Super-Additionality: A Neglected Force in Markets for Carbon Offsets

39 Pages Posted: 25 May 2012

See all articles by Antonio M. Bento

Antonio M. Bento

Cornell University - Dyson School of Applied Economics and Management

Ravi Kanbur

Cornell University; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Benjamin Leard

Resources for the Future

Date Written: April 2012

Abstract

Climate change mitigation programs classify two types of carbon offsets: Additional and non-additional. Additional offsets are offsets that correspond to actual reductions in emissions. In contrast, non-additional offsets are offsets that do not correspond to emissions reductions. These offsets are created because offset projects with business-as-usual (BAU) emissions below their assigned baseline can claim offsets up to the baseline without reducing emissions. Since the sale and use of non-additional offsets by firms in climate mitigation programs has the effect of raising aggregate emissions, an extraordinary amount of focus has been on ensuring that offsets are additional. However, we show here that there is an emissions component that has been neglected in current policy design. This component, which we call Super-additional reductions, are emissions reductions which do not lead to a supply of offsets. Super-additional reductions arise from offset projects with BAU emissions above their baseline. These projects are awarded a quantity of offsets that is lower than the project's emissions reductions. The presence of such emissions reductions without supply of equivalent offsets has the effect of lowering aggregate emissions and lessening the impact of non-additional offsets. Our numerical simulations show that super-additional reductions can be as large as the supply of non-additional offsets, and in some scenarios can even exceed them. Neglecting this component during the climate policy design process can lead to the setting of overly stringent baselines or other policy instruments, ultimately raising the compliance costs of achieving emissions reduction targets.

Keywords: Additionality and Non-Additionality, Baseline Emissions, Carbon Offsets, Economic Compliance Costs, Emissions targets, Super-Additionality

JEL Classification: Q52, Q54

Suggested Citation

Bento, Antonio M. and Kanbur, Ravi and Leard, Benjamin, Super-Additionality: A Neglected Force in Markets for Carbon Offsets (April 2012). CEPR Discussion Paper No. DP8952. Available at SSRN: https://ssrn.com/abstract=2066325

Antonio M. Bento (Contact Author)

Cornell University - Dyson School of Applied Economics and Management ( email )

Ithaca, NY
United States

Ravi Kanbur

Cornell University ( email )

301-J Warren Hall
Ithaca, NY 14853
United States
607-255-7966 (Phone)
607-255-9984 (Fax)

HOME PAGE: http://www.kanbur.dyson.cornell.edu

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Benjamin Leard

Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
United States

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