Opportunity Costs of Carbon Emissions Stemming from Changes in Land Use

Heli Lu and Guifang Liu
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Heli Lu: Key Research Institute of Yellow River Civilization and Sustainable Development & Collaborative Innovation Center on Yellow River Civilization of Henan Province, Henan University, Kaifeng 475004, China
Guifang Liu: Key Research Institute of Yellow River Civilization and Sustainable Development & Collaborative Innovation Center on Yellow River Civilization of Henan Province, Henan University, Kaifeng 475004, China

Sustainability, 2015, vol. 7, issue 4, 1-18

Abstract: The REDD (Reducing Emissions from Deforestation and Forest Degradation) mechanism allows carbon sinks to be used as carbon credits in order to offset emissions from other sources. However, this practice has raised a number of issues relating to financial incentives. In this study, we develop a spatially explicit model for predicting carbon emissions from deforestation that meet baseline levels as well as farmers’ opportunity costs (measured in US dollars per ton of CO2e) under three temporal scenarios with several potential discount rates for agricultural income. Additionally, we use two different accounting methods recommended by the Intergovernmental Panel on Climate Change (IPCC), including the average storage method and the “ton-year approach,” to evaluate emissions reductions. We find that farmers are more likely to prefer REDD in the short-run when discount rates are higher than 10%. However, further analysis indicates that opportunity costs would increase significantly over longer periods of time (middle-term schemes of 35 years or long-term schemes of 55 years), thereby dissuading farmers from choosing REDD. Our findings highlight the drawbacks in using REDD to mitigate global climate change and conserve forests based on farmers’ financial incentives.

Keywords: REDD; carbon emissions; opportunity costs; discount rate (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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