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Spring Focus on Sustainability and the Environment : Cultivating Carbon : An Exploration of Carbon Markets and Carbon Of...
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Permanent Link: http://ufdc.ufl.edu/UF00091523/00615
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Title: Spring Focus on Sustainability and the Environment : Cultivating Carbon : An Exploration of Carbon Markets and Carbon Offsets in the Agricultural Sector
Series Title: Journal of Undergraduate Research
Physical Description: Serial
Language: English
Creator: Bowen, Richard Tyler
Publisher: University of Florida
Place of Publication: Gainesville, Fla.
Publication Date: Spring 2012
Subjects / Keywords: carbon dioxide
carbon sequestration
carbon trading
risk management
Genre: serial   ( sobekcm )
Abstract: This report explores the greenhouse gas (GHG) control policies of carbon markets and carbon offsets in the agricultural sector of the United States. To explore this topic, this report surveys and examines relevant literature and interprets this literature to assess the current status of agricultural carbon offsets. An analysis of relevant literature suggests that agricultural carbon markets and carbon offsets could potentially reduce carbon emissions, but they currently lack the accessibility, safety, and regulatory oversight to be an efficient or trustworthy investment. Creating effective agricultural carbon markets and offset projects will require political cooperation, extensive supervision, and expansion of the pool of eligible participants.
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Holding Location: University of Florida
Rights Management: All rights reserved by the source institution and holding location.
Resource Identifier: sobekcm - UF00091523_00602
System ID: UF00091523:00615


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University of Florida | Journal of Undergraduate Research | Volume 13, Issue 2 | Spring 2012 1 Richard Tyler Bowen College of Agricultural and Life Sciences, University of Florida This report explore s the greenh ouse gas (GHG) control policies of carbon markets and carbon offsets in the agricultural sector of the United States. To explore this topic, this report survey s and exam ines relevant literature and interpret s this literature to assess the current status of agricultural carbon offsets An a nalysis of relevant literature suggests that agricultural carbon markets and carbon offsets could potentially reduce carbon emissions but they currently lack the accessibility safety, and regulatory oversight to be an effi cient or trustworthy investment Creating effective agricultural carbon market s and offset projects will require political cooperation, extensive supervision, and expan sion of the pool of eligible participants Approximately 15% of annual American GHG emissions are sequestered by the agricultural and forestry sectors, mostly from annual increases in forest stocks ( 2). Many options exist for agricultural carbon mitigation. A gricultural carbon sequestration activities include till c rop management; conversion of cropland to grass, managed forests, grasslands, and rangelands; new tree plantings; anaerobic digesters and methane projects; wind, solar, or other CRS Johnson 3). This wide range of projects offers many opportunities for farmers to generate carbon offsets. Soil carbon sequestration and conversion of agric ultural lands to plant biomass are the two most promising of these a ctivities in terms of emissions mitigated ( Car 7). Carbon offsets also have associated risks and considerations. To assess the effectiveness of agricultural carbon offsets in mitigating carbon emissions this paper will explore benefits, considerations, and potential problems in implementing agricultural carbon sequestration schemes. The need for examples, however, merits a deeper focus that ex plore s soil conservation and land conversio n to plant biomass production. BENEFITS OF AGRICULT URAL CARBON OFFSETS High potent ial for soil carbon sequestration and plant bioma ss sequestration means high revenue s for carbon offset producers. CRS Report RL34042 (Dec. 15, 2009) explains that carbon control legislation may allow the agricultural sector to generate carbon offsets and reinvest offset profits into agricultural emission reduction technologies (p. 7 8). Both the United States Department of Agriculture and the United States Environmental Protection Agency believe that a strong carbon offset market in which agriculturalists could participate would benefit U.S. agriculture as a whole ( CRS 2). Some carbon offset projects may not require substantial departure from typical agricultural operations. R ecommended practices for soil carbon sequestration for example, agroforestry and diverse cropping systems, cover integrated nutrient management Lal 1624), which farmers can practice alongside crop cultivation. Soil carbon sequestration practitioners can thus cultivate land use d for sequestration