What Makes Carbon Work? A Sensitivity Analysis of Factors Affecting Forest Offset Viability

Abstract

Early implementation experience and a handful of empirical analyses in the literature indicate that the supply of forest carbon offsets may be constrained by, among other factors, transaction costs, access to markets, and carbon accounting rules and regulations. To more fully explore this issue, we use a forest growth and carbon accounting model to assess the relative influence of several key accounting, financial, and market variables on forest carbon offset project viability. We find that project performance, indicated by sequestration rate and project profitability, varies widely across the three project/forest type combinations evaluated here. The effects of carbon price and project length vary in both magnitude and direction from project to project. Project accounting considerations, including baseline establishment method and deductions for “leakage” and other factors, tend to figure prominently in each project, but vary in their absolute effect. These initial results suggest that choice of accounting protocol is a critical decision facing landowners considering forest offset projects. Results also suggest that a one-size-fits-all accounting approach may fail to maximize either landowner participation or the representation of forest types or management systems.