The land use change time-accounting failure

Marion Dupoux

No 2016/02, Working Papers from INRA, Economie Publique

Abstract: Land use change (LUC) is the second human-induced source of greenhouse gases (GHG). This paper warns about the LUC time-accounting failure in internalizing GHG impacts in economic appraisal (within policies). This emerges from (i) relative carbon prices commonly following the Hotelling rule as if climate change were regarded as an exhaustible resource problem and (ii) a uniform annualization (i.e. constant flows over time) of LUC impacts supported by most energy policies. First, carbon prices time evolution should account for the climate change framework specificities (natural carbon absorption, uncertainty), which makes a departure from the Hotelling rule necessary. Second, there is a carbon dynamic after land conversion: GHG impact flows are strictly decreasing over time. With a theoretical framework, I show that the employment of the uniform annualization, within a benefit-cost analysis, enhances both the discounting overwhelming effect and the carbon price increase, whatever the type of impact (emissions or sequestrations). It results in skewed values of LUC-related projects as long as relative carbon prices deviate from the Hotelling rule. I apply this framework to global warming impacts of bioethanol in France and quantify this bias. In particular, carbon profitability payback periods under the uniform approach do not reflect the LUC effective carbon investment. This potentially modifies the conclusions regarding a project’s achievement of imposed environmental criteria.

Keywords: Benefit-cost analysis; Discounting; Global warming; Land use change; Relative carbon price (search for similar items in EconPapers)
JEL-codes: D61 H43 Q15 Q16 Q48 Q54 (search for similar items in EconPapers)
Date: 2016-07-19
New Economics Papers: this item is included in nep-agr, nep-cse, nep-ene, nep-env and nep-ppm
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Citations: View citations in EconPapers (2)

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