presenting dual uses for the same land. Also, because effect on carbon stored in the soil, except where followed by conversion of the s ite to an agricultural land use (F reedman Stinson, and Lacoul 7) foresters could profit from carbon sequestration and timber sales with proper management In addition to generating and selling carbon offsets, farmers may reap other benefits from carbon sequestration. F or example, the soi l organic carbon retained and increased through soil carbon sequestration provides soil and ecosystem services including water and nutrient retention, soil erosion reductions soil ecosystem pre s ervation and pollution reduction ( Lal 1626). Increasing soi l carbon also increase s soil productivity regardless of soil quality or agr icultural intensity ( Lal 1626) and quality downstream and in aquifers and improved slope also appear as benefits from afforesta tion projects ( Freedman, Stinson, and Lacoul 11). M aintaining forestry also provides external benefits: examples include preserving watershed flow regimes, sustainable forest management (required to maintain forestry carbon projects), and conserving biodiv ersity, habitat, and topsoil (Kennett 599). In addition, a 2003 University of Newcastle report documents significant local benefits to air quality: the forest in a two hectare region of


RICHARD TYLER BOWEN University of Florida | Journal of Undergraduate Research | Volume 13, Issue 2 | Spring 2012 2 city and forestland in Great Britain provided £199,367 to £11,373,707 in benefits, and reduced pollution enough to prevent ~59 to 88 deaths and ~40 to 62 hospital visits ( Willis et al. 24). CONSIDERATIONS AND R ISKS ASSOCIATED WITH AGRICULTURAL CA RBON OFFSETS Discussing agricultural carbon offsets and markets involves several factors, including ability to produce offsets, timeframe demanded, and trustworthiness of offset production. Agricultural carbon offset producers also must account for risks in producing offsets, specifically if the carbon sequestered is less than initial ly believed. This portion of the report examines each factor in detail. Relative Ability to Participate Certain farmers and landowners may be better suited for offset production than others For example, large scale farm er s enjoy economies of scale and low er transaction costs and larger farms can have land designated for sequestration with enough remaining to practice other agriculture ( CRS 20 21). L arger farms may also allow owners more autonomy: farmers capable of establishing individual offset projects have more f lexibility in project design (Thomassin 1667). However, individual ly, offset producer s likely generate too few offsets to serve the needs of carbon emitting firm s In order to create sufficiently large offset parcels, o ffset producers thus need agents to bundle their offsets with offsets from This necessary but additional expense raises costs for individual produc ers (Thoma ssin 1776) Despite the advantages of large scale farmers, small scale farmers can participate in offset production, as the CCX conservation tillage program had less than 450 acres and could thus be CRS 24). In contrast to individual offset project s pooled offset programs may better serve small farmers by enrolling multiple farmers in offset production according to a communal set of guidelines and re strictions. T he pooled offset program restricts freedom of proje ct design by forcing the farmers to conform to a specified project and uniform standards ; however, the pooled program also reduces operating costs: costs for monitoring, measurement, and accre ditation only apply to the project as a whole and not for each member of the offset pool ( Thomassin 1667). This approach has an advantage over ind ividual carbon offset projects that involve higher costs from individual ly undertaking measuring, monitoring, and accre ditation procedures (Thomassin 1667). Ultimately, the Finally, land ownership factors into whether farmers are eligible to participate in offset production Ag ricultural offset projects require substantial time commitments to achieve projected sequestration. Offset contracts of 10 to 15 years or more prevent farmers with shorter lease s from fulfilling project obligations This disadvantage restricts participatio n to landowning or long lease farmers 17). Initially extending availability simply appears to require shorter term offset contracts; however, shorter timeframes raise concerns about credibility and permanence of sequestered carbo n ( p. 17). Land lease agreements involving offset production are more complicated than typical lease agreements. These added complexities coerce lessees to maintain sequestration so that any offset s from that land remain stable Unfortunately, these stipulations may also repel offset producers restricting participation to landowning farmers ( 17 18). Accreditation Before an offset producer can produce salable offsets, the producer must prove the pro ject can produce valid offsets. Accreditation involves demonstrating