Financial Contracts and the Management of Carbon Emissions in Small Scale Plantation Forests

Motu Working Paper No. 11-04

24 Pages Posted: 4 May 2011

See all articles by Andrew Coleman

Andrew Coleman

Motu Economic and Public Policy Research Trust

Date Written: May 3, 2011

Abstract

Under the New Zealand Emissions Trading Scheme, foresters can obtain carbon units as their forests sequester carbon. If they sell these units as they are earned, the units must be repurchased when the forest is harvested, exposing foresters to price risk. This paper examines the way forward markets, futures markets, and carbon lending markets could be used to manage this risk. It argues that carbon lending markets are likely to be the most convenient form for foresters, as they allow the total returns from forestry investments to be increased with minimal risk. The carbon units can be lent to industrial firms or developers of new forests to minimise the carbon risk they face if they make carbon reducing investments.

Keywords: carbon banking, carbon forward markets, forest sequestration

JEL Classification: Q23, Q55

Suggested Citation

Coleman, Andrew, Financial Contracts and the Management of Carbon Emissions in Small Scale Plantation Forests (May 3, 2011). Motu Working Paper No. 11-04, Available at SSRN: https://ssrn.com/abstract=1829801 or http://dx.doi.org/10.2139/ssrn.1829801

Andrew Coleman (Contact Author)

Motu Economic and Public Policy Research Trust ( email )

Level 1, 93 Cuba Street
P.O. Box 24390
Wellington, 6142
New Zealand

HOME PAGE: http://www.motu.org.nz

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