1
Carbon Trading and Non-Permanency of Agricultural Sequestration:
Institutional Design and the Choice of Working Rules
Paul J. Thomassin
Associate Professor
Department of Agricultural Economics
McGill University
21,111 Lakeshore Road
Ste. Anne de Bellevue, Quebec
H9X 3V9
Paul.Thomassin@McGill.CA
Paper # 157087
Paper Selected for Presentation at the 2006 American Agricultural
Economics Association Annual Meeting in Long Beach, July 23-26.
2
Carbon Trading and Non-Permanency of Agricultural Sequestration:
Institutional Design and the Choice of Working Rules
Abstract:
The institutional development of a domestic carbon trading institution in Canada
that includes carbon off-sets must address the problems of providing the
appropriate incentives to generate carbon reductions and removals and the
problem of non-permanency of sequestered carbon. The paper analyzes two rule
sets to address these problems and estimates the economic impact of these sets.
3
Carbon Trading and Non-Permanency of Agricultural Sequestration:
Institutional Design and the Choice of Working Rules
When Canada ratified the Kyoto Protocol in December 2002, the country
committed to decrease its Greenhouse Gas (GHG) emissions by 6% below its
1990 level. It is estimated that this commitment will require Canada to decrease
emissions by 270 megatonnes (Mt) per year during the first commitment period
2008 to 2012 (Government of Canada 2002). Carbon emission trading
institutions have been identified, both internationally and domestically, as being a
cost effective mechanism for supplying carbon emission reductions (UNFCCC
1997, Perman et al 2003, Randall 1983).
The Canadian Climate Change Plan (Government of Canada 2002) is
promoting the establishment of a domestic emission trading (DET) institution for
carbon. The demand for carbon credits will be from three sources: large final
emitters (LFEs), the Climate Fund, and other Canadians and industrial sectors.
Under this sch