Abstract
Afforestation and reforestation projects have the potential to help mitigate global warming by acting as sinks for CO2. 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 and measuring, certifying, and selling the carbon-sequestration services generated by such projects. This chapter addresses these issues by analyzing the implications of transaction and abatement costs in carbon-sequestration projects. A typology of transaction costs is presented, and estimates of the five cost types are derived based on a review of existing projects. The influences of project design on abatement costs and transaction costs are explored, and the critical values of a set of three project-design variables (farm price, number of participating farms, and minimum farm area) are identified for any given combination of transaction costs.
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Notes
- 1.
1Depending on the final use of the wood, this release can take a long time, such as when construction timber decomposes.
- 2.
2Abatement costs are the actual costs of “producing” one emission reduction, usually measured as an opportunity cost.
- 3.
3Transaction costs are the costs of participating in the CER market, or converting an emission reduction into a CER. For AR activities, transaction costs include the costs of monitoring and certifying carbon sequestration rates by measuring biomass accumulation over time.
- 4.
4A temporary CER or ‘tCER is a CER issued for an AR project activity which expires at the end of the commitment period following the one during which it was issued (United Nations Framework Convention on Climate Change (UNFCCC) document FCCC/CP/2003/6/Add.2).
- 5.
5Leakage refers to the possible increase in emissions outside the project boundary caused, for example, by displaced people clearing forest elsewhere.
- 6.
6RUPES stands for Rewarding the Upland Poor for the Environmental Services they provide.
- 7.
7For simplicity, we will refer to the average Seller and assume all Sellers have identical farms.
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Acknowledgments
This chapter was prepared under contract with FAO. The research was largely funded by the Australian Centre for International Agricultural Research (ACIAR) under project ASEM 2002/066. The author is grateful to Robyn Hean for valuable comments on previous drafts, to Russell Wise for research assistance, and to colleagues in CESERF and ICRAF, Indonesia, for providing data and information.
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Cacho, O. (2009). Economics of Carbon Sequestration Projects Involving Smallholders. In: Lipper, L., Sakuyama, T., Stringer, R., Zilberman, D. (eds) Payment for Environmental Services in Agricultural Landscapes. Natural Resource Management and Policy, vol 31. Springer, New York, NY. https://doi.org/10.1007/978-0-387-72971-8_5
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