Transaction Costs and Forest Management Carbon Offset Potential

Author(s): Christopher S. Galik, Justin S. Baker and Joseph L. Grinnell

Published: July 2009

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Transaction costs are one of the key challenges that private forest landowners may face in participating in emerging carbon markets. As most forestlands in the United States occur in the form of small, privately held landholdings, the supply of forest carbon offsets could be constrained by high transaction costs. Using a custom spreadsheet model, this study examines the transaction costs of different forest offset projects operating in different forest types under different accounting methodologies or protocols. Our results suggest that transaction costs can be significant for small forest management offset projects. We find that transaction costs likewise vary by protocol and tend to decrease with project size and length of rotation extension. While transaction costs can be an important driver in total project revenue, they appear to be less of a factor than the actual accounting scheme under which the project is being operated.