Climate Change 2001:
Working Group III: Mitigation
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4.6.3 Risks, Rights, and Practical Economics

Protecting forestlands, grasslands, and other natural ecosystems is often proposed as the best way to maintain large carbon reservoirs at lowest cost. The cost of such an approach, however, may in fact be significant, although low in comparison with many of the options in the energy sector and attempts at forest protection have failed in many parts of the world. The incentives to convert often far outweigh the incentives to protect. This problem is often exacerbated by the absence of well-defined, enforceable property rights, either private or public, and the absence of other necessary institutions. In an open access situation the incentives are to “use it or lose it”, since there are no certain claims on the future use of the resource. Because there is no long-term claim on the resource in the future, the result is that resources may be used wastefully in excess of their economic optimum. Thus, deforestation and land clearing are a form of the open access problem (Hardin, 1968).

The costs of carbon management may not be distributed in the same way as the benefits. Carbon management options in developing countries may have low market costs but high local social costs in land commitments, and the benefits that arise may not be shared with local peoples. Analysis of a forest protection project in Madagascar suggests that there are financial benefits for local inhabitants and social benefits for the global community, but short-term debits at the national level (Kremen et al., 2000). Formal adoption of markets for forest carbon could increase incentives for forest protection, especially if mechanisms assure that local peoples share in the benefits. Similarly, costs and benefits may be realized at different times; future benefits are often weighted against current costs. How communities value present and future costs depends on wealth, culture, and economic and environmental priorities.

International consensus on carbon management begins to have important implications for national sovereignty and personal property rights, an issue brought to prominence by recent turmoil regarding international trade agreements (see Chapter 6 for a detailed discussion on policies, measures and instruments).

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