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Temporary sequestration credits : an instrument for carbon bears

Author

Listed:
  • Kenneth M. Chomitz
  • Franck Lecocq

Abstract

Temporary crediting of carbon storage is a proposed instrument that allows entities with emissions reductions obligations to defer some obligations for a fixed period of time. This instrument provides a means of guaranteeing the environmental integrity of a carbon sequestration project. But because the user of the temporary credit takes on the liability of renewing it, or replacing it with a permanent credit, the temporary credit must sell at a discount compared with a permanent credit. The authors show that this discount depends on the expected change in price of a permanent credit. Temporary credits have value only if restrictions on carbon emissions are not expected to tighten substantially. The intuition is illustrated by assessing the value of a hypothetical temporary sulfur dioxide sequestration credit using historical data on actual sulfur dioxide allowance prices.

Suggested Citation

  • Kenneth M. Chomitz & Franck Lecocq, 2003. "Temporary sequestration credits : an instrument for carbon bears," Policy Research Working Paper Series 3181, The World Bank.
  • Handle: RePEc:wbk:wbrwps:3181
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    References listed on IDEAS

    as
    1. Roger A. Sedjo & Gregg Marland, 2003. "Inter-trading permanent emissions credits and rented temporary carbon emissions offsets: some issues and alternatives," Climate Policy, Taylor & Francis Journals, vol. 3(4), pages 435-444, December.
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    Cited by:

    1. Sumeet Gulati & James Vercammen, 2005. "The Optimal Length of an Agricultural Carbon Contract," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 53(4), pages 359-373, December.
    2. Olschewski, Roland & Benitez, Pablo C., 2005. "Secondary forests as temporary carbon sinks? The economic impact of accounting methods on reforestation projects in the tropics," Ecological Economics, Elsevier, vol. 55(3), pages 380-394, November.
    3. Bellassen, Valentin & Gitz, Vincent, 2008. "Reducing Emissions from Deforestation and Degradation in Cameroon -- Assessing costs and benefits," Ecological Economics, Elsevier, vol. 68(1-2), pages 336-344, December.
    4. David Cooley & Christopher Galik & Thomas Holmes & Carolyn Kousky & Roger Cooke, 2012. "Managing dependencies in forest offset projects: toward a more complete evaluation of reversal risk," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 17(1), pages 17-24, January.
    5. Gulati, Sumeet & Vercammen, James, 2006. "Time inconsistent resource conservation contracts," Journal of Environmental Economics and Management, Elsevier, vol. 52(1), pages 454-468, July.
    6. Garcia-Barrios, Fernando & Bigsby, Hugh R. & Kerr, Geoffrey N., 2012. "Small forests owners and environmental sustainability in Guatemala: The potential of the Carbon Banking approach," 2012 Conference, August 31, 2012, Nelson, New Zealand 136045, New Zealand Agricultural and Resource Economics Society.
    7. Andrew Coleman, 2011. "Financial Contracts and the Management of Carbon Emissions in Small Scale Plantation Forests," Working Papers 11_04, Motu Economic and Public Policy Research.

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