Antinori, Camille (Lawrence Berkeley National Laboratory, Environmental Energy Technologies Div., LBNL, One Cyclotron Road, 90-R4000, Berkeley, CA, 94720; Phone: 510-495-2277; Fax: 510-486-6996; Email: cmantinori@lbl.gov)

Transaction Costs of Project-Based Carbon Reduction: Evidence from the Forestry Sector

Camille Antinori, Jayant Sathaye, Ken Andrasko*

Recognition of the need to address global climate change has created a new market for trading carbon emissions reductions. This paper considers whether transaction costs may hinder this market’s further growth and development. Transaction costs refer to costs beyond production required to make a trade, such as search for trading partners, contract writing and negotiation, monitoring, regulatory approval, as well as the overall risks of undertaking the project. We focus on ten projects in the forestry sector in Asia, Latin America and the US. We develop and use a common framework for categorizing transaction costs, and using project-specific data estimate costs for a nascent (i.e., current early, thin market) and a mature emissions reduction market, and with and without insurance costs. We conclude that transaction costs decline as the log of the project size, and that costs are lower in a mature compared to the current nascent market.