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Biological Carbon Sinks: Transaction Costs and Governance

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  • van Kooten, G. Cornelis

Abstract

Activities that remove CO2 from the atmosphere and store it in forest and agricultural ecosystems can generate CO2-offset credits that can thus substitute for CO2 emissions reduction. Are biological CO2-uptake activities competitive with CO2 offsets from reduced fossil fuel use? In this paper, it is argued that transaction costs impose a formidable obstacle to direct substitution of carbon uptake offsets for emissions reduction in trading schemes, and that separate caps should be set for emissions reduction and sink-related activities. While a tax/subsidy scheme is preferred to emissions trading for incorporating biologically-generated CO2 offsets, contracts that focus on the activity and not the amount of carbon sequestered are most likely to lead to the lowest transaction costs.

Suggested Citation

  • van Kooten, G. Cornelis, 2008. "Biological Carbon Sinks: Transaction Costs and Governance," Working Papers 45505, University of Victoria, Resource Economics and Policy.
    • Handle: RePEc:ags:uvicwp:45505
    DOI: 10.22004/ag.econ.45505
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    References listed on IDEAS

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    1. Martin L. Weitzman, 1974. "Prices vs. Quantities," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(4), pages 477-491.
    2. van Kooten, G. Cornelis & Eagle, Alison J. & Manley, James G. & Smolak, Tara M., 2004. "How Costly Are Carbon Offsets? A Meta-Analysis Of Carbon Forest Sinks," Working Papers 18166, University of Victoria, Resource Economics and Policy.
    3. 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.
    4. van Kooten, G. Cornelis & Laaksonen-Craig, Susanna & Wang, Yichuan, 2007. "Costs of Creating Carbon Offset Credits via Forestry Activities: A Meta-Regression Analysis," Working Papers 37039, University of Victoria, Resource Economics and Policy.
    5. van Kooten, G. Cornelis & Sohngen, Brent, 2007. "Economics of Forest Ecosystem Carbon Sinks: A Review," International Review of Environmental and Resource Economics, now publishers, vol. 1(3), pages 237-269, September.
    6. Pizer, William, 1997. "Prices vs. Quantities Revisited: The Case of Climate Change," RFF Working Paper Series dp-98-02, Resources for the Future.
    7. G. Cornelis van Kooten & Clark S. Binkley & Gregg Delcourt, 1995. "Effect of Carbon Taxes and Subsidies on Optimal Forest Rotation Age and Supply of Carbon Services," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 77(2), pages 365-374.
    8. 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.
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    Cited by:

    1. Wang, Sen & Bogle, Tim & van Kooten, G. Cornelis, 2012. "Forestry and the New Institutional Economics," Working Papers 130818, University of Victoria, Resource Economics and Policy.
    2. Fortmann, Lea & Cordero-Salas, Paula & Sohngen, Brent & Brian, Roe, 2016. "Incentive Contracts for Environmental Services and their Potential in REDD," International Review of Environmental and Resource Economics, now publishers, vol. 9(3-4), pages 363-409, September.

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    More about this item

    Keywords

    Environmental Economics and Policy; Land Economics/Use;

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q23 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Forestry
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

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