013. "Transaction costs and environmental policy design," Ecological Economics, Elsevier, vol. 88(C), pages 253-262.
    10. Stavins Robert N., 1995. "Transaction Costs and Tradeable Permits," Journal of Environmental Economics and Management, Elsevier, vol. 29(2), pages 133-148, September.
    11. Rose, Steven K. & Ahammad, Helal & Eickhout, Bas & Fisher, Brian & Kurosawa, Atsushi & Rao, Shilpa & Riahi, Keywan & van Vuuren, Detlef P., 2012. "Land-based mitigation in climate stabilization," Energy Economics, Elsevier, vol. 34(1), pages 365-380.
    12. Marshall, Graham R., 2013. "Transaction costs, collective action and adaptation in managing complex social–ecological systems," Ecological Economics, Elsevier, vol. 88(C), pages 185-194.
    13. Pannell, David J. & Roberts, Anna M. & Park, Geoff & Alexander, Jennifer, 2013. "Improving environmental decisions: A transaction-costs story," Ecological Economics, Elsevier, vol. 88(C), pages 244-252.
    14. Peter J. Parks & Ian W. Hardie, 1995. "Least-Cost Forest Carbon Reserves: Cost-Effective Subsidies to Convert Marginal Agricultural Land to Forests," Land Economics, University of Wisconsin Press, vol. 71(1), pages 122-136.
    15. Nicholas Linacre & Alexandre Kossoy & Philippe Ambrosi, "undated". "State and Trends of the Carbon Market 2011," World Bank Publications - Reports 13400, The World Bank Group.
    16. Oscar Cacho & Leslie Lipper, 2006. "Abatement and Transaction Costs of Carbon-Sink Projects Involving Smallholders," Working Papers 06-13, Agricultural and Development Economics Division of the Food and Agriculture Organization of the United Nations (FAO - ESA).
    17. Cacho, Oscar J. & Lipper, Leslie, 2007. "Abatement and Transaction Costs of Carbon-Sink Projects Involving Smallholders," Climate Change Modelling and Policy Working Papers 9324, Fondazione Eni Enrico Mattei (FEEM).
    18. Coggan, Anthea & Buitelaar, Edwin & Whitten, Stuart & Bennett, Jeff, 2013. "Factors that influence transaction costs in development offsets: Who bears what and why?," Ecological Economics, Elsevier, vol. 88(C), pages 222-231.
    19. Douglas J. Miller, 1999. "An Econometric Analysis of the Costs of Sequestering Carbon in Forests," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(4), pages 812-824.
    20. Cacho, Oscar J. & Marshall, Graham R. & Milne, Mary, 2003. "Smallholder agroforestry projects: Potential for carbon sequestration and poverty alleviation," ESA Working Papers 289093, Food and Agriculture Organization of the United Nations, Agricultural Development Economics Division (ESA).
    21. De Jong, Ben H. J. & Tipper, Richard & Montoya-Gomez, Guillermo, 2000. "An economic analysis of the potential for carbon sequestration by forests: evidence from southern Mexico," Ecological Economics, Elsevier, vol. 33(2), pages 313-327, May.
    22. Scott, J. Fiona & Farquharson, Robert J. & Mullen, John D., 2004. "Farming Systems in the Northern Cropping Region of NSW: An Economic Analysis," Research Reports 28004, New South Wales Department of Primary Industries Research Economists.
    23. repec:wbk:wboper:13399 is not listed on IDEAS
    24. G. Cornelis van Kooten & Sabina Lee Shaikh & Pavel Suchánek, 2002. "Mitigating Climate Change by Planting Trees: The Transaction Costs Trap," Land Economics, University of Wisconsin Press, vol. 78(4), pages 559-572.
    25. Cacho, Oscar J. & Marshall, Graham R. & Milne, Mary, 2005. "Transaction and abatement costs of carbon-sink projects in developing countries," Environment and Development Economics, Cambridge University Press, vol. 10(5), pages 597-614, October.
    26. Wunder, Sven & Engel, Stefanie & Pagiola, Stefano, 2008. "Taking stock: A comparative analysis of payments for environmental services programs in developed and developing countries," Ecological Economics, Elsevier, vol. 65(4), pages 834-852, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Cacho, Oscar J. & Milne, Sarah & Gonzalez, Ricardo & Tacconi, Luca, 2014. "Benefits and costs of deforestation by smallholders: Implications for forest conservation and climate policy," Ecological Economics, Elsevier, vol. 107(C), pages 321-332.
    2. McCann, Laura, 2013. "Transaction costs and environmental policy design," Ecological Economics, Elsevier, vol. 88(C), pages 253-262.
    3. Phan, Thu-Ha Dang & Brouwer, Roy & Hoang, Long Phi & Davidson, Marc David, 2017. "A comparative study of transaction costs of payments for forest ecosystem services in Vietnam," Forest Policy and Economics, Elsevier, vol. 80(C), pages 141-149.
