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The land use change time-accounting failure

Marion Dupoux

No 2016-28, EconomiX Working Papers from University of Paris Nanterre, EconomiX

Abstract: Land use change (LUC) is the second largest human-induced source of greenhouse gases. While LUC impacts are mostly immediate, policy makers consider it to be evenly spread over time. In the context of public evaluation of projects, I theoretically show that, as long as the discounting process perfectly offsets the rise of carbon prices, cost-benefit analysis outcomes are not affected. When this condition does not hold, which is particular to the global warming issue, the uniform time-accounting of LUC distorts present values by emphasizing both the discounting process and the increase in the carbon price over time. This induced bias is quantified in a case study of bioethanol in France. Depending on the type of impact and discounting and carbon pricing assumptions, a downward/upward bias between + or - 15% and + or - 30% of the LUC value is found. Two simple decision tools are provided to improve accounting of LUC impacts.

Keywords: cost-benefit analysis; public evaluation of projects; land use change; discounting; relative carbon price; non-constant impacts; bioethanol (search for similar items in EconPapers)
JEL-codes: D61 H43 Q15 Q16 Q48 Q54 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-agr, nep-env and nep-sog
Date: 2016
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