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Financial Contracts and the Management of Carbon Emissions in Small Scale Plantation Forests

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  • Andrew Coleman

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    (Motu Economic and Public Policy Research and the University of Waikato)

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    Abstract

    Under the New Zealand Emissions Trading Scheme, foresters can obtain carbon units as their forests sequester carbon. If they sell these units as they are earned, the units must be repurchased when the forest is harvested, exposing foresters to price risk. This paper examines the way forward markets, futures markets, and carbon lending markets could be used to manage this risk. It argues that carbon lending markets are likely to be the most convenient form for foresters, as they allow the total returns from forestry investments to be increased with minimal risk. The carbon units can be lent to industrial firms or developers of new forests to minimise the carbon risk they face if they make carbon reducing investments.

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    File URL: http://motu-www.motu.org.nz/wpapers/11_04.pdf
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    Bibliographic Info

    Paper provided by Motu Economic and Public Policy Research in its series Working Papers with number 11_04.

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    Length: 25 pages
    Date of creation: May 2011
    Date of revision:
    Handle: RePEc:mtu:wpaper:11_04

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    Keywords: carbon banking; carbon forward markets; forest sequestation;

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    1. Eric Karpas & Suzi Kerr, 2011. "Preliminary Evidence on Responses to the New Zealand Forestry Emissions Trading Scheme," Working Papers 11_09, Motu Economic and Public Policy Research.
    2. Kenneth M. Chomitz & Franck Lecocq, 2003. "Temporary sequestration credits : an instrument for carbon bears," Policy Research Working Paper Series 3181, The World Bank.
    3. Kling, Catherine L. & Rubin, Jonathan, 1997. "Bankable Permits for the Control of Environmental Pollution," Staff General Research Papers 1479, Iowa State University, Department of Economics.
    4. Williams,Jeffrey C., 1990. "The Economic Function of Futures Markets," Cambridge Books, Cambridge University Press, number 9780521389341, October.
    5. Rubin, Jonathan D., 1996. "A Model of Intertemporal Emission Trading, Banking, and Borrowing," Journal of Environmental Economics and Management, Elsevier, vol. 31(3), pages 269-286, November.
    6. Paul Leiby & Jonathan Rubin, 2001. "Intertemporal Permit Trading for the Control of Greenhouse Gas Emissions," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 19(3), pages 229-256, July.
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