Selling Clean Air

Abstract

In 1997 Costa Rica created a new kind of environmental bond to be introduced in the international financial markets, becoming the first country to issue environmental bonds. The bonds, called Greenhouse Gas Emission Mitigation Certificate, aim to sell the world the clean air generated by Costa Rican forests. The scheme is based on the air purifying process of trees through their fixation of carbon dioxide. The bonds’ value depends on the amount of carbon dioxide fixed, using cubic meters of wood as a measurement unit. Several difficulties have been faced: setting a price basis (measurement of carbon dioxide fixed), creating market value (property rights, global agreements, value-creating schemes), and avoiding moral hazard problems (verification process). The objective of the project is to channel its revenue to the territorial consolidation and funding of national parks. In addition, the scheme recognizes the market value of a positive externality, increasing the likelihood of applying market solutions to the world’s environmental problems. This paper studies: (a) the theoretical background behind the carbon bonds; (b) the original scheme proposed by Costa Rica and the global and local requirements of the scheme; (c) the implementation problems faced by the program and; (d) the preliminary results of the project. It also elaborates on the future of the carbon dioxide bonds and the modifications needed to ensure their success.