Carbon markets, transaction costs and bioenergy
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Payment for carbon sequestration by agriculture and forestry can provide incentives for adoption of
sustainable agricultural practices. However, a project involving contracts with farmers may face high
transaction costs in showing that net emission reductions are real and attributable to the project. This
paper presents a model of project participation that includes transaction and abatement costs. A project
feasibility frontier (PFF) is derived, which shows the minimum project size that is feasible for any
given market price of carbon. The PFF is used to analyse how the design of a climate mitigation
program may affect the feasibility of actual projects.