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Efficient Contracts For Carbon Credits From Reforestation Projects

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  • Suzi Kerr

Abstract

This paper tackles the complex issue of how buyers and sellers within a domestic carbon credit system designed to include regenerating indigenous forest would optimally design contracts for trades of the new good, “carbon sink credits”. The paper begins by briefly defining the constraints that sink projects must meet. This implicitly shows the freedom we have in designing contracts. In the context of a simple numerical example I discuss the constraints that the market puts on contracts. In particular I consider the interests of the buyers and sellers, and how they can maximise and share gains through contract design. I outline the sources of risk and discuss who has advantages in dealing with these risks. The best contract designs impose the risk on those most able to address or absorb it. I illustrate the potential gains from sink contracts with a range of conditions and contracts.

Suggested Citation

  • Suzi Kerr, 2004. "Efficient Contracts For Carbon Credits From Reforestation Projects," Others 0401003, EconWPA.
    • Handle: RePEc:wpa:wuwpot:0401003
    Note: Type of Document - pdf; prepared on Word 2000; to print on PC;
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    File URL: http://econwpa.repec.org/eps/othr/papers/0401/0401003.pdf
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    References listed on IDEAS

    as
    1. Toman, Michael & Kerr, Suzi & Sedjo, Roger & Birdsey, Richard & Kauppi, Pekka & Noble, Ian & Brown, Sandra & Krankina, Olga & Moura-Costa, Pedro, 2001. "Can Carbon Sinks be Operational? An RFF Workshop Summary," Discussion Papers dp-01-26, Resources For the Future.
    2. Philip Fearnside & Daniel Lashof & Pedro Moura-Costa, 2000. "Accounting for time in Mitigating Global Warming through land-use change and forestry," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 5(3), pages 239-270, September.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Grimes, Arthur, 2005. "Regional and industry cycles in Australasia: Implications for a common currency," Journal of Asian Economics, Elsevier, vol. 16(3), pages 380-397, June.
    2. Arthur Grimes, 2005. "Intra & Inter-Regional Industry Shocks: A New Metric with an Application to Australasian Currency Union," Macroeconomics 0509019, EconWPA.
    3. Suzi Kerr & Emma Brunton & Ralph Chapman, 2004. "Policy to Encourage Carbon Sequestration in Plantation Forests," Working Papers 04_05, Motu Economic and Public Policy Research.
    4. Michelle Poland & David C Maré, 2005. "Defining Geographic Communities," Urban/Regional 0509016, EconWPA.
    5. Suzi Kerr & Joanna Hendy & Shuguang Liu & Alexander S.P. Pfaff, 2004. "Tropical Forest Protection, Uncertainty, and the Environmental Integrity of Carbon Mitigation Policies," Others 0411001, EconWPA.
    6. David C Maré, 2005. "Indirect Effects of Active Labour Market Policies," HEW 0509004, EconWPA.

    More about this item

    Keywords

    climate; contracts; carbon credits; reforestation; projects;

    JEL classification:

    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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