The Analysis of Carbon Trade Economics and Its Policy Implication to Mitigate Climate Change in Tanzania

Tanzania is participating in the United Nations (UN) climate change mitigation strategy of reduction in Greenhouse Gases (GHGs). The strategy is implemented through both Reducing Emissions from Deforestation and forest Degradation (REDD+) and Clean Development Mechanisms (CDM) initiatives. In implementing programmes, the country developed pilot projects whereby there are preliminary findings that can be used to analyse the progress of the establishments. This study uses the findings from these pilot areas to draw policy implications on how carbon trade in the country can be enhanced to meet the UN set objectives as required by the Kyoto protocol. The findings suggest that for the sustainable carbon trade enhancement the country needs to set the institutional environment for carbon trade right. Such undertakings are not costless and that the transaction costs that would be incurred for the process need to be institutionalised to reduce the private costs in the carbon market. Moreover the policy process should be informed that at the market level there are multiple objectives that should be understood to avoid what is termed as optimization in standard economic theory, instead there should be clear definition of the specific objectives for various stakeholders involved in the carbon trade. Besides, within the carbon market framework not all stakeholders incur the same costs since natural resource transactions involve externalities. These externalities need to be identified and internalised to equally distribute the costs and benefits among the stakeholders.