Evaluating Temporary Certified Emission Reductions in Reforestation and Afforestation Programs

Abstract

This article investigates the efficiency of the temporary certified emission reductions (tCERs) system that attempts to internalize the carbon sequestration function of the forest under the Clean Development Mechanism of the Kyoto Protocol. We find that the regulations creating tCERs partially internalize the carbon sequestration function of the forest. The amount of carbon re-released into the atmosphere, due to timber harvest, and sequestered, after the project period, is not internalized in the private landowner’s decision, which induces shorter rotation intervals than socially optimal. Furthermore, the carbon sequestered during the project is over-credited because credits are counted based on accumulated carbon instead of marginally sequestered carbon, which induces longer rotations intervals. Simulation results for the Philippines and Tanzania show that the difference in social welfare between the tCERs system and a socially optimal policy is only about 2% because of the countervailing effect of the inefficiencies on rotation interval choices.