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The Time Value of Carbon and Carbon Storage: Clarifying the terms and the policy implications of the debate

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  • Marshall, Liz
  • Kelly, Alexia

Abstract

The question of whether there is any value to the temporary storage of carbon is fundamental to climate policy design across a number of arenas, including physical carbon discounting in greenhouse gas accounting, the relative value of temporary carbon offsets, and the value of other carbon mitigation efforts that are known to be impermanent, including deferred deforestation. Quantifying the value of temporary carbon storage depends on a number of assumptions about how the incremental impact (or social cost) of a given ton of carbon emissions is expected to change over time. In 2009, a U.S. government interagency working group was established and assigned the responsibility of calculating social cost of carbon estimates to be used in benefit/cost analysis of regulations impacting carbon dioxide emissions. Those estimates were released in March 2010. This working paper explores what those estimates imply about the value of temporary carbon storage, as well as the implications of those temporary storage values for several critical policy design questions relating to greenhouse gas accounting and biological offsets. This analysis suggests, for instance, that appropriate physical carbon discount rates for carbon accounting may be even lower than the social discount rates often used in intergenerational analyses. In the context of agricultural offsets, the social cost of carbon estimates are used to establish a definition of equivalence between permanent and temporary offsets; equivalence ratios are derived that vary between ~2 and 30, depending on the discount rate used and the length of the temporary offset contract period.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 27326.

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Date of creation: Nov 2010
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Handle: RePEc:pra:mprapa:27326

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Keywords: temporary carbon storage; time value of carbon; temporary offsets; physical carbon discount rate;

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References

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  1. Marechal, Kevin & Hecq, Walter, 2006. "Temporary credits: A solution to the potential non-permanence of carbon sequestration in forests?," Ecological Economics, Elsevier, vol. 58(4), pages 699-716, July.
  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.
  3. Searchinger, Timothy & Heimlich, Ralph & Houghton, R. A. & Dong, Fengxia & Elobeid, Amani & Fabiosa, Jacinto F. & Tokgoz, Simla & Hayes, Dermot J. & Yu, Hun-Hsiang, 2008. "Use of U.S. Croplands for Biofuels Increases Greenhouse Gases Through Emissions from Land-Use Change," Staff General Research Papers 12881, Iowa State University, Department of Economics.
  4. Hope, Chris, 2008. "Discount rates, equity weights and the social cost of carbon," Energy Economics, Elsevier, vol. 30(3), pages 1011-1019, May.
  5. G. Cornelis van Kooten, 2008. "Biological Carbon Sequestration and Carbon Trading Re-visited," Working Papers 2008-04, University of Victoria, Department of Economics, Resource Economics and Policy Analysis Research Group.
  6. Fearnside, Philip M., 2002. "Time preference in global warming calculations: a proposal for a unified index," Ecological Economics, Elsevier, vol. 41(1), pages 21-31, April.
  7. Dutschke, Michael, 2001. "Permanence of CDM forests or non-permanence of land use related carbon credits?," HWWA Discussion Papers 134, Hamburg Institute of International Economics (HWWA).
  8. Anda, Jon & Golub, Alexander & Strukova, Elena, 2009. "Economics of climate change under uncertainty: Benefits of flexibility," Energy Policy, Elsevier, vol. 37(4), pages 1345-1355, April.
  9. Veronika Dornburg & Gregg Marland, 2008. "Temporary storage of carbon in the biosphere does have value for climate change mitigation: a response to the paper by Miko Kirschbaum," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 13(3), pages 211-217, March.
  10. Miko Kirschbaum, 2006. "Temporary Carbon Sequestration Cannot Prevent Climate Change," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 11(5), pages 1151-1164, September.
  11. G. Cornelis van Kooten & Alison Eagle & James Manley & Tara Smolak, 2004. "How Costly are Carbon Offsets? A Meta-Analysis of Forest Carbon Sinks," Working Papers 2004-01, University of Victoria, Department of Economics, Resource Economics and Policy Analysis Research Group.
  12. Philip Fearnside, 2008. "On the value of temporary carbon: a comment on Kirschbaum," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 13(3), pages 207-210, March.
  13. Hepburn, Cameron J. & Koundouri, Phoebe, 2007. "Recent advances in discounting: Implications for forest economics," Journal of Forest Economics, Elsevier, vol. 13(2-3), pages 169-189, August.
  14. Eric Marland & Kirk Stellar & Gregg Marland, 2010. "A distributed approach to accounting for carbon in wood products," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 15(1), pages 71-91, January.
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Cited by:
  1. Heather Klemick, 2012. "What is the Optimal Offsets Discount under a Second-Best Cap & Trade Policy?," NCEE Working Paper Series 201204, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Jul 2012.

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