Spatial and temporal responses to an emissions trading system covering agriculture and forestry: simulation results from New Zealand

This paper presents the results of simulations using the integrated Land Use in Rural New Zealand model to analyse the effect of various New Zealand emissions trading scheme scenarios on land-use, emissions, and output in a temporally and spatially explicit manner. It compares the impact of afforestation to the impact of other land-use change on net greenhouse gas emissions, and evaluates the importance of the forestry component of the emissions trading scheme (ETS) relative to the agricultural component. It also examine the effect of land-use change on the time profile of net emissions from the forestry sector. Projections for the mid-2020s suggest that under a comprehensive ETS, sequestration associated with new planting could be significant; it may approach 20 percent of national inventory agricultural emissions in 2008. Most of this is driven by the reward for forestry rather than a liability for agricultural emissions. Finally, it presents projections of future agricultural output under various policy scenarios. Authored by Suzi Kerr, Simon Anastasiadis, Alex Olssen, William Power, Levente Tímár and Wei Zhang

Indigenous Forests and Forest Sink Policy in New Zealand

This paper tackles the complex issue of how to include regenerating indigenous forest in a domestic carbon credit system. The paper specifically addresses New Zealand conditions but most of the issues and conclusions are relevant in any developed country with indigenous regrowth. The paper begins by defining the constraints that any sink policy must meet. I begin by discussing environmental integrity, and in particular measurement and monitoring, "human-induced" change, and permanence. I then outline the international rules as they stand and how these could be translated into domestic rules.forest, climate, emissions trading, Maori, Kyoto

Efficient Contracts for Carbon Credits from Reforestation Projects

This paper tackles the complex issue of how buyers and sellers within a domestic carbon credit system designed to include regenerating indigenous forest would optimally design contracts for trades of the new good, "carbon sink credits". The paper begins by briefly defining the constraints that sink projects must meet. This implicitly shows the freedom we have in designing contracts. In the context of a simple numerical example I discuss the constraints that the market puts on contracts. In particular I consider the interests of the buyers and sellers, and how they can maximise and share gains through contract design. I outline the sources of risk and discuss who has advantages in dealing with these risks. The best contract designs impose the risk on those most able to address or absorb it. I illustrate the potential gains from sink contracts with a range of conditions and contracts.

Allocating Risks in a Domestic Greenhouse Gas Trading System

As tradeable permit programmes mature, two inter-related issues are becoming more critical in creating viable responses to a long-term, highly uncertain environmental problem such as climate change. First, we need to update policies in response to new information; and second, we need to design policies so that they can be updated without creating adverse strategic incentives for either government or regulated entities. Consideration of both exogenous risk (uncontrollable) and endogenous risk (concerns about policy credibility) suggests that permits should be auctioned several years in advance of use, and each permit should be defined as a percentage of a possibly varying target. For exogenous risks, this system allows all risk to be pooled and managed as efficiently as possible within the private sector. For endogenous risk, it creates a vested interest that will pressure government to maintain or strengthen targets to offset the obvious pressures to weaken regulation. It also reduces the ability of government to reallocate rents without cost to itself, or to gain revenue by altering targets. In addition, policy should be made as complete and as transparent as possible, and its key elements should be embedded in legislation to limit prospects for capricious changes in the future.

Allocating Risks in a Domestic Greenhouse Gas Trading System

As tradeable permit programmes mature, two inter-related issues are becoming more critical in creating viable responses to a long-term, highly uncertain environmental problem such as climate change. First, we need to update policies in response to new information; and second, we need to design policies so that they can be updated without creating adverse strategic incentives for either government or regulated entities. Consideration of both exogenous risk (uncontrollable) and endogenous risk (concerns about policy credibility) suggests that permits should be auctioned several years in advance of use, and each permit should be defined as a percentage of a possibly varying target. For exogenous risks, this system allows all risk to be pooled and managed as efficiently as possible within the private sector. For endogenous risk, it creates a vested interest that will pressure government to maintain or strengthen targets to offset the obvious pressures to weaken regulation. It also reduces the ability of government to reallocate rents without cost to itself, or to gain revenue by altering targets. In addition, policy should be made as complete and as transparent as possible, and its key elements should be embedded in legislation to limit prospects for capricious changes in the future.tradeable permits, climate change, risk

EFFICIENT CONTRACTS FOR CARBON CREDITS FROM REFORESTATION PROJECTS

This paper tackles the complex issue of how buyers and sellers within a domestic carbon credit system designed to include regenerating indigenous forest would optimally design contracts for trades of the new good, “carbon sink credits”. The paper begins by briefly defining the constraints that sink projects must meet. This implicitly shows the freedom we have in designing contracts. In the context of a simple numerical example I discuss the constraints that the market puts on contracts. In particular I consider the interests of the buyers and sellers, and how they can maximise and share gains through contract design. I outline the sources of risk and discuss who has advantages in dealing with these risks. The best contract designs impose the risk on those most able to address or absorb it. I illustrate the potential gains from sink contracts with a range of conditions and contracts.climate, contracts, carbon credits, reforestation, projects

Indigenous Forests and Forest Sink Policy in New Zealand

This paper tackles the complex issue of how to include regenerating indigenous forest in a domestic carbon credit system. The paper specifically addresses New Zealand conditions but most of the issues and conclusions are relevant in any developed country with indigenous regrowth. The paper begins by defining the constraints that any sink policy must meet. I begin by discussing environmental integrity, and in particular measurement and monitoring, “human-induced” change, and permanence. I then outline the international rules as they stand and how these could be translated into domestic rules.forest, climate, emissions trading, Mâori, Kyoto