Cost-effective payments for reducing emissions from deforestation under uncertainty
The paper analyses the implications of landownersï¿½ 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 ï¿½permanence criterionï¿½) 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|
|Contact details of provider:|| Postal: Houghton Street, London WC2A 2AE|
Phone: +44 (020) 7405 7686
Web page: http://www.lse.ac.uk/grantham.
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.:
- 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.
- 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.
- Robert McDonald & Daniel Siegel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, Oxford University Press, vol. 101(4), pages 707-727.
- 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.
- 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.
- 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.
- 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.
- Pablo Benítez & Timo Kuosmanen & Roland Olschewski & G. Cornelis van Kooten, 2005.
"Conservation Payments under Risk: A Stochastic Dominance Approach,"
2005-14, University of Victoria, Department of Economics, Resource Economics and Policy Analysis Research Group.
- Pablo C. Benítez & 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- Graeme Guthrie & Dinesh Kumareswaran, 2009. "Carbon Subsidies, Taxes and Optimal Forest Management," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 43(2), pages 275-293, June.
- 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.
- Dixit, Avinash K, 1989.
"Entry and Exit Decisions under Uncertainty,"
Journal of Political Economy,
University of Chicago Press, vol. 97(3), pages 620-638, June.
- 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.
- Pindyck, Robert, 1989.
"Irreversibility, uncertainty, and investment,"
Policy Research Working Paper Series
294, The World Bank.
- Robert S. Pindyck, 1990. "Irreversibility, Uncertainty, and Investment," NBER Working Papers 3307, National Bureau of Economic Research, Inc.
- Pindyck, Robert S., 1990. "Irreversibility, uncertainty, and investment," Working papers 3137-90., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- 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:lsg:lsgwps:wp72. 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: (The GRI Administration)
If references are entirely missing, you can add them using this form.