Discounting offsets: issues and options

Kollmuss, Anja; Lazarus, Michael

doi:10.4155/cmt.11.49

Cited by 15 publications

(11 citation statements)

References 5 publications

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“…Research on the Clean Development Mechanism (CDM) under Article 12 of the Protocol focussed on the additionality of projects Erickson, Lazarus, & Spalding-Fecher, 2014;Gillenwater, 2011;Greiner & Michaelowa, 2003;Haya & Parekh, 2011;He & Morse, 2013;Michaelowa & Purohit, 2007;Schneider, 2009b;Spalding-Fecher et al, 2012;Stua, 2013;Trexler, Broekhoff, & Kosloff, 2006); the establishment of emission baselines (Bailis, Drigo, Ghilardi, & Masera, 2015;Fischer, 2005;Kartha, Lazarus, & Bosi, 2004;Schneider, 2011), including their standardization (Hayashi & Michaelowa, 2013;Hermwille, Arens, & Burian, 2013;Kartha, Lazarus, & LeFranc, 2005;Lazarus, Kartha, Ruth, Bernow, & Dunmire, 1999;Spalding-Fecher & Michaelowa, 2013) and how national policies should be considered in demonstrating additionality and establishing baselines (Liu, 2015;Spalding-Fecher, 2013). Other research areas include leakage effects (Calvin et al, 2015;Geres & Michaelowa, 2002;Kallbekken, 2007;Schneider, Lazarus, & Kollmuss, 2010;Sonter, Barrett, Moran, & Soares-Filho, 2015;Vöhringer, Kuosmanen, & Dellink, 2006), monitoring of emission reductions (Shishlov & Bellassen, 2016;Warnecke, 2014), and how the CDM could provide global net emissions reductions (Chung, 2007;Erickson et al, 2014;Kollmuss & Lazarus, 2011;Schneider, 2009a;Vrolijk & Phillips, 2013;…”

Section: Introductionmentioning

confidence: 99%

Environmental integrity of international carbon market mechanisms under the Paris Agreement

Schneider

Theuer²

2018

Climate Policy

117

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Section: Introductionmentioning

confidence: 99%

Environmental integrity of international carbon market mechanisms under the Paris Agreement

Schneider

Theuer²

2018

Climate Policy

117

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“…This section analyzes what happens to the three performance measures. Reducing p c is equivalent to the practice of "offset discounting" sometimes observed in real-world offset programs (Kollmuss and Lazarus, 2011). Under a system of discounting, fewer offsets are awarded than the environmental gains represented by the difference between the baseline and the actual forest level, or a trading ratio is applied between offsets and allowances in a cap-and-trade system.…”

Section: Policy 2: Discounting the Payment Per Hectarementioning

confidence: 99%

Scale and transfers in international emissions offset programs

Benthem

Kerr

2013

Journal of Public Economics

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Voluntary emissions offset programs between developing and industrialized countries suffer from adverse selection, because participants will self-select into the program. In contrast, pure subsidies for mitigation lead to full participation and hence efficiency, but require large financial transfers which make them unattractive to industrialized countries. We present a simple model to demonstrate the impact of three policy options on the performance of offset programs: (1) baseline scale increases, (2) offset discounting and (3) setting stringent baselines. With baseline scale increases, entire political jurisdictions such as regions or nations are assigned a single, aggregate baseline and must choose whether to participate as one entity. We find that increasing scale both improves efficiency and reduces transfers from offset buyers to sellers. Offset discounting means paying less than the value of abatement and can be paired with trading ratios between offsets and allowances in a capand-trade system. We show that discounting is inefficient, but can make offsets more attractive to industrialized countries. Setting stringent baselines also involves a tradeoff between efficiency and transfers. We finally show that Pareto efficient policies that are individually rational for buyers and sellers entail some combination of discounting and/or stringent baselines: offset policies are never first-best, but can be efficiency improving, especially with increased scale. Motu Economic and Public Policy Research AbstractVoluntary emissions offset programs between developing and industrialized countries suffer from adverse selection, because participants will self-select into the program. In contrast, pure subsidies for mitigation lead to full participation and hence efficiency, but require large financial transfers which make them unattractive to industrialized countries. We present a simple model to demonstrate the impact of three policy options on the performance of offset programs: (1) baseline scale increases, (2) offset discounting and (3) setting stringent baselines. With baseline scale increases, entire political jurisdictions such as regions or nations are assigned a single, aggregate baseline and must choose whether to participate as one entity. We find that scale both improves efficiency and reduces transfers from offset buyers to sellers. Offset discounting means paying less than the value of abatement, or using trading ratios between offsets and allowances in a cap-and-trade system. We show that discounting is inefficient. While the conventional wisdom -that discounting can be used to reduce the fraction of offsets that are spuriousis invalid, discounting can make offsets more attractive to industrialized countries. Setting stringent baselines also involves a tradeoff between efficiency and transfers. We finally show that Pareto efficient policies that are individually rational for buyers and sellers entail some combination of discounting and/or stringent baselines: offset policies are never first-best, b...

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“…These include discounting credits once issued, labelling credits with ratings, introducing mandatory retirement of some credits and using shortened crediting periods. Each approach has its own pros and cons (see, for example, Kollmuss et al, 2010 for a closer examination of discounting credits).…”

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confidence: 99%

“…Analyses of the design and practical use of standardised baselines have been undertaken for emitters in different segments of the economy and in the context of various existing crediting mechanisms (Lazarus et al, 2000;Lazarus et al, 2010;Sathaye et al, 2001;OECD/IEA, 2000;Willems, 2001;Hayashi et al, 2010;CEPS, 2010). Lessons learned from these studies that may be applicable to the new market mechanism include:  The extent to which emitters can be aggregated for the purpose of setting a baseline highly depends on the segment of the economy concerned and national circumstances.…”

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confidence: 99%