Cost-effective payments for reducing emissions from deforestation under uncertainty
The paper analyses the implications of landowners’ option values in land allocation and derives policy recommendations for payments for Reducing Emissions from Deforestation and Forest Degradation (REDD). Given that REDD will not represent a permanent change in the cumulative flux of carbon dioxide to the atmosphere, payment scheme design is motivated by the need to secure forest carbon sinks over time (the ‘permanence criterion’) while remaining relatively cost-effective. Alternative payment schemes, combining fixed and variable components, are considered in a framework with two competing land uses, forest and agriculture. Cost-effectiveness depends on the dependency structure between the returns from the indexed component of the payment and the returns from the alternative land use, the relative volatility level of the underlying returns, and the relative combination of fixed and variable payments. After developing the general model, it is is applied to REDD policy scenarios in Parana State, Brazil.
|Date of creation:||Feb 2012|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +44 (020) 7405 7686
Web page: http://www.lse.ac.uk/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lecocq, Franck & Chomitz, Kenneth, 2001. "Optimal use of carbon sequestration in a global climate change strategy : is there a wooden bridge to a clean energy future ?," Policy Research Working Paper Series 2635, The World Bank.
- Ian A. MacKenzie & Markus Ohndorf & Charles Palmer, 2010.
"Enforcement-proof contracts with moral hazard in precaution: ensuring ‘permanence’ in carbon sequestration,"
LSE Research Online Documents on Economics
30846, London School of Economics and Political Science, LSE Library.
- Ian A. MacKenzie & Markus Ohndorf & Charles Palmer, 2012. "Enforcement-proof contracts with moral hazard in precaution: ensuring 'permanence' in carbon sequestration," Oxford Economic Papers, Oxford University Press, vol. 64(2), pages 350-374, April.
- Palmer, Charles, 2011. "Property rights and liability for deforestation under REDD+: Implications for 'permanence' in policy design," Ecological Economics, Elsevier, vol. 70(4), pages 571-576, February.
- Jasmina Behan & Kieran McQuinn & Maurice J. Roche, 2006. "Rural Land Use: Traditional Agriculture or Forestry?," Land Economics, University of Wisconsin Press, vol. 82(1), pages 112-123.
- Pindyck, Robert S., 1990.
"Irreversibility, uncertainty, and investment,"
3137-90., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Dixit, Avinash K, 1989.
"Entry and Exit Decisions under Uncertainty,"
Journal of Political Economy,
University of Chicago Press, vol. 97(3), pages 620-38, June.
- Pablo C. Ben�tez & Timo Kuosmanen & Roland Olschewski & G. Cornelis van Kooten, 2006.
"Conservation Payments under Risk: A Stochastic Dominance Approach,"
American Journal of Agricultural Economics,
Agricultural and Applied Economics Association, vol. 88(1), pages 1-15.
- Pablo Benítez & Timo Kuosmanen & Roland Olschewski & G. Cornelis van Kooten, 2004. "Conservation Payments under Risk: A Stochastic Dominance Approach," Working Papers 2004-05, University of Victoria, Department of Economics, Resource Economics and Policy Analysis Research Group.
- Pablo Benítez & Timo Kuosmanen & Roland Olschewski & G. Cornelis van Kooten, 2005. "Conservation Payments under Risk: A Stochastic Dominance Approach," Working Papers 2005-14, University of Victoria, Department of Economics, Resource Economics and Policy Analysis Research Group.
- Dangl, Thomas & Wirl, Franz, 2004. "Investment under uncertainty: calculating the value function when the Bellman equation cannot be solved analytically," Journal of Economic Dynamics and Control, Elsevier, vol. 28(7), pages 1437-1460, April.
- Engel, Stefanie & Pagiola, Stefano & Wunder, Sven, 2008. "Designing payments for environmental services in theory and practice: An overview of the issues," Ecological Economics, Elsevier, vol. 65(4), pages 663-674, May.
- G. Cornelis van Kooten & Robert A. Schipper, 2002. "Forest Conservation in Costa Rica when Nonuse Benefits are Uncertain but Rising," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(1), pages 150-160.
- Isik, Murat & Yang, Wanhong, 2004. "An Analysis of the Effects of Uncertainty and Irreversibility on Farmer Participation in the Conservation Reserve Program," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 29(02), August.
- Muller, Jeffrey & Albers, Heidi J., 2004. "Enforcement, payments, and development projects near protected areas: how the market setting determines what works where," Resource and Energy Economics, Elsevier, vol. 26(2), pages 185-204, June.
- McDonald, Robert & Siegel, Daniel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 707-27, November.
- Graeme Guthrie & Dinesh Kumareswaran, 2009. "Carbon Subsidies, Taxes and Optimal Forest Management," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 43(2), pages 275-293, June.
- Groom, Ben & Palmer, Charles, 2010. "Cost-effective provision of environmental services: the role of relaxing market constraints," Environment and Development Economics, Cambridge University Press, vol. 15(02), pages 219-240, April.
- Ian A. MacKenzie & Markus Ohndorf & Charles Palmer, 2010. "Enforcement-proof contracts with moral hazard in precaution: ensuring ï¿½permanenceï¿½ in carbon sequestration," GRI Working Papers 27, Grantham Research Institute on Climate Change and the Environment.
- Emily Wiemers & Jasmina Behan, 2004. "Farm Forestry Investment in Ireland Under Uncertainty," The Economic and Social Review, Economic and Social Studies, vol. 35(3), pages 305-320.
- Chomitz, Kenneth M. & Thomas, Timothy S., 2001. "Geographic patterns of land use and land intensity in the Brazilian Amazon," Policy Research Working Paper Series 2687, The World Bank.
- Schatzki, Todd, 2003. "Options, uncertainty and sunk costs:: an empirical analysis of land use change," Journal of Environmental Economics and Management, Elsevier, vol. 46(1), pages 86-105, July.
When requesting a correction, please mention this item's handle: RePEc:ehl:lserod:44837. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (LSERO Manager)
If references are entirely missing, you can add them using this form.