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Can Permanence Be Insured? Consideration of Some Technical and Practical Issues of Insuring Carbon Credits from Afforestation and Reforestation

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  • Wong, Jenny L.P.
  • Dutschke, Michael

Abstract

Greenhouse gas (GHG) removals by afforestation and reforestation project activities under the Kyoto Protocol's Clean Development Mechanism (CDM) are vulnerable to a variety of risks and uncertainties, resulting in the partial or total reversal of such removals. Hence, GHG removals from these sink activities are considered to be of temporary nature and non-permanent. Specific modalities related to non-permanence will need to be developed in order to include afforestation and reforestation project activities under the CDM and for a decision on modalities to be reached at COP 9 in December 2003. Two main options on how to address non-permanence have been proposed, these being temporary credits and insurance of emission reduction credits. This paper discusses the practicality and potential difficulties of the insurance approach for addressing non-permanence of sequestered carbon stocks and the validity of CERs generated. The insurability of CERs or non-permanence is considered against common insurability criteria. The marketability of the insurance product and several technical questions in relation to developing this new market instrument are asked. In addition, inequities likely to arise if the approach is adopted as a mandatory modality are discussed.

Suggested Citation

  • Wong, Jenny L.P. & Dutschke, Michael, 2003. "Can Permanence Be Insured? Consideration of Some Technical and Practical Issues of Insuring Carbon Credits from Afforestation and Reforestation," Discussion Paper Series 26270, Hamburg Institute of International Economics.
    • Handle: RePEc:ags:hwwadp:26270
    DOI: 10.22004/ag.econ.26270
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    References listed on IDEAS

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    1. Susan Subak, 2003. "Replacing carbon lost from forests: an assessment of insurance, reserves, and expiring credits," Climate Policy, Taylor & Francis Journals, vol. 3(2), pages 107-122, June.
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    1. Veronesi, Marcella & Reutemann, Tim & Zabel, Astrid & Engel, Stefanie, 2015. "Designing REDD+ schemes when forest users are not forest landowners: Evidence from a survey-based experiment in Kenya," Ecological Economics, Elsevier, vol. 116(C), pages 46-57.
    2. Dutschke, Michael & Schlamadinger, Bernhard & Wong, Jenny L.P. & Rumberg, Michael, 2004. "Value and Risks of Expiring Carbon Credits from CDM Afforestation and Reforestation," Discussion Paper Series 26347, Hamburg Institute of International Economics.
    3. Fortmann, Lea & Cordero-Salas, Paula & Sohngen, Brent & Brian, Roe, 2016. "Incentive Contracts for Environmental Services and their Potential in REDD," International Review of Environmental and Resource Economics, now publishers, vol. 9(3-4), pages 363-409, September.
    4. Stefanie Engel & Charles Palmer & Luca Taschini & Simon Urech, 2012. "Cost-effective payments for reducing emissions from deforestation under uncertainty," GRI Working Papers 72, Grantham Research Institute on Climate Change and the Environment.
    5. Dutschke, Michael & Schlamadinger, Bernhard & Wong-Leung, Jenny P. & Rumberg, Michael, 2004. "Value and Risks of Expiring Carbon Credits from CDM Afforestation and Reforestation," HWWA Discussion Papers 290, Hamburg Institute of International Economics (HWWA).

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