ability to sequester and store carbon in accordance with particular guidelines. If the offset producer can prove the omes viable. An important aspect of accreditation is additionality O ffset project s possess ing additionality sequester carbon above a baseline ; this baseline is set at the amount of carbon the ar ea would sequester in the (Marland, McCarl, and Schneider 105) Specifically, additionality ensures each project leads to increased carbon sequestration sequestration that the offset producer creates before starting the project (e.g. car bon sequestered by a long established tree farm) is ineligible for accreditation. Proving additionality is important to producing credible offset s because stablishing a credible baseline the estimated greenhouse gases emitted in the absence of the projec t is critical to calculating the volume Taiyab 5). Credibility and Monitoring Constant monitoring becomes necessary because sequestration i s a long term, unpredictable process and a d sequestration o ften differ s from actual sequestration at the end. Offset producers se eking credibility might first quantification protocol, (2) register, (3) report and verify emission reductions or offsets, and (4) certify those reductions befo re Stinson, and Lacoul 4) U nder these requirements, an offset producer must first sequester carbon to create offset s


M ARKETS AND C ARBON O FFSETS IN THE A GRICULTURAL S ECTOR University of Florida | Journal of Undergraduate Research | Volume 13, Issue 2 | Spring 2012 3 before making sales Offset producers under the Kyoto Protocol however, can sell offsets soon afte r accreditation, without significant sequestration actually occurring. Offset producers under Kyoto typically sell immediately and according to estimated sequestration; however, neither producer nor buyer knows the amount sequestered until the end ( Schapir o 33). That offset producers can sell before delivering agreed upon sequestration r aises a concern : without project monitoring offset producers might abandon projects after selling their offsets ( Marland, McCarl, and Schneider 107 108). Constant monitori ng is necessary to ensure projects continue operating and meet sequestration goals Another consideration is that monitoring techniques diffe r between offset projects. Mo nitoring soil carbon sequestration for example requires annual analysis of soil samp les from multiple areas, whereas monitoring plant biomass sequestration only requires measuring above ground plant biomass every five years ( p. 23). Sequestration projects of the same type may have different monitoring conditio ns due to differen ces in project scopes and durations ; recent United States farm bills demand consistent agricultural sequestration project s to resolve this issue ( CRS Johnson 8). The farm bills also suggest inadequacy in existing validation processes fo r agricultural carbon offset s despite their inclusion as applicable offsets in many cap and trade systems (CRS Johnson 8). A final consideration deals with limited agricultural sequestration capacity. Carbon sequestration rates decline as carbon storage r eservoir s approach capacity. Thus, farmers must monitor sequestration rates and prepare for when carbon conc entrations approach capacity Lal (2004) illustrates reservoir capacity through soil carbon sequestration: while agricultural soils historically hel d soil carbon at concentrations much higher than their cultivation levels, recommended management practices [RMPs] only achieve ~50 66% of pre cultivation carbon stocks ( 1623 1624). Offset producers must factor declin ing sequestration rates into their es timates. Permanence Permanence refers to undisturbed (permanent) storage of sequestered carbon To protect the credibility of their projects and offsets, agricultural offset producers must maintain permanence by ensuring that carbon remains sequestered If escapes an the offset producer m ay end up with less sequestration than expected. Because of long operation periods, maintaining permanence is an ongoing co ncern. In many projects, nonpermanence can happen easily In soil carbon seque stration projects, for example, in the soil as long as restorative land use, no till farming, Lal 1625); interrupting soil carbon managem ent practices risks disturbing sequestered soil carbon and invalidating offsets. Farmers must thus maintain soil carbon conservation or lose their investment. If land ownership transfer s between farmers liability for nonpermanence may become problematic b be difficult to pass the liability on from farmer to far mer when farm ownership changes Marland, McCarl, and Schneider 110). Non permanence may sometimes be unavoidable F or exam ple, natural disturbances like windthrow, ice drought, wildfire and insects can do serious damage to forests (Galik and Jackson 2210 2211 ). Insects are the most threatening, and outbreaks will worsen as global warming expand s regions and date ranges in which destructive insects are viable ( Galik and Jackson 221 0 221 1). R isks for