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Biological Carbon Sinks: Transaction Costs and Governance

Gerrit van Kooten

No 45505, Working Papers from University of Victoria, Resource Economics and Policy

Abstract: Activities that remove CO2 from the atmosphere and store it in forest and agricultural ecosystems can generate CO2-offset credits that can thus substitute for CO2 emissions reduction. Are biological CO2-uptake activities competitive with CO2 offsets from reduced fossil fuel use? In this paper, it is argued that transaction costs impose a formidable obstacle to direct substitution of carbon uptake offsets for emissions reduction in trading schemes, and that separate caps should be set for emissions reduction and sink-related activities. While a tax/subsidy scheme is preferred to emissions trading for incorporating biologically-generated CO2 offsets, contracts that focus on the activity and not the amount of carbon sequestered are most likely to lead to the lowest transaction costs.

Keywords: Environmental Economics and Policy; Land Economics/Use (search for similar items in EconPapers)
Pages: 20
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:ags:uvicwp:45505

DOI: 10.22004/ag.econ.45505

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