Trading REDD Credits in International Carbon Markets:Interactions among International Trade, Carbon and Agricultural Markets

Renato Rosa (), Ramiro Parrado () and Francesco Bosello ()
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Renato Rosa: Univ Coimbra, CeBER, Faculty of Economics, Coimbra, Portugal
Ramiro Parrado: RFF-CMCC European Institute on Economics and the Environment (EIEE) and Centro Euro-Mediterraneo sui Cambiamenti Climatici, Università Ca' Foscari,Venice, Italy
Francesco Bosello: RFF-CMCC European Institute on Economics and the Environment (EIEE),Centro Euro-Mediterraneo sui Cambiamenti Climatici, Università Ca' Foscari, and Department of Environmental Sciences, Informatics and Statistics University Ca’ Foscari of Venice, Italy

Notas Económicas, 2023, issue 56, 33-64

Abstract: While several economic studies have looked into the role of REDD in climate policy, the interlinks between climate policy, international trade and agricultural markets have been only marginally considered. This paper adds to that discussion by developing a policy simu-lation exercise in which REDD credits can be traded in an international carbon market using a recursive dynamic computable general equilibrium model. The model was extended to incorporate abatement cost curves of avoided deforestation from a partial equilibrium study, and to account for the corresponding induced effects on land and timber markets. We conclude that REDD may significantly reduce policy costs. A large number of REDD credits entering the carbon market would allow regions pertaining to the climate policy agreement to systematically emit above their targets. These results confirm that policy design may re-quire limits to the use of REDD credits along with the creation of long-term incentives to promote a greener economy. Finally, when international competitiveness effects are taken into account, we show that the use of REDD as a means to foster developing countries’ participation in climate policy may not be sufficient.

Keywords: Reduced emission from deforestation and forest degradation; climate change policy; carbon markets; agricultural markets; general equilibrium. (search for similar items in EconPapers)
JEL-codes: F1 Q4 Q5 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:gmf:journl:y:2023:i:56:p:33:64

DOI: 10.14195/2183-203X_56_2

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