Environmental Offset Programs: Survey and Synthesis
Robert W. Hahn
University of Oxford, Smith School; Georgetown University
Kenneth R. Richards
Indiana University Bloomington - School of Public & Environmental Affairs (SPEA); University of Oxford - Oxford Martin School
Indiana University School of Public & Environmental Affairs Research Paper No. 2010-12-01
In the real world, taxes and cap-and-trade systems are rarely implemented in their pure form. In this paper, we examine a related approach that has been used widely in practice – which we refer to as an “offset.” The idea behind offsets is to encourage firms or entities that may not be a part of the main regulatory system to produce environmental improvements, which can then be used to offset pollution reduction requirements in the main regulatory system.
This paper provides a survey and synthesis of the literature on the use of offsets. Examples include offsets for limiting greenhouse gas emissions, maintaining ecosystem services for wetlands, achieving local air pollution goals, protecting water quality, and promoting energy efficiency. The paper reviews how offsets are used in practice and examines what is known about their environmental and economic impacts.
Combining insights from the political economy of using offsets with their intrinsic design challenges raises a potentially serious problem – namely, that offsets may often fail to take adequate account of environmental or ecosystem damages. Because this problem can be significant, alternatives should be considered.
Number of Pages in PDF File: 36
Keywords: Tax, Cap-and-trade, Offests, Regulatory systems, Environment, Pollution, Greenhouse gas emissions, Ecosystem, Wetlands, Water quality, Energy efficiency
JEL Classification: G18, M2, Q28, K23, L5, L51, O2, O38, Q1, Q30
Date posted: December 12, 2010 ; Last revised: June 25, 2014