Realising the social value of impermanent carbon credits

Abstract

Efforts to avert dangerous climate change by conserving and restoring natural habitats are hampered by widespread concerns over the credibility of methods used to quantify their net long-term benefits. We develop a novel, flexible framework for estimating the long-run social benefit of impermanent carbon credits generated by nature-based interventions which integrates three substantial advances: the conceptualisation of the permanence of a project’s impact as its additionality over time (relative to a statistically-derived counterfactual); the risk-averse estimation of the social cost of future reversals of carbon gains; and the deployment of post-credit monitoring to correct for errors in deliberately pessimistic release forecasts. Our framework generates incentives for safeguarding already-credited carbon while enabling would-be investors to make like-for-like comparisons of diverse carbon projects. Preliminary comparisons suggest that after fully adjusting for the impermanence of their effects, nature-based interventions may offer less costly ways of reducing climate damages than more technological solutions.

PACT Tropical Moist Forest Accreditation Methodology

“…This discount rate is compatible with an increase in the SCC of 2% per year as well as the implied Ramsey discount rate using the mean pure time preference rate and elasticity of marginal utility of the expert survey reported in Drupp et al (2018). Balmford et al (2023) provide sensitivity analysis of eP to discount rate choice.…”

PACT Tropical Moist Forest Accreditation Methodology

“…This is 1.3% time discounting over an assumed 1.7% GDP growth rate. Balmford et al (2023) provide sensitivity analysis of eP to discount rate choice.…”

“…Finally the permanence of (additionality-leakage) in the evaluation period is estimated using the approach from (Balmford et al, 2023) (Section 6.4).…”