    4. Longji Zeng & Yuandi Wang & Yajuan Deng, 2022. "How Land Transactions Affect Carbon Emissions: Evidence from China," Land, MDPI, vol. 11(5), pages 1-25, May.
    5. De Cara, Stéphane & Henry, Loïc & Jayet, Pierre-Alain, 2018. "Optimal coverage of an emission tax in the presence of monitoring, reporting, and verification costs," Journal of Environmental Economics and Management, Elsevier, vol. 89(C), pages 71-93.
    6. Gren, Ing-Marie & Zeleke, Abenezer Aklilu, 2016. "Policy design for forest carbon sequestration: A review of the literature," Forest Policy and Economics, Elsevier, vol. 70(C), pages 128-136.
    7. Piffer Salles, Guilherme & Paiva Salinas, Delhi Teresa & Paulino, Sônia Regina, 2017. "How Funding Source Influences the Form of REDD+ Initiatives: The Case of Market Versus Public Funds in Brazil," Ecological Economics, Elsevier, vol. 139(C), pages 91-101.
    8. Phan, Thu-Ha Dang & Brouwer, Roy & Davidson, Marc David, 2017. "A Global Survey and Review of the Determinants of Transaction Costs of Forestry Carbon Projects," Ecological Economics, Elsevier, vol. 133(C), pages 1-10.
    9. Fabian H. Härtl & Sebastian Höllerl & Thomas Knoke, 2017. "A new way of carbon accounting emphasises the crucial role of sustainable timber use for successful carbon mitigation strategies," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 22(8), pages 1163-1192, December.
    10. Hou, Guolong & Delang, Claudio O. & Lu, Xixi & Olschewski, Roland, 2020. "Optimizing rotation periods of forest plantations: The effects of carbon accounting regimes," Forest Policy and Economics, Elsevier, vol. 118(C).
    11. Torabi, Nooshin & Bekessy, Sarah A., 2015. "Bundling and stacking in bio-sequestration schemes: Opportunities and risks identified by Australian stakeholders," Ecosystem Services, Elsevier, vol. 15(C), pages 84-92.
    12. Mundaca, Luis & Mansoz, Mathilde & Neij, Lena & Timilsina, Govinda R, 2013. "Transaction costs of low-carbon technologies and policies : the diverging literature," Policy Research Working Paper Series 6565, The World Bank.
    13. Bruno D. V. Marino & Nahuel Bautista & Brandt Rousseaux, 2021. "Howland Forest, ME, USA: Multi-Gas Flux (CO 2 , CH 4 , N 2 O) Social Cost Product Underscores Limited Carbon Proxies," Land, MDPI, vol. 10(4), pages 1-17, April.
    14. Moss, Jonathan & Cacho, Oscar J., 2014. "Farm-scale analysis of the potential uptake of carbon offset activities," 2014 Conference, August 28-29, 2014, Nelson, New Zealand 187402, New Zealand Agricultural and Resource Economics Society.
    15. Tiberio Daddi & Niccolò Maria Todaro & Maria Rosa De Giacomo & Marco Frey, 2018. "A Systematic Review of the Use of Organization and Management Theories in Climate Change Studies," Business Strategy and the Environment, Wiley Blackwell, vol. 27(4), pages 456-474, May.
    16. Juutinen, Artti & Ahtikoski, Anssi & Lehtonen, Mika & Mäkipää, Raisa & Ollikainen, Markku, 2018. "The impact of a short-term carbon payment scheme on forest management," Forest Policy and Economics, Elsevier, vol. 90(C), pages 115-127.
    17. Hofstad, Ole & Araya, Meley Mekonen, 2015. "Optimal wood harvest in miombo woodland considering REDD+payments — A case study at Kitulangalo Forest Reserve, Tanzania," Forest Policy and Economics, Elsevier, vol. 51(C), pages 9-16.
    18. Andrew McGregor & Edward Challies & Peter Howson & Rini Astuti & Rowan Dixon & Bethany Haalboom & Michael Gavin & Luca Tacconi & Suraya Afiff, 2015. "Beyond Carbon, More Than Forest? REDD+ Governmentality in Indonesia," Environment and Planning A, , vol. 47(1), pages 138-155, January.
    19. Nantongo, Mary & Vatn, Arild, 2019. "Estimating Transaction Costs of REDD+," Ecological Economics, Elsevier, vol. 156(C), pages 1-11.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Moss, Jonathan & Cacho, Oscar J., 2014. "Farm-scale analysis of the potential uptake of carbon offset activities," 2014 Conference, August 28-29, 2014, Nelson, New Zealand 187402, New Zealand Agricultural and Resource Economics Society.
    2. Shahab, Sina & Clinch, J. Peter & O’Neill, Eoin, 2018. "Accounting for transaction costs in planning policy evaluation," Land Use Policy, Elsevier, vol. 70(C), pages 263-272.
