The determinants of transaction costs for carbon sequestration projects: a meta-analytical review

Carbon sequestration is argued to be a cost-effective strategy to mitigate climate change. However, transaction costs (TRCs) in Land Use, Land-Use Change, and Forestry (LULUCF) projects, for example, costs for establishment, management, monitoring, and compliance with carbon trading market requirements, are often overlooked. This study investigates TRCs in forestry and agricultural projects through a meta-analysis of peer-reviewed studies from 2000 to 2022. We build a comprehensive dataset and apply it in meta-regressions investigating how TRCs vary with project characteristics and institutional and policy context factor. We find that TRCs fall between 0 and 1,085 USD/tCO2-eq, with a median of 1.3 USD/tCO2-eq. Project size is a significant determinant of TRCs, with economies of scale observed. A 1% increase in project area and sequestration output leads to a 0.5% and 0.6% increase in TRCs, respectively. Further, monitoring costs in global north countries are on average 490 times higher. Additionally, projects generating carbon offset credits exhibit TRCs more than 15 times higher than those for other projects. These findings provide valuable insights for policymakers and stakeholders, as understanding the determinants of TRCs can better inform policy design and the trade-offs between carbon sequestration measures and fossil fuel reductions, thus promoting cost-effective climate policy.