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Financial Contracts and the Management of Carbon Emissions in Small Scale Plantation Forests

Author

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  • Andrew Coleman

    (Motu Economic and Public Policy Research and the University of Waikato)

Abstract

Under the New Zealand Emissions Trading Scheme, foresters can obtain carbon units as their forests sequester carbon. If they sell these units as they are earned, the units must be repurchased when the forest is harvested, exposing foresters to price risk. This paper examines the way forward markets, futures markets, and carbon lending markets could be used to manage this risk. It argues that carbon lending markets are likely to be the most convenient form for foresters, as they allow the total returns from forestry investments to be increased with minimal risk. The carbon units can be lent to industrial firms or developers of new forests to minimise the carbon risk they face if they make carbon reducing investments.

Suggested Citation

  • Andrew Coleman, 2011. "Financial Contracts and the Management of Carbon Emissions in Small Scale Plantation Forests," Working Papers 11_04, Motu Economic and Public Policy Research.
    • Handle: RePEc:mtu:wpaper:11_04
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    File URL: https://motu-www.motu.org.nz/wpapers/11_04.pdf
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    References listed on IDEAS

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    1. Kling, Catherine & Rubin, Jonathan, 1997. "Bankable permits for the control of environmental pollution," Journal of Public Economics, Elsevier, vol. 64(1), pages 101-115, April.
    2. Cronshaw, Mark B & Brown-Kruse, Jamie, 1996. "Regulated Firms in Pollution Permit Markets with Banking," Journal of Regulatory Economics, Springer, vol. 9(2), pages 179-189, March.
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    4. Eric Karpas & Suzi Kerr, 2011. "Preliminary Evidence on Responses to the New Zealand Forestry Emissions Trading Scheme," Working Papers 11_09, Motu Economic and Public Policy Research.
    5. Kenneth M. Chomitz & Franck Lecocq, 2004. "Temporary sequestration credits: an instrument for carbon bears," Climate Policy, Taylor & Francis Journals, vol. 4(1), pages 65-74, March.
    6. Roger A. Sedjo & Gregg Marland, 2003. "Inter-trading permanent emissions credits and rented temporary carbon emissions offsets: some issues and alternatives," Climate Policy, Taylor & Francis Journals, vol. 3(4), pages 435-444, December.
    7. Rubin, Jonathan D., 1996. "A Model of Intertemporal Emission Trading, Banking, and Borrowing," Journal of Environmental Economics and Management, Elsevier, vol. 31(3), pages 269-286, November.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Thomas Carver & Patrick Dawson & Suzi Kerr, 2017. "Including Forestry in an Emissions Trading Scheme: Lessons from New Zealand," Working Papers 17_11, Motu Economic and Public Policy Research.
    2. Suzi C. Kerr, 2013. "The Economics of International Policy Agreements to Reduce Emissions from Deforestation and Degradation," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 7(1), pages 47-66, January.
    3. Eric Karpas & Suzi Kerr, 2011. "Preliminary Evidence on Responses to the New Zealand Forestry Emissions Trading Scheme," Working Papers 11_09, Motu Economic and Public Policy Research.

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    More about this item

    Keywords

    carbon banking; carbon forward markets; forest sequestation;
    All these keywords.

    JEL classification:

    • Q23 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Forestry
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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