Interactions of Reduced Deforestation and the Carbon Market: The Role of Market Regulations and Future Commitments
AbstractReducing emissions from deforestation and degradation (REDD) has been proposed as a potentially inexpensive and plentiful source of emission abatement to supplement other longterm climate policies. However, critics doubt that REDD credits are environmentally equivalent to domestic emission reductions, and suggest an excess supply may disrupt carbon markets. In this context, we investigate the economic implications of emissions market regulations and future emissions reduction commitments, as well as uncertainties in REDD credit supply. Numerical simulations with a multi-country equilibrium model of the global emissions market show unrestricted exchange of REDD units reduces the international carbon price by half and cuts Annex I compliance costs by roughly one third. Restricting supply or demand of REDD credits reduces price impacts, but comes at the cost of economic efficiency. Alternatively, Annex I reduction commitments could be increased by almost two thirds at constant carbon prices. While REDD provides large economic benefits for tropical rainforest regions, any REDD policy scenario also reduces wealth transfers to traditional CDM host countries through increased competition on the supply-side of the carbon market. --
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Bibliographic InfoPaper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 09-001.
Date of creation: 2009
Date of revision:
Climate Change; Kyoto Protocol; Emissions Trading; Deforestation; REDD;
Find related papers by JEL classification:
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
- C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
- Q23 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Forestry
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-04-13 (All new papers)
- NEP-CMP-2009-04-13 (Computational Economics)
- NEP-ENE-2009-04-13 (Energy Economics)
- NEP-ENV-2009-04-13 (Environmental Economics)
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- Macauley, Molly K. & Shih, Jhih-Shyang, 2010. "Assessing Investment in Future Landsat Instruments: The Example of Forest Carbon Offsets," Discussion Papers dp-10-14, Resources For the Future.
- Wilfried Rickels & Katrin Rehdanz & Andreas Oschlies, 2009. "Economics prospects of ocean iron fertilization in an international carbon market," Kiel Working Papers 1573, Kiel Institute for the World Economy.
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