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Research Report

Estimating the costs of reducing forest emissions: A review of methods

Sheila Wertz-Kanounnikoff
Copyright Date: Nov. 1, 2008
Pages: 22
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Table of Contents

  1. (pp. 6-6)

    The costs associated with the reduction of greenhouse gas (GHG) emissions from deforestation and forest degradation (REDD) shape both the demand for, and supply of, REDD services. Investors and policymakers in particular are highly interested in REDD cost information – not only for budget reasons, but also to decide where to allocate investments (sector and country), and to assess how much benefit (in terms of reduced emissions) is received in return for investment.

    The economic concept of the supply curve suggests that there is no single cost-value, but that alternative levels of REDD supply are associated with different costs. For...

  2. (pp. 7-11)

    Three approaches to estimating REDD costs can be identified in the literature (Boucher 2008):

    1. Local-empirical models.

    2. Global-empirical approaches.

    3. Global simulation models.

    Sometimes these approaches are simply grouped into local and global models.²

    Estimates from local-empirical models are based on detailed studies (surveys) in a particular area. Both the per-area cost estimates ($/ha) and the carbon density estimates (ton/ha) are specific to the particular region studied, and the division of per-area opportunity costs by carbon density gives the opportunity costs on a perton basis (Boucher 2008). Since results are specific to a particular region, their extrapolation or generalisation can be problematic...

  3. (pp. 12-13)

    Transaction costs exist as the result of limited knowledge and information and refer thus to the costs incurred in making an economic exchange. Transaction cost research yields various empirical approaches, each with separate focus and methodology – which further differ whether government agency cost or only individual costs are considered (Antinori and Sathaye 2007).³ According to Milne (1999) important categories of transaction costs include: information and procurement, scheme design and negotiation, implementation, monitoring, enforcement and protection, and verification and certification.

    Information on the transaction costs of REDD schemes remains limited. Most of the discussions tend to build upon insights and...

  4. (pp. 14-15)

    This review of methods reveals that various approaches to estimate REDD opportunity costs exist. The suitability of these approaches depends on the objective of the analysis. One striking observation is that the cost of REDD differs substantially across model approaches: global simulation models yield far higher REDD prices than empirical models, including the Stern estimate. One explanation is that global simulation models not only consider the opportunity costs, but also the costs arising from interrelations with other sectors and from the fact that for practical reasons land users are likely to be paid a uniform price, not differentiated according to...