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Environmental Modeling & Assessment

, Volume 20, Issue 2, pp 103–115 | Cite as

REDD in the Carbon Market: A General Equilibrium Analysis

  • Francesco Bosello
  • Ramiro ParradoEmail author
  • Renato Rosa
  • Fabio Eboli
Article

Abstract

Deforestation is a major source of CO2 emissions, accounting for around 17 % of annual anthropogenic carbon release. While costs estimates of reducing deforestation vary depending on model assumptions, it is widely accepted that emissions reductions from avoided deforestation consist of a relatively low cost mitigation option. Halting deforestation is therefore not only a major ecological challenge, but a great opportunity to cost effectively reduce climate change impacts. In this paper, we analyze the impact of introducing avoided deforestation credits into the European carbon market using a multiregional Computable General Equilibrium model. Taking into account political concerns over possible “flooding” of credits from reduced emissions from deforestation and forest degradation (REDD), limits to the number of these allowances are considered. Finally, we account for both direct and indirect effects occurring on land and timber markets resulting from lower deforestation rates. We conclude that avoided deforestation notably reduces climate change policy costs—approximately by 80 % with unlimited availability of REDD credits—and may drastically reduce carbon prices. Policy makers may effectively control for this imposing limits to REDD credits use. Moreover, avoided deforestation has the additional positive effect of reducing carbon leakage of a unilateral European climate change policy. This is good news for the EU, but not necessarily for REDD regions. We show that REDD revenues are not sufficient to compensate REDD regions for a less leakage-affected and more competitive EU in international markets. In fact, REDD regions would prefer to free ride on the EU unilateral mitigation policy.

Keywords

Forestry Avoided deforestation Climate change Emission trading General equilibrium modeling 

JEL Classification

D58 Q23 Q54 

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Copyright information

© Springer International Publishing Switzerland 2014

Authors and Affiliations

  • Francesco Bosello
    • 1
    • 2
    • 3
  • Ramiro Parrado
    • 2
    • 3
    Email author
  • Renato Rosa
    • 3
    • 4
  • Fabio Eboli
    • 2
    • 3
  1. 1.University of MilanMilanItaly
  2. 2.Euro-Mediterranean Center on Climate ChangeVeniceItaly
  3. 3.Fondazione Eni Enrico MatteiVeniceItaly
  4. 4.CENSE—Center for Environmental and Sustainability Research, Faculdade de Ciências e Tecnologia, Universidade Nova de LisboaLisbonPortugal

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