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

Niels Anger, Alistair Dixon and Erich Livengood

No 09-001, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: 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.

Keywords: Climate Change; Kyoto Protocol; Emissions Trading; Deforestation; REDD (search for similar items in EconPapers)
JEL-codes: C60 D61 Q23 Q58 (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-cmp, nep-ene and nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:7527

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