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Interactions of Reduced Deforestation and the Carbon Market: The Role of Market Regulations and Future Commitments

  • Anger, Niels
  • Dixon, Alistair
  • Livengood, Erich
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    Reducing emissions from deforestation and degradation (REDD) has been proposed as a potentially inexpensive and plentiful source of emission abatement to supplement other longterm climate policies. However, critics doubt that REDD credits are environmentally equivalent to domestic emission reductions, and suggest an excess supply may disrupt carbon markets. In this context, we investigate the economic implications of emissions market regulations and future emissions reduction commitments, as well as uncertainties in REDD credit supply. Numerical simulations with a multi-country equilibrium model of the global emissions market show unrestricted exchange of REDD units reduces the international carbon price by half and cuts Annex I compliance costs by roughly one third. Restricting supply or demand of REDD credits reduces price impacts, but comes at the cost of economic efficiency. Alternatively, Annex I reduction commitments could be increased by almost two thirds at constant carbon prices. While REDD provides large economic benefits for tropical rainforest regions, any REDD policy scenario also reduces wealth transfers to traditional CDM host countries through increased competition on the supply-side of the carbon market.

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    File URL: https://www.econstor.eu/bitstream/10419/27620/1/dp09001.pdf
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    Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 09-001.

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    Date of creation: 2009
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    Handle: RePEc:zbw:zewdip:7527
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    1. Pascale Combes Motel & Romain Pirard & Jean-Louis Combes, 2011. "A methodology to estimate impacts of domestic policies on deforestation: Compensated Successful Efforts for “avoided deforestation” (REDD)," Working Papers halshs-00556933, HAL.
    2. Criqui, Patrick & Mima, Silvana & Viguier, Laurent, 1999. "Marginal abatement costs of CO2 emission reductions, geographical flexibility and concrete ceilings: an assessment using the POLES model," Energy Policy, Elsevier, vol. 27(10), pages 585-601, October.
    3. Brent Sohngen & Robert Mendelsohn, 2003. "An Optimal Control Model of Forest Carbon Sequestration," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(2), pages 448-457.
    4. Gernot Klepper & Sonja Peterson, 2006. "Emissions Trading, CDM, JI, and More: The Climate Strategy of the EU," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 1-26.
    5. Sathaye, Jayant A. & Anger, Niels, 2008. "Reducing Deforestation and Trading Emissions: Economic Implications for the post-Kyoto Carbon Market," ZEW Discussion Papers 08-016, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    6. Anger, Niels, 2008. "Emissions trading beyond Europe: Linking schemes in a post-Kyoto world," Energy Economics, Elsevier, vol. 30(4), pages 2028-2049, July.
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