Environment and Development Economics

Transaction and abatement costs of carbon-sink projects in developing countries 1

a1 School of Economics, University of New England, Armidale NSW 2351, Australia
a2 Institute for Rural Futures, University of New England, Armidale NSW 2351, Australia
a3 Geoscience Australia, Symonston ACT, Australia

Article author query
cacho oj   [Google Scholar] 
marshall gr   [Google Scholar] 
milne m   [Google Scholar] 


Projects in the forestry sector, and land-use change and forestry projects more generally, have the potential to help mitigate global warming by acting as sinks for greenhouse gasses, particularly CO2. However, concerns have been expressed that participation in carbon-sink projects may be constrained by high costs. This problem may be particularly severe for projects involving smallholders in developing countries. Of particular concern are the transaction costs incurred in developing projects, measuring, certifying, and selling the carbon-sequestration services generated by such projects. This paper addresses these issues by reviewing the implications of transaction and abatement costs in carbon-sequestration projects. An approach to estimating abatement costs is demonstrated through four case studies of agroforestry systems located in Sumatra, Indonesia. A typology of transaction costs is presented and related to existing pilot projects. The paper concludes with recommendations to reduce the disadvantages that smallholders may face in capturing the opportunities offered by carbon markets.

(Published Online October 4 2005)

c1 Correspondence author.


1 This research was funded by the Australian Centre for International Agricultural Research (ACIAR) and by the Food and Agriculture Organization (FAO) of the United Nations. Mary Milne was a consultant with the Center for International Forestry Research (CIFOR) when the research was undertaken.