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Transaction costs of carbon offset projects: A comparative study

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  • Cacho, Oscar J.
  • Lipper, Leslie
  • Moss, Jonathan

Abstract

The land-use change and forestry sector can be a cost-effective contributor to climate mitigation in at least three ways: providing carbon offsets through carbon sequestration in biomass and soils, reducing emissions of methane and other greenhouse gases, and producing biofuels that replace fossil fuels. The presence of carbon markets should help encourage these activities; however, most carbon trades to date have occurred in the energy sector. A major obstacle to carbon trades from land-use systems is the presence of high transaction costs of converting a carbon offset into a tradable commodity, so the prevailing market carbon prices may not provide enough incentive for adoption. This paper presents a model of the exchange of carbon offsets between a project developer and a group of landholders. The model is solved to derive project feasibility frontiers that show the minimum number of contracts necessary to make a project feasible at any given carbon price. The model is applied to two case studies (smallholder agroforestry in Indonesia and partial reforestation of family farms in Australia) under two types of contract (purchase of carbon flows and rental of carbon stocks). The paper concludes by identifying possible strategies to reduce transaction costs while maintaining project integrity.

Suggested Citation

  • Cacho, Oscar J. & Lipper, Leslie & Moss, Jonathan, 2013. "Transaction costs of carbon offset projects: A comparative study," Ecological Economics, Elsevier, vol. 88(C), pages 232-243.
  • Handle: RePEc:eee:ecolec:v:88:y:2013:i:c:p:232-243
    DOI: 10.1016/j.ecolecon.2012.12.008
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    References listed on IDEAS

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    1. repec:eee:ecolec:v:139:y:2017:i:c:p:91-101 is not listed on IDEAS
    2. repec:eee:forpol:v:90:y:2018:i:c:p:115-127 is not listed on IDEAS
    3. Mundaca, Luis & Mansoz, Mathilde & Neij, Lena & Timilsina, Govinda R, 2013. "Transaction costs of low-carbon technologies and policies : the diverging literature," Policy Research Working Paper Series 6565, The World Bank.
    4. De Cara, Stéphane & Henry, Loïc & Jayet, Pierre-Alain, 2018. "Optimal coverage of an emission tax in the presence of monitoring, reporting, and verification costs," Journal of Environmental Economics and Management, Elsevier, vol. 89(C), pages 71-93.
    5. Gren, Ing-Marie & Zeleke, Abenezer Aklilu, 2016. "Policy design for forest carbon sequestration: A review of the literature," Forest Policy and Economics, Elsevier, vol. 70(C), pages 128-136.
    6. McCann, Laura, 2013. "Transaction costs and environmental policy design," Ecological Economics, Elsevier, vol. 88(C), pages 253-262.
    7. Hofstad, Ole & Araya, Meley Mekonen, 2015. "Optimal wood harvest in miombo woodland considering REDD+payments — A case study at Kitulangalo Forest Reserve, Tanzania," Forest Policy and Economics, Elsevier, vol. 51(C), pages 9-16.
    8. repec:eee:forpol:v:80:y:2017:i:c:p:141-149 is not listed on IDEAS
    9. Cacho, Oscar J. & Milne, Sarah & Gonzalez, Ricardo & Tacconi, Luca, 2014. "Benefits and costs of deforestation by smallholders: Implications for forest conservation and climate policy," Ecological Economics, Elsevier, vol. 107(C), pages 321-332.
    10. Moss, Jonathan & Cacho, Oscar J., 2014. "Farm-scale analysis of the potential uptake of carbon offset activities," 2014 Conference, August 28-29, 2014, Nelson, New Zealand 187402, New Zealand Agricultural and Resource Economics Society.
    11. repec:spr:masfgc:v:22:y:2017:i:8:d:10.1007_s11027-016-9720-1 is not listed on IDEAS
    12. repec:eee:ecoser:v:15:y:2015:i:c:p:84-92 is not listed on IDEAS
    13. repec:eee:ecolec:v:156:y:2019:i:c:p:1-11 is not listed on IDEAS
    14. Phan, Thu-Ha Dang & Brouwer, Roy & Davidson, Marc David, 2017. "A Global Survey and Review of the Determinants of Transaction Costs of Forestry Carbon Projects," Ecological Economics, Elsevier, vol. 133(C), pages 1-10.

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