IDEAS home Printed from https://ideas.repec.org/p/ags/feemdp/52544.html
   My bibliography  Save this paper

Linking Reduced Deforestation and a Global Carbon Market: Impacts on Costs, Financial Flows, and Technological Innovation

Author

Listed:
  • Bosetti, Valentina
  • Lubowski, Ruben N.
  • Golub, Alexander
  • Markandya, Anil

Abstract

Discussions over tropical deforestation are currently at the forefront of climate change policy negotiations at national, regional, and international levels. This paper analyzes the effects of linking Reduced Emissions from Deforestation and Forest Degradation (REDD) to a global market for greenhouse gas emission reductions. We supplement a global climate-energy-economy model with alternative cost estimates for reducing deforestation emissions in order to examine a global program for stabilizing greenhouse gas concentrations at 550 ppmv of CO2 equivalent. Introducing REDD reduces global forestry emissions through 2050 by 20-22% in the Brazil-only case and by 64-88% in the global REDD scenarios. At the same time, REDD lowers the total costs of the climate policy by an estimated 10-25% depending on which tropical countries participate and whether the “banking” of excess credits for use in future periods is allowed. As a result, REDD could enable additional reductions of at least 20 ppmv of CO2-equivalent concentrations with no added costs compared to an energy-sector only policy. The cost savings from REDD are magnified if banking is allowed and there is a need to increase the stringency of global climate policy in the future in response, for example, to new scientific information. Results also indicate that REDD decreases carbon prices in 2050 by 8-23% with banking and 11-26% without banking. While developing regions, particularly Latin America, gain the value of REDD opportunities, the decrease in the carbon price keeps the value of international carbon market flows relatively stable despite an increase in volumes transacted. We also estimate that REDD generally reduces the total portfolio of investments and research and development of new energy technologies by 1-10%. However, due to impacts on the relative prices of different fossil fuels, REDD has a slight positive estimated effect on investments in coal-related technologies (IGCC and CCS) as well as, in some cases, non-electric energy R&D. This research confirms that integrating REDD into global carbon markets can provide powerful incentives for the preservation of tropical forests while lowering the costs of global climate change protection and providing valuable policy flexibility.

