The Kyoto Protocol allows the possibility to fulfill the emission reduction commitment through forest projects in developing countries. A particular characteristic of forest projects is that the sequestered carbon is considered as non-permanent. Thus expiring credits are issued, which must be replaced after the end of the validity period. The current approach to value expiring credits uses a simple time preference consideration. Therefore the model does not include other influences on the willingness to pay for an expiring credit. A new approach focusing on the user of expiring credits for compliance is derived by applying arbitrage and option pricing theory. In a concluding case study the carbon sequestration of multiple forest projects under the Kyoto Protocol is valued by the new approach.
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The Kyoto Protocol allows the possibility to fulfill the emission reduction commitment through forest projects in developing countries. A particular characteristic of forest projects is that the sequestered carbon is considered as non-permanent. Thus expiring credits are issued, which must be replaced after the end of the validity period. The current approach to value expiring credits uses a simple time preference consideration. Therefore the model does not include other influences on the willin...
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