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Transaction costs for carbon sequestration projects in the tropical forest sector

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  • Timothy Pearson
  • Sandra Brown
  • Brent Sohngen
  • Jennifer Henman
  • Sara Ohrel

Abstract

There is general consensus that carbon (C) sequestration projects in forests are a relatively low cost option for mitigating climate change, but most studies on the subject have assumed that transaction costs are negligible. The objectives of the study were to examine transaction costs for forest C sequestration projects and to determine the significance of the costs based on economic analyses. Here we examine four case studies of active C sequestration projects being implemented in tropical countries and developed for the C market. The results from the case studies were then used with a dynamic forest and land use economic model to investigate how transaction costs affect the efficiency and cost of forest C projects globally. In the case studies transaction costs ranged from 0.38 to 27 million US dollars ($0.09 to $7.71/t CO 2 ) or 0.3 to 270 % of anticipated income depending principally on the price of C and project size. The three largest cost categories were insurance (under the voluntary market; 41–89 % of total costs), monitoring (3–42 %) and regulatory approval (8–50 %). The global analysis indicated that most existing estimates of marginal costs of C sequestration are underestimated by up to 30 % because transaction costs were not included. Copyright The Author(s) 2014

Suggested Citation

  • Timothy Pearson & Sandra Brown & Brent Sohngen & Jennifer Henman & Sara Ohrel, 2014. "Transaction costs for carbon sequestration projects in the tropical forest sector," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 19(8), pages 1209-1222, December.
    • Handle: RePEc:spr:masfgc:v:19:y:2014:i:8:p:1209-1222
    DOI: 10.1007/s11027-013-9469-8
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    References listed on IDEAS

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    1. 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.
    2. Brent Sohngen & Robert Mendelsohn, 2003. "An Optimal Control Model of Forest Carbon Sequestration," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(2), pages 448-457.
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    4. 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).
    5. 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).
    6. 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.
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    Cited by:

    1. Mingjun Sun & Hongjun Peng & Shuai Wang, 2018. "Cost-Sharing Mechanisms for A Wood Forest Product Supply Chain under Carbon Cap-and-Trade," Sustainability, MDPI, vol. 10(12), pages 1-19, November.
    2. Bruce A McCarl & Thomas W Hertel, 2018. "Climate Change as an Agricultural Economics Research Topic," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 40(1), pages 60-78.
    3. Ortega-Pacheco, Daniel V. & Keeler, Andrew G. & Jiang, Shiguo, 2019. "Climate change mitigation policy in Ecuador: Effects of land-use competition and transaction costs," Land Use Policy, Elsevier, vol. 81(C), pages 302-310.
    4. Attila Bai & József Popp & Károly Pető & Irén Szőke & Mónika Harangi-Rákos & Zoltán Gabnai, 2017. "The Significance of Forests and Algae in CO 2 Balance: A Hungarian Case Study," Sustainability, MDPI, vol. 9(5), pages 1-24, May.
    5. Nosrati, Kazem & Jalal, Saeede, 2016. "The Effect of Forest Road Construction on Soil Organic Carbon Stock in Mountainous Catchment in Northern Iran," International Journal of Agricultural Management and Development (IJAMAD), Iranian Association of Agricultural Economics, vol. 6(2), June.

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