Voluntary Carbon Market Participation and Unintended Consequences: An Economic Analysis
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Agricultural activities account for nearly a quarter of anthropogenic greenhouse gas (GHG) emissions mainly from deforestation and livestock, soil and nutrient management. Also it is the biggest emitter of non-carbon dioxide GHGs. Meanwhile farmers typically face more than one production possibility and they typically produce varying amounts of net GHG emissions at different costs. Therefore GHG emission reductions may be achieved by providing incentives for farmers to adopt alternative production activities. Intuitively, total GHG emissions will decrease after adopting lower emitting practices. However certain incentive designs might lead to GHG net emission increases or lower than expected reductions, hence unintended consequences. Here, two major forms of carbon market program are investigated for their effects on net GHG emissions and the conditions under which the unintended consequences occur are examined analytically. This model shows for net emitters the program design can lead to increased emissions – the rebound effect. While for negative emitters (those sequestering or offsetting emissions through bioenergy), the program results in trivial emission reductions. We also find that it is desirable to alter program design to limit participation to baseline levels for those who emit and to encourage participation well beyond baseline levels for those who generate negative emissions.
Wei, Hanlin (2016). Voluntary Carbon Market Participation and Unintended Consequences: An Economic Analysis. Master's thesis, Texas A & M University. Available electronically from