The Price Gap in Agriculture-Based Greenhouse Gas Offset Markets

Abstract

Today, there is a global effort to reduce greenhouse gas net emissions (GHGNE). For economic well-being, it is important to identify low-cost means of net emission offsets. Agriculture and forestry have received considerable attention as a means of supplying emissions offsets, as they contribute nearly 20% of global emissions. However, given that other sources of emissions also present opportunities for reducing GHGNE, the issue of comparative offset costs becomes important. This paper examines the offset costs associated with reducing net carbon dioxide equivalent emissions in agriculture and highlights the relative costs and associated cost components. We discuss an approach for estimating the per-tonne GHGNE cost and formulate expressions for the cost to buyers, payments to sellers, and the gap in between in the context of a potential carbon market. Case studies are conducted to estimate the gap for different situations. We believe differences in claimable versus saleable GHGNE quantities and market transaction costs, in part, explain the large variation in observed prices paid for different emission offset actions.