forestry based ca rbon sequestration activities are also higher than for crop farmers as trees represent lon ger investment s ( CRS p. 12). Small carbon re versals also occur from processes involved with the project. In soil carbon sequestration, landowners may lose soil carbon through erosion. Lal (2004) notes that that while some released carbon may become stored in soils elsewhere, much of its carbon retur ns to the atmosphere and counts against the project ( 1624 1625). While farmer s cannot prevent erosion recommended management practices can help minimize erosion. carbon over time, it is important to also accou nt for potential carbon emissions due to agricultural production. Lal (2004) mentions that most agricultural practices, including recommended management practices, require inputs containing carbon ( 1624). Soil carbon sequestration practitioners must count carbon released into the atmosphere against soil carbon sequestered In plant biomass sequestration projects, decaying plant matter release s sequestered carbon. T ree litter constantly releases carbon over time (Freedman, Stinson, and Lacoul 56), producing small but measurable sequestration reductions If forest sequestration projects also produce management of a timber site c reates its own carbon emissions et al 21) due to decaying forest litter T hroughout the project, offset producers must account for such when calculating total sequestration Leakage Another risk which is defined change decrease or increase in carbon benefits which o ccurs outside the project boundary and which is measurable and attributable to t Oliva and Masera 351). L eakage is of concern when considering land conversion Freedman, Stinson, and Lacoul note that ecosystems are converted into agricultural or urbanized lands, large emissions of CO2 result ( 2), and d eforestation


RICHARD TYLER BOWEN University of Florida | Journal of Undergraduate Research | Volume 13, Issue 2 | Spring 2012 4 releases substantial carbon to the atmosphere. Indeed, the largest source of carbon sequestration in an amount dwarfing all other carbon mitigation sources is preventing deforestation ( CRS p. 4). M arket administrators must thus attempt to prevent ca rbo n leakage from deforestation. Converting agri cultural land to other purposes may produce carbon leakage because doing so diminishes food production capacity: large scale conversio n of cropland to other uses significantly reduce s available food and raises f ood prices ( CRS 8). Demand for food in this scenario may induce intensified agricultural production or conv ersion of land for agriculture, producing carbon emissions and creating carbon leakage. Risk Management for Agricultural Car bon Offsets Given risks associated with agricultural carbon offsets, farmers need means of securing investments. Thomassin (2003) discusses multiple risk management strategies : the first proposal involves offset producer s adopting risk management plan s that the seller could self insure against reversals (1174). In some cases, offset producers can practice risk management by taking precautions For example, project managers can reduce losses increasing frequency of forestry rotations and spacing individual trees farther a part ( Galik and Jackson 2213). Pooled offset project s can also manage risk : project participant s can re duce individual risk and loss potential by pooling and sharing it with other pa rticipants (Thomas sin 1176). Other strategies manage risk through offset distribution One proposal involves ime some offset s are withheld from sale as pro tection against non permanence and distributed later after a set period (Thomassin 1174). If a n offset project sequesters fewer tons of CO 2 equivalent than are promised the offset producer never receives payment for the reserve offsets; this method thus encourages offset producers to monitor and maintain projects. Another proposal demands replacement during a carbon reversal, holding producers liable (Thomassin 1174). Wong and Dutschke provide a n example that requires destruction of invalid carbon offsets within 15 days and replacement at in 120 days (p. 10). Replacing invalid offsets is not impossible with proper management ; furthermore, this scheme allows carbon emitting firms to invest confidently A final proposal involves temporary validation, which Thomassin (2004) (1174). This claim assumes b uyers can determine whether to reduce emis sions or purchase more offsets, and that temporary offsets validation timeframes allow sellers to make necessary operational changes ( Thomassin 1174). Dutschke and Schlamadinger note however, that tem porary offsets ma y not offer lasting emissions reductions ( 1). Farmers could retain salable offsets to provide buffer s against carbon reversals With large buffer s offset p roducer s can achieve promised emission reductions even with carbon reversal s Buffe r programs already exist : the Voluntary Carbon Standard demands a buffer payment in proportion to project risk and some markets demand contribution