Incentive Contracts for Environmental Services and Their Potential in REDD

Implementation arrangements for Reducing Greenhouse Gas Emissions from Deforestation and Forest Degradation can be seen as contracts that could address some of the inherent problems with forest carbon credits that often lead to high transaction costs -- measuring, monitoring, and verification. Self-enforcing contracts, where it is in the best interest of the environmental service providers to comply with the contracts, may be one way to reduce these costs if providers have incentives to uphold their end of the contract. While the literature on Reducing Greenhouse Gas Emissions from Deforestation and Forest Degradation is extensive, there is little information available to guide policy makers or investors on what form such contracts should take. After providing an overview of the current status of Reducing Greenhouse Gas Emissions from Deforestation and Forest Degradation and its role as a tool for reducing carbon emissions on an international scale, the paper describes key issues regarding implementation and reviews the literature on contracts from the related area of Payments for Ecosystem Services programs, which face similar challenges. The remainder of the paper reviews various contractual mechanisms from agricultural and forestry related projects that have been proposed or are being used in practice and discusses the various implications associated with their design and implementation.

Bibliographic Details

Main Authors:	Fortmann, Lea, Cordero, Paula, Sohngen, Brent, Roe, Brian
Language:	English en_US
Published:	World Bank, Washington, DC 2014-04
Subjects:	ABATEMENT, ABATEMENT COSTS, ACCOUNTING, ADVERSE SELECTION, AFFORESTATION, AFFORESTATION PROJECTS, AGRICULTURAL COMMODITIES, AGRICULTURAL PRODUCTION, AIR, ANNUAL CHANGE, ANNUAL COSTS, ASYMMETRIC INFORMATION, AUCTIONS, BARREN LANDS, BASELINE LEVELS, BENEFICIARIES, BIOMASS, BUY BACK, CAPACITY BUILDING, CAPS, CARBON CREDITS, CARBON DIOXIDE, CARBON DIOXIDE EMISSIONS, CARBON EMISSIONS, CARBON FINANCE, CARBON MARKET, CARBON MARKETS, CARBON MEASUREMENT, CARBON OFFSET, CARBON OFFSETS, CARBON PRICE, CARBON PRICES, CARBON SEQUESTRATION, CARBON STOCKS, CARBON STORAGE, CARBON TRADING, CASH PAYMENTS, CERTIFIED EMISSION REDUCTIONS, CHECKS, CLEAN DEVELOPMENT MECHANISM, CLIMATE, CLIMATE CHANGE, CLIMATE CHANGE MITIGATION, CLIMATE POLICY, CO, CO2, CONDITIONALITY, CONSERVATION RESERVE PROGRAM, CONTRACT DESIGN, COST ESTIMATES, CREDIT SALES, DEFORESTATION RATES, DEGRADED LAND, DEGREE OF RISK, DEVELOPED COUNTRIES, DEVELOPING COUNTRIES, DEVELOPING COUNTRY, DEVELOPMENT ECONOMICS, DISCOUNT RATE, DISCOUNT RATES, DRIVERS OF DEFORESTATION, DROUGHT, ECOLOGICAL ECONOMICS, ECOLOGY, ECONOMIC CONDITIONS, ECONOMIC MODELS, ECONOMIC RISKS, ECONOMICS, ECONOMIES OF SCALE, ECOSYSTEM, EFFICIENCY