Secondary forests as temporary carbon sinks?: The economic impact of accounting methods on reforestation projects in the tropics

Tropical forestry is often not competitive with agricultural land uses such as pasture for cattle ranching. Additional revenues from carbon sequestration generated by the Clean Development Mechanism (CDM) of the Kyoto Protocol can change this situation. In three different zones of north-western Ecuador, minimum compensation payments for carbon sequestration were determined, which would make reforestation a feasible land-use alternative. Based on our findings that these minimum prices depend on the net benefit of the respective land-use alternatives, and on the accounting regimes for CDM sink projects, we applied the accounting rules for temporary and long-term Certified Emission Reductions (CER) to two reforestation projects: forest plantation and natural regrowth of secondary forest. A comparison of these alternatives showed that secondary forest is an attractive alternative under both accounting regimes because of its low establishment costs and relative early timber revenues. After identifying the zone most suitable for carbon sink projects, we calculated net benefits of land-use changes in the event that certain prices for emission reductions were actually paid. We found that secondary forest becomes economically attractive, if the price of permanent credits is above $4.5/tCO(2), whereas forest plantations require permanent CER prices of $7.0/tCO(2). In both cases, the results are within the price margins forecasted by various institutions for the first commitment period of the Kyoto Protocol. The presented methodology is meant to support the decision making process on the supply side of a future CER market. Opportunity costs of land-use changes have to be analyzed carefully before deciding in favor of long binding forestry projects. Assigning temporary credits to naturally regrown secondary forests could-although excluded from CDM during the first commitment period-combine the advantages of a flexible accounting regime with the positive economic and ecological effects of this competitive land use. (c) 2004 Elsevier B.V. All rights reserved.