Forest carbon offsets and carbon emissions trading: Problems of contracting

BACKGROUND:

Monitoring and measuring carbon fluxes in forestry are complex and costly, exacerbated by asymmetric information and inadequate institutions, leading to unstable values in carbon trading. Good governance is essential for effective contracting in the carbon market but often falls short, leading to misaligned incentives and principal-agent problems. These issues frequently delay successful contracting, potentially resulting in corruption and disputes over carbon offset claims.

GOALS AND METHODS:

The paper aims to explore the unique challenges that arise when forest carbon offsets are included in emissions trading schemes, focusing on the implications of governance, contracting, and market stability. It employs a critical analysis of the economic instruments and policies related to carbon trading, such as taxes, subsidies, and cap-and-trade schemes, to understand their effectiveness and limitations.

CONCLUSIONS AND TAKEAWAYS:

The paper concludes that forest carbon offsets are hampered by complex measurement, monitoring, and governance challenges. It suggests that a tax subsidy scheme could more effectively address these issues compared to current market mechanisms. The author highlights the need for stronger institutional frameworks to improve the reliability and effectiveness of carbon trading markets.