Suggested Citation

  • Bosetti, Valentina & Lubowski, Ruben N. & Golub, Alexander & Markandya, Anil, 2009. "Linking Reduced Deforestation and a Global Carbon Market: Impacts on Costs, Financial Flows, and Technological Innovation," Sustainable Development Papers 52544, Fondazione Eni Enrico Mattei (FEEM).
    • Handle: RePEc:ags:feemdp:52544
    DOI: 10.22004/ag.econ.52544
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/52544/files/56-09.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.52544?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Valentina Bosetti & Carlo Carraro & Romain Duval & Alessandra Sgobbi & Massimo Tavoni, 2009. "The Role of R&D and Technology Diffusion in Climate Change Mitigation: New Perspectives Using the WITCH Model," OECD Economics Department Working Papers 664, OECD Publishing.
    2. Sabine Fuss & Alexander Golub & Jana Szolgayova & Michael Obersteiner, 2009. "Effects of Low-cost Offsets on Energy Investment -New Perspectives on REDD-," Working Papers 2009.17, Fondazione Eni Enrico Mattei.
    3. Valentina Bosetti & Carlo Carraro & Marzio Galeotti & Emanuele Massetti & Massimo Tavoni, 2006. "WITCH. A World Induced Technical Change Hybrid Model," Working Papers 2006_46, Department of Economics, University of Venice "Ca' Foscari".
    4. Tavoni, Massimo & Sohngen, Brent & Bosetti, Valentina, 2007. "Forestry and the carbon market response to stabilize climate," Energy Policy, Elsevier, vol. 35(11), pages 5346-5353, November.
    5. Brian C. Murray & Richard G. Newell & William A. Pizer, 2009. "Balancing Cost and Emissions Certainty: An Allowance Reserve for Cap-and-Trade," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 3(1), pages 84-103, Winter.
    6. Sathaye, Jayant A. & Anger, Niels, 2008. "Reducing Deforestation and Trading Emissions: Economic Implications for the post-Kyoto Carbon Market," ZEW Discussion Papers 08-016, ZEW - Leibniz Centre for European Economic Research.
    7. Brent Sohngen and Roger Sedjo, 2006. "Carbon Sequestration in Global Forests Under Different Carbon Price Regimes," The Energy Journal, International Association for Energy Economics, vol. 0(Special I), pages 109-126.
    8. Valentina Bosetti & Carlo Carraro & Marzio Galeotti & Emanuele Massetti & Massimo Tavoni, 2006. "A World Induced Technical Change Hybrid Model," The Energy Journal, , vol. 27(2_suppl), pages 13-37, June.
    9. Dixon, Alistair & Anger, Niels & Holden, Rachel & Livengood, Erich, 2008. "Integration of REDD into the international carbon market: Implications for future commitments and market regulation," ZEW Expertises, ZEW - Leibniz Centre for European Economic Research, number 110512.
    10. -, 2009. "The economics of climate change," Sede Subregional de la CEPAL para el Caribe (Estudios e Investigaciones) 38679, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Münnich Vass, Miriam & Elofsson, Katarina & Gren, Ing-Marie, 2013. "An equity assessment of introducing uncertain forest carbon sequestration in EU climate policy," Energy Policy, Elsevier, vol. 61(C), pages 1432-1442.
    2. Sikdar, Chandrima, 2011. "Potential Economic impact of India-Sri Lanka bilateral trade liberalization," Conference papers 332075, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    3. Enrica De Cian & Valentina Bosetti & Alessandra Sgobbi & Massimo Tavoni, 2009. "The 2008 WITCH Model: New Model Features and Baseline," Working Papers 2009.85, Fondazione Eni Enrico Mattei.
    4. Elofsson, Katarina & Gren, Ing-Marie, 2013. "Should forests be used as uncertain carbon sinks or uncertain fossil fuel substitutes in the EU Roadmap to 2050?," Working Paper Series 2013:8, Swedish University of Agricultural Sciences, Department Economics.
    5. Szolgayová, Jana & Golub, Alexander & Fuss, Sabine, 2014. "Innovation and risk-averse firms: Options on carbon allowances as a hedging tool," Energy Policy, Elsevier, vol. 70(C), pages 227-235.
    6. Gren, Ing-Marie & Carlsson, Mattias & Elofsson, Katarina & Munnich, Miriam, 2012. "Stochastic carbon sinks for combating carbon dioxide emissions in the EU," Energy Economics, Elsevier, vol. 34(5), pages 1523-1531.
    7. Gren, Ing-Marie & Carlsson, Mattias, 2013. "Economic value of carbon sequestration in forests under multiple sources of uncertainty," Journal of Forest Economics, Elsevier, vol. 19(2), pages 174-189.
    8. Vass, Miriam Münnich & Elofsson, Katarina, 2016. "Is forest carbon sequestration at the expense of bioenergy and forest products cost-efficient in EU climate policy to 2050?," Journal of Forest Economics, Elsevier, vol. 24(C), pages 82-105.
    9. Philippidis, G. & Resano, H. & Sanjuan, A.I. & Bourne, M. & Kitou, E., 2012. "Shifting Armington Trade Preferences: A re-examination of the Mercosur-EU negotiations," Conference papers 332171, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    10. Ojea, Elena & Loureiro, Maria L. & Alló, Maria & Barrio, Melina, 2016. "Ecosystem Services and REDD: Estimating the Benefits of Non-Carbon Services in Worldwide Forests," World Development, Elsevier, vol. 78(C), pages 246-261.
    11. Michetti, Melania & Parrado, Ramiro, 2012. "Improving Land-use modelling within CGE to assess Forest-based Mitigation Potential and Costs," Climate Change and Sustainable Development 122862, Fondazione Eni Enrico Mattei (FEEM).
