Efficient Contracts for Carbon Credits from Reforestation Projects
AbstractThis 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 InfoPaper provided by Motu Economic and Public Policy Research in its series Working Papers with number 03_12.
Length: 18 pages
Date of creation: Jul 2003
Date of revision:
Other versions of this item:
- Suzi Kerr, 2004. "Efficient Contracts For Carbon Credits From Reforestation Projects," Others 0401003, EconWPA.
- Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
- Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
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