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Accounting methods for carbon credits: impacts on the minimum area of forestry projects under the Clean Development Mechanism

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  • Bruno Locatelli
  • Lucio Pedroni

Abstract

The Ninth Conference of the Parties (COP-9) decided to adopt an accounting system based on expiring carbon credits to address the problem of non-permanent carbon storage in forests established under the Clean Development Mechanism (CDM). This article reviews and discusses carbon accounting methods that were under consideration before COP-9 and presents a model which calculates the minimum area that forest plantation projects should reach to be able to compensate CDM transaction costs with the revenues from carbon credits. The model compares different accounting methods under various sets of parameters on project management, transaction costs, and carbon prices. Model results show that under current carbon price and average transaction costs, projects with an area of less than 500 ha are excluded from the CDM, whatever accounting method is used. Temporary crediting appears to be the most favorable approach to account for non-permanent carbon removal in forests and also for the feasibility of smaller projects. However, lower prices for credits with finite lifetimes may prevent the establishment of CDM forestry projects. Also, plantation projects with low risk of unexpected carbon loss and sufficient capacity for insuring or buffering the risk of carbon re-emission would benefit from equivalence-adjusted average carbon storage accounting rather than from temporary crediting.

Suggested Citation

  • Bruno Locatelli & Lucio Pedroni, 2004. "Accounting methods for carbon credits: impacts on the minimum area of forestry projects under the Clean Development Mechanism," Climate Policy, Taylor & Francis Journals, vol. 4(2), pages 193-204, June.
    • Handle: RePEc:taf:tcpoxx:v:4:y:2004:i:2:p:193-204
    DOI: 10.1080/14693062.2004.9685520
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    References listed on IDEAS

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    1. Dutschke, Michael, 2001. "Permanence of CDM Forests or Non-permanence of Land Use Related Carbon Credits?," Discussion Paper Series 26399, Hamburg Institute of International Economics.
    2. Chomitz, Kenneth M., 2000. "Evaluating carbon offsets from forestry and energy projects," Policy Research Working Paper Series 2357, The World Bank.
    3. 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).
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    Cited by:

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    2. Benitez, Pablo C. & Obersteiner, Michael, 2006. "Site identification for carbon sequestration in Latin America: A grid-based economic approach," Forest Policy and Economics, Elsevier, vol. 8(6), pages 636-651, August.
    3. Benitez, Pablo C. & van Kooten, G. Cornelis, 2005. "Carbon Sinks and Reservoirs: The Value of Permanence and Role of Discounting," Working Papers 37018, University of Victoria, Resource Economics and Policy.
    4. Julien Demenois & Alexia Dayet & Alain Karsenty, 2022. "Surviving the jungle of soil organic carbon certification standards: an analytic and critical review," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 27(1), pages 1-17, January.
    5. Felardo, Jeff & Lippitt, Christopher D., 2016. "Spatial forest valuation: The role of location in determining attitudes toward payment for ecosystem services policies," Forest Policy and Economics, Elsevier, vol. 62(C), pages 158-167.
    6. Myers, Erin C., 2007. "Policies to Reduce Emissions from Deforestation and Degradation (REDD) in Tropical Forests: An Examination of the Issues Facing the Incorporation of REDD into Market-Based Climate Policies," RFF Working Paper Series dp-07-50, Resources for the Future.

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