How attractive are forest carbon sinks? Economic insights into supply and demand of Certified Emission Reductions

The Clean Development Mechanism includes afforestation projects as possible instruments to reduce global atmospheric CO2. These projects have also the potential to combat regional environmental problems like land degradation and desertification. The present article analyzes forestry projects in north-western Patagonia from an economic viewpoint based on the latest Kyoto Protocol developments. We consider temporary and long-term Certified Emission Reductions (CER) and determine the conditions on which forest plantations are attractive to potential CER suppliers and demanders. We conclude that for most of the recent carbon price projections, carbon sink projects would be economically viable for CER suppliers and at the same time attractive to CER demanders looking for cost-efficient emission abatement opportunities. (c) 2005 Elsevier GmbH. All rights reserved.