WP1 - The determinants of transaction costs for carbon sequestration projects: A meta-analytical review.

Authors: Luiza Martins Karpavicius, Katarina Elofsson & Shiyu Yan

Status: In submission, under peer review. Presented at the NAERE Workshop 2022, the 2022 PhD Summer School Economic Foundations for Energy and Climate Policies (Florence School of Regulation) and at the EAERE conference 2023 and at a poster session of the Low Carbon Economcis Markets workshop in Oldenburg, Germany.

Abstract:

Carbon sequestration is considered a cost-effective strategy for climate mitigation. However, transaction costs (TRCs), i.e., costs for establishment, management, compliance with trading requirements, and monitoring, reporting and verification, are often overlooked. We investigate TRCs and determinants in sequestration projects through a meta-analysis of peer-reviewed papers from 2000 to 2022. We apply this dataset in meta-regressions, investigating how TRCs vary with project characteristics, institutional context, and policy instruments applied. We find that TRCs fall between 0 and 1,085 USD/tCO2e, with a median of 1.0 USD/tCO2e. Project size is relevant in predicting TRCs: A 1% increase in sequestration (area) increases TRCs (monitoring and verification costs) by 1.1%. Projects generating offset credits exhibit about 16 times higher TRCs, and Payments for Ecosystem Services have 4 times higher TRCs than projects where the instrument is not specified. The results contribute to understanding the trade-off between carbon sequestration effects and overall policy costs.

Results from this paper appear on the Danish Centre For Environment And Energy report commissioned by the Danish Ministry of Agriculture, see below:

Elofsson, K., Karpavicius, L., & Yan, S. (2023). A meta-analysis of transaction costs for projects to enhance carbon sequestration in land use and the potential implications in the Danish context (Scientific Report 577; p. 38). DCE – Danish Centre for Environment and Energy. https://dce.au.dk/fileadmin/dce.au.dk/Udgivelser/Videnskabelige_rapporter_500-599/SR577.pdf

Preprint manuscript available upon request.