GAINS, ELECTRIC POWER, EMISSION CAP, EMISSION LEVELS, EMISSION REDUCTIONS, EMISSIONS FROM DEFORESTATION, EMISSIONS LEVELS, EMISSIONS REDUCTION, ENERGY SOURCES, ENFORCEABILITY, ENFORCEMENT SYSTEMS, ENVIRONMENTAL, ENVIRONMENTAL BENEFITS, ENVIRONMENTAL DAMAGES, ENVIRONMENTAL ECONOMICS, ENVIRONMENTAL GOODS, ENVIRONMENTAL PROTECTION, ENVIRONMENTS, EROSION CONTROL, EXPENDITURE, EXPENDITURES, EXTERNALITIES, FINANCIAL INCENTIVES, FINANCIAL SUPPORT, FIRE MANAGEMENT, FIXED COSTS, FOREST, FOREST AREA, FOREST AREAS, FOREST CARBON, FOREST CARBON SEQUESTRATION, FOREST CARBON STORAGE, FOREST COMMUNITIES, FOREST CONSERVATION, FOREST CONVERSION, FOREST DEGRADATION, FOREST FIRE, FOREST FIRES, FOREST INVENTORIES, FOREST INVENTORY, FOREST LAND, FOREST MANAGEMENT, FOREST MANAGEMENT ACTIVITIES, FOREST OFFSET, FOREST PROJECT, FOREST PROJECTS, FOREST PROTECTION, FOREST RESOURCES, FOREST SERVICE, FOREST SYSTEMS, FORESTRY, FORESTRY ACTIVITIES, FORESTRY PROJECTS, FORESTRY SECTOR, FORESTS, FOSSIL FUEL, FOSSIL FUEL EMISSION, FRAMEWORK CONVENTION ON CLIMATE CHANGE, GHG, GHGS, GLOBAL EMISSIONS, GLOBAL GREENHOUSE GAS, GREENHOUSE, GREENHOUSE GAS, GREENHOUSE GAS EMISSIONS, HOLDING, IMPERFECT INFORMATION, INCOME, INFRASTRUCTURE DEVELOPMENT, INSURANCE, INTEREST RATE, INTERNATIONAL BANK, INTERNATIONAL MARKET, INTERNATIONAL MARKETS, INVESTING, IPCC, LAKES, LAND HOLDINGS, LAND MANAGEMENT, LAND USE, LAND-USE CHANGE, LANDHOLDER, LANDHOLDERS, LANDOWNER, LANDOWNERS, LEGAL SYSTEMS, LEVEL OF RISK, LIABILITY, LOAN, LOCAL GOVERNMENT, LOCAL GOVERNMENTS, LOGGING, LOWER COSTS, LOWER PRICES, MARGINAL COST, MARGINAL COSTS, MARKET PRICE, MARKET PRICES, MARKET TRANSACTIONS, METHANE, MODEL CONTRACTS, MONETARY BENEFITS, MORAL HAZARD, NATIONAL EMISSIONS, OFFSET PRICE, OFFSET PROJECTS, OPPORTUNITY COST, OPPORTUNITY COSTS, OPTIMAL CONTRACT, OPTIMAL CONTRACTS, ORIGINAL CONTRACT, PARTICIPATION CONSTRAINTS, PENALTIES, PERFECT INFORMATION, PLEDGES, POLICY MAKERS, POPULATION PRESSURES, PORTFOLIO, PORTFOLIOS, PP, PRIVATE ENFORCEMENT, PRIVATE INFORMATION, PROPERTY RIGHTS, REDUCING EMISSIONS, REPAYMENT, REPAYMENTS, RESERVE, RESERVES, RESOURCE ECONOMICS, RETURN, RURAL COMMUNITIES, SCENARIOS, SET ASIDE, SOCIAL CAPITAL, SOIL CARBON, STORMS, STREAMS, SUPPLY SIDE, SUSTAINABLE DEVELOPMENT, SUSTAINABLE FOREST, SUSTAINABLE FOREST MANAGEMENT, TIMBER, TOTAL COSTS, TOTAL EMISSIONS, TOTAL EMISSIONS REDUCTIONS, TRADE SYSTEM, TRADEOFFS, TRANSACTION, TRANSACTION COSTS, TRANSACTIONS COSTS, TRANSPARENCY, TROPICAL FOREST, TROPICAL FOREST REGIONS, TROPICAL FORESTS, TRUST FUND, UNCERTAINTIES, UNEP, VARIABLE COSTS, WATER QUALITY, WIND, WITHDRAWAL,
Online Access:	http://documents.worldbank.org/curated/en/2014/04/19332144/incentive-contracts-environmental-services-potential-redd https://hdl.handle.net/10986/17712
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