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Abatement and Transaction Costs of Carbon-Sink Projects Involving Smallholders

  • Oscar Cacho

    (University of New England)

  • Leslie Lipper

    (Food and Agriculture Organization)

Agroforestry projects have the potential to help mitigate global warming by acting as sinks for greenhouse gasses. However, participation in carbon-sink projects may be constrained by high costs. This problem may be particularly severe for projects involving smallholders in developing countries. Of particular concern are the transaction costs incurred in developing projects, measuring, certifying and selling the carbon-sequestration services generated by such projects. This paper addresses these issues by analysing the implications of transaction and abatement costs in carbon-sequestration projects. A model of project participation is developed, which accounts for the conditions under which both buyers and sellers would be willing to engage in a carbon transaction that involves a long-term commitment. The model is used to identify critical project-design variables (minimum project size, farm price of carbon, minimum area of participating farms). A project feasibility frontier (PFF) is derived, which shows the minimum project size that is feasible for any given market price of carbon. The PFF is used to analyse how the transaction costs imposed by the Clean Development Mechanism of the Kyoto Protocol affect project feasibility.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2007.27.

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Date of creation: Mar 2007
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Handle: RePEc:fem:femwpa:2007.27
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  1. Leslie Lipper & Romina Cavatassi, 2003. "Land Use Change, Carbon Sequestration and Poverty Alleviation," Working Papers 03-13, Agricultural and Development Economics Division of the Food and Agriculture Organization of the United Nations (FAO - ESA).
  2. Cacho, Oscar J. & Hean, Robyn L. & Wise, Russell M., 2002. "Carbon-Accounting Methods and Reforestation Incentives," 2002 Conference (46th), February 13-15, 2002, Canberra 125067, Australian Agricultural and Resource Economics Society.
  3. Krey, Matthias, 2004. "Transaction costs of CDM projects in India: An empirical survey," HWWA Reports 238, Hamburg Institute of International Economics (HWWA).
  4. Antle, John M. & Valdivia, Roberto O., 2006. "Modelling the supply of ecosystem services from agriculture: a minimum-data approach," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 50(1), March.
  5. Cacho, Oscar J. & Marshall, Graham R. & Milne, Mary, 2005. "Transaction and abatement costs of carbon-sink projects in developing countries," Environment and Development Economics, Cambridge University Press, vol. 10(05), pages 597-614, October.
  6. Oscar J. Cacho & Graham R. Marshall & Mary Milne, 2003. "Smallholder Agroforestry Projects: Potential for carbon sequestration and poverty alleviation," Working Papers 03-06, Agricultural and Development Economics Division of the Food and Agriculture Organization of the United Nations (FAO - ESA).
  7. Oscar Cacho & Russell Wise & Kenneth MacDicken, 2004. "Carbon Monitoring Costs and their Effect on Incentives to Sequester Carbon through Forestry," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 9(3), pages 273-293, July.
  8. Otsuka, Keijiro & Place, Frank, 2001. "Land tenure and natural resource management," Food policy statements 34, International Food Policy Research Institute (IFPRI).
  9. repec:wbk:wboper:13409 is not listed on IDEAS
  10. Wise, Russell M. & Cacho, Oscar J., 2003. "Tree-crop interactions and their environmental and economic implications in the presence of carbon-sequestration payments," 2003 Conference (47th), February 12-14, 2003, Fremantle, Australia 58271, Australian Agricultural and Resource Economics Society.
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