Carbon Monitoring Costs and their Effect on Incentives to Sequester Carbon through Forestry

Technically, forestry projects have thepotential to contribute significantly tothe mitigation of global warming, but manysuch projects may not be economicallyattractive at current estimates of carbon(C) prices. Forest C is, in a sense, a newcommodity that must be measured toacceptable standards for the commodity toexist. This will require that credible Cmeasuring and monitoring procedures be inplace. The amount of sequestered C that canbe claimed by a project is normallyestimated based on sampling a number ofsmall plots, and the precision of thisestimate depends on the number of plotssampled and on the spatial variability ofthe site. Measuring C can be expensive andhence it is important to select anefficient C-monitoring strategy to makeprojects competitive in the C market. Thispaper presents a method to determinewhether a forestry project will benefitfrom C trading, and to find the optimalmanagement strategy in terms of forestcycle length and C-monitoring strategyA model of an Acacia mangiumplantation in southern Sumatra, Indonesiais used to show that forestry projects canbe economically attractive under a range ofconditions, provided that the project islarge enough to absorb fixed costs.Modeling results indicate that between 15and 38 Mg of Certified Emission Reductions(CERs) per hectare can be captured by thesimulated plantation under optimalmanagement, with optimality defined asmaximizing the present value of profitsobtained from timber and C. The optimalcycle length ranged from 12 to 16 years andthe optimal number of sample plots rangedfrom 0 to 30. Costs of C monitoring (inpresent-value terms) were estimated to bebetween 0.45 (Mg C)-1 to 2.11 (MgC)-1 depending on the spatialvariability of biomass, the variable costsof C monitoring and the discount rate.