Incentives of a Forest Landowner’s to Sequester and Trade Carbon under Uncertainty: Impact of Hurricanes in Southeastern United States : Paper Presented at The 16th Global Warming International Conference & Expo (GWXVI), New York City, April 19-21st, 2005.

Abstract: Forests are a principal carbon 'sink' for sequestering carbon from the atmosphere. The provision of trading emission rights under the Kyoto Protocol will provide forest landowners the opportunity to reap financial gains from sequestering carbon and trading rights to emit carbon in carbon permit markets. However, landowners may be liable for repaying all or some of the proceeds received for sequestering carbon if stored carbon is released during the contract period. If forests are damaged by hurricanes, it may cause extensive mortality and subsequent emission of carbon dioxide from decomposing biomass. Such liabilities may reduce landowners' incentives to sequester carbon. This research evaluates incentives of an individual forest landowner for sequestering and trading carbon, given the risk of carbon loss from hurricanes. Results of our simulation model reveal that the effect of hurricane risk on landowners' behavior depends on the variability of returns from carbon and timber and the ability of landowners to mitigate risk by diversifying forest holdings across regions with different sequestration rates and different hurricane strike probabilities.

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Evaluating Effects of Private Insurance on Forest Landowners’ Incentives to Sequester and Trade Carbon: Impact of Hurricanes : Spring 2005

Abstract: There is a considerable gap between sequestering an actual ton of carbon in forests, and having that ton available to be used as an offset by a carbon emitter operating under a regulated program, given the risk of that carbon being lost or emitted as a result of natural disasters like hurricanes. Included in the gap between “growing” a ton and “selling” a ton is the risk that the sequestered carbon may be emitted back into the atmosphere as a result of natural disasters and the consequent costs incurred by the carbon credit seller in terms of financial losses and penalties. Without some form of risk management or risk protection, landowners are not likely to be motivated to participate in carbon sequestration trading even though they recognize the potential of financial gains. . Buying private insurance is gaining popularity as a tool to mitigate the financial consequences for participating landowners from carbon loss. I will utilize a stochastic stimulation model to analyze the potential implications of buying private insurance on landowners’ incentives to participate in terrestrial carbon trading given the risk of carbon loss from natural disasters like hurricanes.

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Setting up a Tradable Carbon Offsets System: Risk, Uncertainty and Caveats : Spring 2005

Abstract: A large number of concepts related to offset policy are currently being discussed in existing literature such as, baseline, leakage, permanence, monitoring, verification, enforcement, financial feasibility, and third party verification. Cutting across these multitude of concepts are a variety of risks and uncertainties. Perhaps due to the diverse and wide ranging literature, a comprehensive framework for cataloging and analyzing the variety of risks has not yet emerged. These risks play a major role in developing effective market designs that achieve aggregate emission caps while encouraging market participation and investment in carbon reduction activities. What are the risks associated with carbon offset policy? Who bears these risks? A conceptual framework of carbon trading risks is developed. Institutional/policy risks relate to trading incentives and regulations, project risks reflect traders’ physical and financial risks, and measurement risks reflect the difficulty in measuring carbon sequestration resulting from management practices.

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Sampson, R. Neil and Grover, Mansi. “National Carbon Offset Coalition Handbook, 2004-2005”, Summer 2004.

Abstract: The handbook is designed for technical people, landowners, buyers, and researchers who wish to understand how the National Carbon Offset Coalition is organized to facilitate the creation and marketing of carbon sequestration units (CSU’s). In the handbook concepts and terms related to carbon sequestration and trading are defined and explained.

A copy of the handbook can be downloaded at http://www.ncoc.us

No Unit Root in GNP: An Implication of Statistical Adequacy : Fall 2003

Abstract: Dickey and Fuller in the late 1970’s provided methods by which the unit root hypothesis could be tested. Subsequent to this, Nelson and Plosser made a landmark application of these methods to macroeconomic time series, which has produced numerous other enquiries of this nature. One such application is Stock and Watson (1986). This study revisits Stock and Watson’s results, with the main conclusion being that real per capita GNP is trend rather than difference stationary. This conclusion contradicts both, Stock and Watson as well as Nelson and Plosser, but is due to its application of the more robust method of ensuring statistical adequacy. This paper shows that real per capita GNP is a trend stationary rather than a difference stationary process. This conclusion is yet another in the series of more recent studies which have overturned the results of the seminal investigation by Nelson and Plosser. The paper’s conclusion is also inconsistent with the results of the metric against which it is being measured; the results of Stock and Watson (1986). This comes as no surprise as these results are consistent with most studies which employ the more robust approach of establishing statistical adequacy before attempting to test for unit roots. The statistical adequacy approach is deemed to be more robust because it ensures that a set of internally consistent probabilistic assumptions is imposed upon the model. Without this kind of consistency no inferences should be drawn from a model’s results, because at best such inferences are misleading, if not entirely false.

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Assessing the Impact of Uncertain Resolution on Forest Cover and the Definition of a ‘Forest’ : Fall 2003

Abstract: The Kyoto Protocol has the provision of international carbon offset trading as one of the flexibility mechanisms for meeting carbon reduction goals. However, determining the number of offsets generated by, say, a forest plantation requires a measure of the amount of carbon sequestered by the forestland, which in turn depends on how much area in the plantation actually constitutes a ‘forest’. This analysis addresses the uncertainty in the measurement and representation of geographic phenomena, particularly land cover. The uncertainty stems from the vagueness of the labels that are assigned to different zones, which is a result of absence of objective geographic individual units (Longley, et al) and also from the lack of comparability across spatial resolution in terms of land use and land cover data. More precisely, the question that is addressed is what absolute or relative incidence of trees in a tree-covered zone qualifies it for the label of a ‘forest’ and how does the corresponding measure of tree cover behave with varying spatial resolution of data. The measure of ‘forest cover’ increases as spatial resolution of data falls. The increment in the measure of forest cover is the largest for areas with a lower density of tree cover. This analysis would be particularly useful for evaluating CDM projects in developing countries which are not likely to have very good data on land cover. And if these countries acquire better data, the definitions of forest cover would have be reevaluated and the results of this analysis would have to be kept in mind in order to get a realistic estimate of corresponding forest cover claims.

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Reaves, D. W., Stephenson, K., Grover M. “Perspectives from accounting.” Essays on Leadership in Environmental Management. Erchul, R.A., Bush, H. F., Maisano, Marilyn, R. D., ed., pp. 93-103. Virginia Military Institute, Lexington, Virginia, 2004.