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Optimal REDD+ in the carbon market

Author

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  • Kaushal , Kevin R.

    (School of Economics and Business, Norwegian University of Life Sciences)

  • Rosendahl, Knut Einar

    (School of Economics and Business, Norwegian University of Life Sciences)

Abstract

Unilateral actions to reduce CO2 emissions can be costly and may lead to carbon leakage through relocation of emission-intensive and trade-exposed industries (EITE). This paper examines the welfare effects of introducing an emission offset mechanism for the EITE sector, where EITE producers may have to acquire more than one offset credit to balance one ETS allowance. The analytical results suggest that under certain conditions it is globally welfare improving for a single region to introduce such an offset mechanism. Numerical simulations in the context of the EU ETS and REDD+ credits support the analytical findings, and suggest that it is optimal for the EU to require EITE producers to acquire several REDD+ credits to offset one EU ETS allowance.

Suggested Citation

  • Kaushal , Kevin R. & Rosendahl, Knut Einar, 2019. "Optimal REDD+ in the carbon market," Working Paper Series 3-2019, Norwegian University of Life Sciences, School of Economics and Business.
    • Handle: RePEc:hhs:nlsseb:2019_003
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    References listed on IDEAS

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    More about this item

    Keywords

    Carbon leakage; emission trading system; unilateral policy; REDD+;
    All these keywords.

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • F18 - International Economics - - Trade - - - Trade and Environment
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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