to a buffer pool regardless of project type ( Galik and Jackson 2213). Market wide buffer s secure participan ts against reversal by providing c ompensatory communal offset pools A final propos al involves insurance, which impose s liability on insurers and encourage s producers to cut insurance costs through risk management ( Thomassin 1174). This proposal assumes of fset insurance is available few insurance companies offer carbon coverage due to added risk associated with unantici pated human disturbances such as population and timber demand ( Wong and Dutschke 5 6). On the other hand, policies follow ing the Canadian model explored by Wong a nd Dutschke (2003) require insurance for project validation ( 9). Regardless insurance is a promising risk management strategy if it becomes more prolific. INTERPRETATION Agricultural carbon sequestration presents an opportunity to mitigate large amounts of carbon. Because biological processes accomplish this feat, most offset programs need little maintenance apart from managing the physical stability of the area. Revenues from offset sales can also support investment in agriculture and agricultural sequestration projects produce positive externalities that can benefit local areas. Despite these boons, uncertainty regarding carbon markets and offset programs remains Congress must first approve legislation for market guidelines and regulation s Such factors include baselines, allowances, trade pricing, and eligibility. CRS Report R41086 (Feb. 26, 2010) requirements and protocols for any participating sector will substantially af fect the availability and cost of offsets as well as 6) Provided cap and trade legislation allows carbon offset trading market administration must approve agricultural carbon offsets. Agricultura l carbon offsets could be nefit U.S. agriculture, but administrators could rule against agricultural offsets beca use of their risks Market regulations may influence whether to support or oppose agricultural offsets, as strong regulations minimize nonperman ence through stronger safeguards. However, passing cap and trade legislation requires political consensus, and conflict often plagues U.S. politics. Even if agricultural offsets become viable whether farmers will engage in carbon sequestration projects is uncertain. The capacity for multiple land uses presents a


M ARKETS AND C ARBON O FFSETS IN THE A GRICULTURAL S ECTOR University of Florida | Journal of Undergraduate Research | Volume 13, Issue 2 | Spring 2012 5 strong incentive, but farmers may be deterred by the extensive time commitments of agricultural offset s There are also multiple additional deterrents to farmers making the n e cessary changes CRS Report R41086 notes several such deterrents which may includ e the desire to maintain a farming lifestyle, the ability to receive supplemental income from farms the ability to bequeath farmland as inheritance the capacity of farmland to serve as homeland, the risk of participat ing in carbon markets the possibility of forfeiting farm benefits, and the potentially high transaction costs of carbon markets 7 8). Undertaking o ffset projects may also imp ose changes in land practices, as onverting cropland to forestland substantially alters the day to day, on the ground practices of the landowner, and requires a different set 13) Also 8), profits from offset sales must outweigh opportunity cost s from land use activit ies the farmer aba nd ons for sequestration Some o ffset programs would not make farmers for sake their lands or lifestyles but the consideration nevertheless remains important. Estab lishing credibility is an issue because of additionality. Determining the baseline is complicat ed as it is often unclear if a project that could sequester carbon is doing so for that reason. For example, van Kooten Laaksonen Craig, and Wang (2007) question additionality in soil carbon sequestration practices, as far mers may implement them to improve soil fertility and limit expenses instead of sequestering carbon ( 2). Schapiro (2010) takes issue with additionality along these lines, as [of determining additionality] is fraug ht with obstacles of definitio n 34). Evaluating additionality between different projects is problematic due to dif fering standards and values (CRS Ramseur 4). The question arises as to whether offset producers should receive payment for any sequestration project regardless of intent, especially because many offset projects produce external societal benefits There remains the consideration of suffic ient monitoring and oversight. O ffsets from many agricultural programs are difficult to verify ( CRS 4), a nd monitoring and accreditation for European of fset projects already call for substantial ov ersight staff and inordinate maintenance requirements ( Schapiro 38). However, insufficient reductions is the trapdoor in the of fset system. Study after study has demonstrated that CDMs have not delivered the Schapiro 34). A ddres sing market needs requires many offset accreditation