    12. Gren, Ing-Marie Gren & Elofsson, Katarina, 2013. "Value of land use for carbon sequestration: An application to the EU climate policy," Working Paper Series 2012:4, Swedish University of Agricultural Sciences, Department Economics.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Aline Chiabai, 2010. "Analysis and Use of Information and Communication Tools in Economics of Climate Change," Working Papers 2009-03, BC3.
    2. Bosetti, Valentina & Carraro, Carlo & Duval, Romain & Tavoni, Massimo, 2011. "What should we expect from innovation? A model-based assessment of the environmental and mitigation cost implications of climate-related R&D," Energy Economics, Elsevier, vol. 33(6), pages 1313-1320.
    3. Enrica De Cian & Fabio Sferra & Massimo Tavoni, 2013. "The Influence of Economic Growth, Population, and Fossil Fuel Scarcity on Energy Investments," Working Papers 2013.59, Fondazione Eni Enrico Mattei.
    4. Favero, Alice & Mendelsohn, Robert & Sohngen, Brent, 2016. "Carbon Storage and Bioenergy: Using Forests for Climate Mitigation," MITP: Mitigation, Innovation and Transformation Pathways 232215, Fondazione Eni Enrico Mattei (FEEM).
    5. Bastianin, Andrea & Favero, Alice & Massetti, Emanuele, 2010. "Investments and Financial Flows Induced by Climate Mitigation Policies," Sustainable Development Papers 59418, Fondazione Eni Enrico Mattei (FEEM).
    6. Francesco Bosello & Carlo Carraro & Enrica De Cian, 2010. "Climate Policy And The Optimal Balance Between Mitigation, Adaptation And Unavoided Damage," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 1(02), pages 71-92.
    7. Michetti, Melania & Rosa, Renato, 2012. "Afforestation and timber management compliance strategies in climate policy. A computable general equilibrium analysis," Ecological Economics, Elsevier, vol. 77(C), pages 139-148.
    8. Carraro, Carlo & De Cian, Enrica & Nicita, Lea & Massetti, Emanuele & Verdolini, Elena, 2010. "Environmental Policy and Technical Change: A Survey," International Review of Environmental and Resource Economics, now publishers, vol. 4(2), pages 163-219, October.
    9. Melania Michetti & Matteo Zampieri, 2014. "Climate–Human–Land Interactions: A Review of Major Modelling Approaches," Land, MDPI, vol. 3(3), pages 1-41, July.
    10. Carlo Carraro & Francesco Bosello & Enrica De Cian, 2009. "An Analysis of Adaptation as a Response to Climate Change," Working Papers 2009_26, Department of Economics, University of Venice "Ca' Foscari".
    11. Valentina Bosetti & Carlo Carraro & Enrica De Cian & Romain Duval & Emanuele Massetti & Massimo Tavoni, 2009. "The Incentives to Participate in, and the Stability of, International Climate Coalitions: A Game-theoretic Analysis Using the Witch Model," Working Papers 2009.64, Fondazione Eni Enrico Mattei.
    12. Carraro, Carlo & Duval, Romain & Bosetti, Valentina & Tavoni, Massimo, 2010. "What Should we Expect from Innovation? A Model-Based Assessment of the Environmental and Mitigation Cost Implications of Climat," CEPR Discussion Papers 7751, C.E.P.R. Discussion Papers.
    13. Carlo Carraro & Valentina Bosetti & Enrica De Cian & Romain Duval & Emanuele Massetti & Massimo Tavoni, 2009. "The incentives to participate in and the stability of international climate coalitions: a game theoretic approach using the WITCH Model," Working Papers 2009_28, Department of Economics, University of Venice "Ca' Foscari".
    14. Kenneth Gillingham & William D. Nordhaus & David Anthoff & Geoffrey Blanford & Valentina Bosetti & Peter Christensen & Haewon McJeon & John Reilly & Paul Sztorc, 2015. "Modeling Uncertainty in Climate Change: A Multi-Model Comparison," NBER Working Papers 21637, National Bureau of Economic Research, Inc.
    15. Valentina Bosetti & Carlo Carraro & Massimo Tavoni, 2008. "Delayed Participation of Developing Countries to Climate Agreements: Should Action in the EU and US be Postponed?," CESifo Working Paper Series 2445, CESifo.
    16. Alice Favero & Robert Mendelsohn, 2013. "Evaluating the Global Role of Woody Biomass as a Mitigation Strategy," Working Papers 2013.37, Fondazione Eni Enrico Mattei.
    17. De Cian, Enrica & Tavoni, Massimo, 2012. "Do technology externalities justify restrictions on emission permit trading?," Resource and Energy Economics, Elsevier, vol. 34(4), pages 624-646.
    18. Bosello, Francesco & Carraro, Carlo & De Cian, Enrica, 2013. "Adaptation can help mitigation: an integrated approach to post-2012 climate policy," Environment and Development Economics, Cambridge University Press, vol. 18(3), pages 270-290, June.
    19. Michetti, Melania & Parrado, Ramiro, 2012. "Improving Land-use modelling within CGE to assess Forest-based Mitigation Potential and Costs," Climate Change and Sustainable Development 122862, Fondazione Eni Enrico Mattei (FEEM).
    20. Bosetti, Valentina & Carraro, Carlo & De Cian, Enrica & Massetti, Emanuele & Tavoni, Massimo, 2013. "Incentives and stability of international climate coalitions: An integrated assessment," Energy Policy, Elsevier, vol. 55(C), pages 44-56.

    More about this item

    Keywords

    Environmental Economics and Policy;

    JEL classification:

    • Q23 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Forestry
    • Q24 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Land
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:feemdp:52544. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/feemmit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.