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Cost-effective payments for reducing emissions from deforestation under uncertainty

Engel, Stefanie, Palmer, Charles, Taschini, Luca and Urech, Simon (2012) Cost-effective payments for reducing emissions from deforestation under uncertainty. Grantham Research Institute on Climate Change and the Environment working paper, No. 72. Grantham Research Institute on Climate Change and the Environment, London, UK.

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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.

Item Type: Monograph (Working Paper)
Official URL: http://www2.lse.ac.uk/GranthamInstitute/
Additional Information: © 2012 London School of Economics and Political Science
Library of Congress subject classification: H Social Sciences > HD Industries. Land use. Labor
Journal of Economic Literature Classification System: Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q1 - Agriculture > Q15 - Land Ownership and Tenure; Land Reform; Land Use; Irrigation
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q2 - Renewable Resources and Conservation > Q23 - Forestry
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q2 - Renewable Resources and Conservation > Q28 - Government Policy
Sets: Departments > Geography and Environment
Research centres and groups > Grantham Research Institute on Climate Change and the Environment
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: No. 72
Date Deposited: 13 Jul 2012 07:50
URL: http://eprints.lse.ac.uk/44837/

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