Cost-effective payments for reducing emissions from deforestation under uncertainty

Stefanie Engel, Charles Palmer (), Luca Taschini and Simon Urech

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: The paper analyses the implications of landowners’ option values in land allocation and derives policy recommendations for payments for Reducing Emissions from Deforestation and Forest Degradation (REDD). Given that REDD will not represent a permanent change in the cumulative flux of carbon dioxide to the atmosphere, payment scheme design is motivated by the need to secure forest carbon sinks over time (the ‘permanence criterion’) while remaining relatively cost-effective. Alternative payment schemes, combining fixed and variable components, are considered in a framework with two competing land uses, forest and agriculture. Cost-effectiveness depends on the dependency structure between the returns from the indexed component of the payment and the returns from the alternative land use, the relative volatility level of the underlying returns, and the relative combination of fixed and variable payments. After developing the general model, it is is applied to REDD policy scenarios in Parana State, Brazil.

Keywords: deforestation; land use change; payments; permanence; uncertainty (search for similar items in EconPapers)
JEL-codes: Q15 Q23 Q28 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2012-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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http://eprints.lse.ac.uk/44837/ Open access version. (application/pdf)

Related works:
Working Paper: Cost-effective payments for reducing emissions from deforestation under uncertainty (2012)
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