    3. Shahab, Sina & Clinch, J. Peter & O'Neill, Eoin, 2019. "An Analysis of the Factors Influencing Transaction Costs in Transferable Development Rights Programmes," Ecological Economics, Elsevier, vol. 156(C), pages 409-419.
    4. Cacho, Oscar J., 2008. "Carbon markets, transaction costs and bioenergy," 2008 Conference (52nd), February 5-8, 2008, Canberra, Australia 6007, Australian Agricultural and Resource Economics Society.
    5. McCann, Laura, 2013. "Transaction costs and environmental policy design," Ecological Economics, Elsevier, vol. 88(C), pages 253-262.
    6. Oscar Cacho & Leslie Lipper, 2006. "Abatement and Transaction Costs of Carbon-Sink Projects Involving Smallholders," Working Papers 06-13, Agricultural and Development Economics Division of the Food and Agriculture Organization of the United Nations (FAO - ESA).
    7. Nantongo, Mary & Vatn, Arild, 2019. "Estimating Transaction Costs of REDD+," Ecological Economics, Elsevier, vol. 156(C), pages 1-11.
    8. Phan, Thu-Ha Dang & Brouwer, Roy & Hoang, Long Phi & Davidson, Marc David, 2017. "A comparative study of transaction costs of payments for forest ecosystem services in Vietnam," Forest Policy and Economics, Elsevier, vol. 80(C), pages 141-149.
    9. Emily Anderson & Hisham Zerriffi, 2012. "Seeing the trees for the carbon: agroforestry for development and carbon mitigation," Climatic Change, Springer, vol. 115(3), pages 741-757, December.
    10. Cacho, Oscar J. & Lipper, Leslie, 2007. "Abatement and Transaction Costs of Carbon-Sink Projects Involving Smallholders," Climate Change Modelling and Policy Working Papers 9324, Fondazione Eni Enrico Mattei (FEEM).
    11. Valentová, Michaela & Horák, Martin & Dvořáček, Lukáš, 2020. "Why transaction costs do not decrease over time? A case study of energy efficiency programmes in Czechia," Energy Policy, Elsevier, vol. 147(C).
    12. Coggan, Anthea & Buitelaar, Edwin & Whitten, Stuart & Bennett, Jeff, 2013. "Factors that influence transaction costs in development offsets: Who bears what and why?," Ecological Economics, Elsevier, vol. 88(C), pages 222-231.
    13. Cacho, Oscar J. & Milne, Sarah & Gonzalez, Ricardo & Tacconi, Luca, 2014. "Benefits and costs of deforestation by smallholders: Implications for forest conservation and climate policy," Ecological Economics, Elsevier, vol. 107(C), pages 321-332.
    14. Fan, Shengyue & Yang, Jinfei & Liu, Wenwen & Wang, He, 2019. "Institutional Credibility Measurement Based on Structure of Transaction Costs: A Case Study of Ongniud Banner in the Inner Mongolia Autonomous Region," Ecological Economics, Elsevier, vol. 159(C), pages 212-225.
    15. DeBoe, Gwendolen & Stephenson, Kurt, 2016. "Transactions costs of expanding nutrient trading to agricultural working lands: A Virginia case study," Ecological Economics, Elsevier, vol. 130(C), pages 176-185.
    16. Thiel, Andreas & Schleyer, Christian & Hinkel, Jochen & Schlüter, Maja & Hagedorn, Konrad & Bisaro, Sandy & Bobojonov, Ihtiyor & Hamidov, Ahmad, 2016. "Transferring Williamson's discriminating alignment to the analysis of environmental governance of social-ecological interdependence," Ecological Economics, Elsevier, vol. 128(C), pages 159-168.
    17. Ofei-Mensah, Albert & Bennett, Jeff, 2013. "Transaction costs of alternative greenhouse gas policies in the Australian transport energy sector," Ecological Economics, Elsevier, vol. 88(C), pages 214-221.
    18. Larson, Donald F. & Dinar, Ariel & Blankespoor, Brian, 2012. "Aligning climate change mitigation and agricultural policies in Eastern Europe and Central Asia," Policy Research Working Paper Series 6080, The World Bank.
    19. Kerr, Suzi & Lipper, Leslie & Pfaff, Alexander S.P. & Cavatassi, Romina & Davis, Benjamin & Hendy, Joanna & Sanchez, Arturo, 2004. "Will Buying Tropical Forest Carbon Benefit The Poor? Evidence from Costa Rica," ESA Working Papers 23807, Food and Agriculture Organization of the United Nations, Agricultural Development Economics Division (ESA).
    20. Garrick, Dustin & Whitten, Stuart M. & Coggan, Anthea, 2013. "Understanding the evolution and performance of water markets and allocation policy: A transaction costs analysis framework," Ecological Economics, Elsevier, vol. 88(C), pages 195-205.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecolec:v:88:y:2013:i:c:p:232-243. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ecolecon .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.