and validation firms, with multiple firms in every region pr acticing agricultural sequestration. While no reason exists for monitoring staff without an established market, carbon offsets remain a risky and impractical investment without monitoring to ensure validity. CONCLUSION AND SUGGE STIONS While agricu ltural carbon offsets present an important opportunity for carbon mitigatio n, too many loose ends remain. Carbon market legislation remains unimplemented and carbon market s requ ire significantly more monitoring capacity Drafting legislation requires political will and consensus noticeably absent from American politics ; effort s must begin by fostering compromise and agreement. To found a carbon market, carbon monitoring must also address multiple carbon emitting firms and sequestration activities. There is also little research regarding benefits of agricultural carbon sequestration. Many of the studies, papers and articles reviewed throughout this report focused on drawbacks with agricultural offset s or echoed a small list of benefits Studying benefits from ag ricultural seque stration could help promote it s implementation Agricultural carbon sequestration activity could also increase through compensating individuals for associated external benefits. Finally, there are multiple barriers to producing agricultural offset s including time constraints, land ownership and accr editation requirements Without sacrificing efficiency, carbon market administrators should negate impediments to eligibility. Agricultural carbon offsets and markets remain a complicated but po tentially viable means of reducing atmospheric concentration s of carbon dioxide. If additional research can address the current risks, inequities, and regulatory inadequacies the agricultural sector may yet play a major role in mi tigating greenhouse gas emissions and combating global warming. Acknowledgements I would like to acknowledge and thank Dr. Michael T. Olexa of the Food and Resource Economics Department at the University of Florida As a mentor, h is guidance, encourag ement, and support were invaluable and I am grateful for the opportunity to have worked with him


RICHARD TYLER BOWEN University of Florida | Journal of Undergraduate Research | Volume 13, Issue 2 | Spring 2012 6 L iterature C ited [1] Dutschke, Michael and Bernhard Schlamadinger. Practical Issues Concerning Temp orary Carbon Credits in the CDM: HWWA Discussion Pa per No. 227. Hamburg, Germany: Hamburg Institute of International Economics, May 2003. Print. [2] C redits and the C onservation of N atural A reas Environmental Reviews 17 (2009): p. 1 19. [3] Gali F orest C arbon O ffset P rojects in a C hanging C limate Forest Ecology and Management 257 (2009): 2209 2216. Print. [4] Garca Oliva, Felipe and Omar R. Masera. Issues Related to Soil Carbon Sequestration in Land Use, Land Use Change, Climatic Change 65 (2004): 347 364. Print. [5] Kennett, Steven A Management: Issues and Opp Environmental Management 30.5 (2002): 595 608. Print. [6] Science 304.5677 (2004): 1623 1627. Print. [7] Marland, Gregg, Bruce McCarl, and Uwe Schneider. Climatic Change 51 (2001): p. 101 117. Print. [8] Trading Shell February 2010: 31 39. Print. [9] Taiyab, Nadaa. Gatekeeper Series, 121: London: International Institute for Environment and Development, 2005. [10] Trading and Offset Syst American Journal of Agricultural Economics 85.5, Proceedings Issue (December 2003): 1171 1177. Print. U.S. Congressional Research Service. [11] 2008) by Larry Parker and John Blod gett. [12] Estimates of Carbon Mitigation Potential from Agricultural and Forestry Activities (R40236; Jan. 26, 2010) by Rene Johnson, Jonathan L. Ramseur, and Ross W. Gorte. [13] Market Based Greenhouse Gas Control: Selected Proposals in the 111 th Congre ss (R40556; Feb. 26, 2010), by Jonathan L. Ramseur, Larry Parker, and Brent D. Yacobucci. [14] Potential Implications of a Carbon Offset Program to Farmers and Landowners. (R41086; Feb. 26, 2010) by Rene Johnson, Jonathan L. Ramseur, Ross W. Gorte, and Me gan Stubbs. [15] Provisions Supporting Ecosystem Services Markets in U.S. Farm Bill Legislation. (RL34042; Dec. 15, 2009) by Rene Johnson. [16] Voluntary Carbon Offsets: Overview and Assessment (RL34241; May 7, 2009), by Jonathan L. Ramseur. [17] United S or Contribute Findings Under Section 202(a) of the Clean Air Act: Final Federal Register 40 CFR (Dec. 15, 2009): 66496 66546. [18] v an Kooten, Cornelis G., Susanna Laaksonen Craig, and Y ichuan Wang. Research Group, 2007. [19] Willis, Kenneth G., Guy Garrod, Riccardo Scarpa, Neil Powe, Andrew Lovet t, Ian J. Bateman, Nick Hanley, and Douglas C. Macmillan and Environmental Benefits of Forestry Phase 2: The Social and of Newcastle Centre for Research in Environmental Ap praisal & Management, June 2003. [20] Wong, Jenny, and Michael Dutschke. HWWA Discussion Paper No. 235: Practical Issues of Insuring Carbon Credits from Afforestation and g, Germany: Hamburg Institute of International Economics, June 2003. Available at SSRN: or .