Sequestration rental policies and price path of carbon

Andrew G. Keeler

Climate Policy, 2004, vol. 4, issue 4, 419-425

Abstract: Carbon rental has been suggested as a way of providing incentives to sequester carbon in biomass in the context of emissions trading systems for GHG emissions. A rental system works by issuing a credit for sequestered carbon that must be repaid after some fixed term. Rental systems avoid many of the difficulties of ensuring the permanence of sequestered carbon that exist in other institutional arrangements. This article adapts the results of Herzog et al. (2003) to argue that a rental system requires that carbon prices rise more slowly than the value of alternative investments in order to provide adequate incentives, and that there are good reasons to believe that this may not happen. Proponents need to directly address this potential difficulty in advancing arguments that carbon rental should be adopted as policy.

Date: 2004
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DOI: 10.1080/14693062.2004.9685534

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