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Efficient Contracts for Carbon Credits from Reforestation Projects

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  • Suzi Kerr

    ()
    (Motu Economic and Social Policy Research)

Abstract

This paper tackles the complex issue of how buyers and sellers within a domestic carbon credit system designed to include regenerating indigenous forest would optimally design contracts for trades of the new good, "carbon sink credits". The paper begins by briefly defining the constraints that sink projects must meet. This implicitly shows the freedom we have in designing contracts. In the context of a simple numerical example I discuss the constraints that the market puts on contracts. In particular I consider the interests of the buyers and sellers, and how they can maximise and share gains through contract design. I outline the sources of risk and discuss who has advantages in dealing with these risks. The best contract designs impose the risk on those most able to address or absorb it. I illustrate the potential gains from sink contracts with a range of conditions and contracts.

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Bibliographic Info

Paper provided by Motu Economic and Public Policy Research in its series Working Papers with number 03_12.

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Length: 18 pages
Date of creation: Jul 2003
Date of revision:
Handle: RePEc:mtu:wpaper:03_12

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References

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  1. Toman, Michael & Kerr, Suzi & Sedjo, Roger & Birdsey, Richard & Kauppi, Pekka & Noble, Ian & Brown, Sandra & Krankina, Olga & Moura-Costa, Pedro, 2001. "Can Carbon Sinks be Operational? An RFF Workshop Summary," Discussion Papers dp-01-26, Resources For the Future.
  2. Philip Fearnside & Daniel Lashof & Pedro Moura-Costa, 2000. "Accounting for time in Mitigating Global Warming through land-use change and forestry," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 5(3), pages 239-270, September.
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Cited by:
  1. Suzi Kerr & Joanna Hendy & Shuguang Liu & Alexander S. P. Pfaff, 2004. "Tropical Forest Protection, Uncertainty, and the Environmental Integrity of Carbon Mitigation Policies," Working Papers 04_03, Motu Economic and Public Policy Research.
  2. David C. Maré & Michelle Poland, 2005. "Defining Geographic Communities," Working Papers 05_09, Motu Economic and Public Policy Research.
  3. Grimes, Arthur, 2005. "Regional and industry cycles in Australasia: Implications for a common currency," Journal of Asian Economics, Elsevier, vol. 16(3), pages 380-397, June.
  4. Arthur Grimes, 2005. "Intra & Inter-Regional Industry Shocks: A New Metric with an Application to Australasian Currency Union," Macroeconomics 0509019, EconWPA.
  5. David C Maré, 2005. "Indirect Effects of Active Labour Market Policies," HEW 0509004, EconWPA.
  6. Suzi Kerr & Emma Brunton & Ralph Chapman, 2004. "Policy to Encourage Carbon Sequestration in Plantation Forests," Working Papers 04_05, Motu Economic and Public Policy Research.

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