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Abatement and Transaction Costs of Carbon-Sink Projects Involving Smallholders

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  • Oscar Cacho

    (University of New England)

  • Leslie Lipper

    (Food and Agriculture Organization)

Abstract

Agroforestry projects have the potential to help mitigate global warming by acting as sinks for greenhouse gasses. However, participation in carbon-sink projects may be constrained by high costs. This problem may be particularly severe for projects involving smallholders in developing countries. Of particular concern are the transaction costs incurred in developing projects, measuring, certifying and selling the carbon-sequestration services generated by such projects. This paper addresses these issues by analysing the implications of transaction and abatement costs in carbon-sequestration projects. A model of project participation is developed, which accounts for the conditions under which both buyers and sellers would be willing to engage in a carbon transaction that involves a long-term commitment. The model is used to identify critical project-design variables (minimum project size, farm price of carbon, minimum area of participating farms). A project feasibility frontier (PFF) is derived, which shows the minimum project size that is feasible for any given market price of carbon. The PFF is used to analyse how the transaction costs imposed by the Clean Development Mechanism of the Kyoto Protocol affect project feasibility.

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Bibliographic Info

Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2007.27.

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Date of creation: Mar 2007
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Handle: RePEc:fem:femwpa:2007.27

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Keywords: Agroforestry; Climate Policy; Carbon Sequestration Costs;

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References

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  1. 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.
  2. 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, 06.
  3. 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(05), pages 597-614, October.
  4. Antle, John M. & Valdivia, Roberto O., 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), March.
  5. Oscar J. Cacho & Graham R. Marshall & Mary Milne, 2003. "Smallholder Agroforestry Projects: Potential for carbon sequestration and poverty alleviation," Working Papers 03-06, Agricultural and Development Economics Division of the Food and Agriculture Organization of the United Nations (FAO - ESA).
  6. Karan Capoor & Philippe Ambrosi, . "State and Trends of the Carbon Market 2006," World Bank Other Operational Studies 13409, The World Bank.
  7. Otsuka, Keijiro & Place, Frank, 2001. "Land tenure and natural resource management," Food policy statements 34, International Food Policy Research Institute (IFPRI).
  8. Wise, Russell M. & Cacho, Oscar J., 2003. "Tree-crop interactions and their environmental and economic implications in the presence of carbon-sequestration payments," 2003 Conference (47th), February 12-14, 2003, Fremantle, Australia 58271, Australian Agricultural and Resource Economics Society.
  9. Leslie Lipper & Romina Cavatassi, 2003. "Land Use Change, Carbon Sequestration and Poverty Alleviation," Working Papers 03-13, Agricultural and Development Economics Division of the Food and Agriculture Organization of the United Nations (FAO - ESA).
  10. Krey, Matthias, 2004. "Transaction costs of CDM projects in India: An empirical survey," HWWA Reports 238, Hamburg Institute of International Economics (HWWA).
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Cited by:
  1. 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.
  2. Larson, Donald F. & Dinar, Ariel & Frisbie, J. Aapris, 2011. "Agriculture and the clean development mechanism," Policy Research Working Paper Series 5621, The World Bank.
  3. 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.
  4. World Agroforestry centre, 2010. "Pro-poor compensation and rewards for environmental services in the tropics: saving the commons in Asia, Africa and Latin America?," Working Papers b16863, World Agroforestry Centre, Library Department.
  5. Donaghy, Peter & Rolfe, John & Gowen, Rebecca & Bray, Steven & Madonna, Hoffman, 2010. "Assessing the economic impact of an emissions trading scheme on agroforestry in Australia’s northern grazing systems," 2010 Conference (54th), February 10-12, 2010, Adelaide, Australia 59069, Australian Agricultural and Resource Economics Society.
  6. Kingwell, Ross S. & Harris-Adams, Keely, 2009. "An analysis of the spatial and temporal patterns of greenhouse gas emissions by agriculture in Western Australia and the opportunities for agroforestry offsets," 2009 Conference (53rd), February 11-13, 2009, Cairns, Australia 48161, Australian Agricultural and Resource Economics Society.
  7. 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.

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