Analysis of the production and transaction costs of forest carbon offset projects in the USA

Abstract

Forest carbon offset project implementation costs, comprised of both production and transaction costs, could present an important barrier to private landowner participation in carbon offset markets. These costs likewise represent a largely undocumented component of forest carbon offset potential. Using a custom spreadsheet model and accounting tool, this study examines the implementation costs of different forest offset project types operating in different forest types under different accounting and sampling methodologies. Sensitivity results are summarized concisely through response surface regression analysis to illustrate the relative effect of project-specific variables on total implementation costs. Results suggest that transaction costs may represent a relatively small percentage of total project implementation costs – generally less than 25% of the total. Results also show that carbon accounting methods, specifically the method used to establish project baseline, may be among the most important factors in driving implementation costs on a per-ton-of-carbon-sequestered basis, dramatically increasing variability in both transaction and production costs. This suggests that accounting could be a large driver in the financial viability of forest offset projects, with transaction costs likely being of largest concern to those projects at the margin.