On the Importance of Baseline Setting in Carbon Offsets Markets

Resources for the Future Discussion Paper 16-11

93 Pages Posted: 3 Jun 2016

See all articles by Antonio Bento

Antonio Bento

University of Southern California - Sol Price School of Public Policy

Ravi Kanbur

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

Benjamin Leard

Resources for the Future

Date Written: March 21, 2016

Abstract

Incorporating carbon offsets in the design of cap-and-trade programs remains a controversial issue because of its potential unintended impacts on emissions. At the heart of this discussion is the issue of crediting of emissions reductions. Projects can be correctly, over- or under-credited for their actual emissions reductions. We develop a unified framework that considers the supply of offsets within a cap-and-trade program that allows us to compare the relative impact of over-credited offsets and under-credited emissions reductions on overall emissions under different levels of baseline stringency and carbon prices. In the context of a national carbon pricing scheme that includes offsets, we find that the emissions impacts of over-credited offsets can be fully balanced out by under-credited emissions reductions without sacrificing a significant portion of the overall supply of offsets, provided emissions baselines are stringent enough. In the presence of high predicted business-as-usual (BAU) emissions uncertainty or low carbon prices, to maintain the environmental integrity of the program, baselines need to be set at stringent levels, in some cases below 50 percent of predicted BAU emissions. As predicted BAU emissions uncertainty declines or as the carbon market achieves higher equilibrium prices, however, less stringent baselines can balance out the emissions impacts of over-credited offsets and under-credited emissions reductions. These results imply that to maintain environmental integrity of offsets programs, baseline stringency should be tailored to project characteristics and market conditions that influence the proportion of over-credited offsets to under-credited emissions reductions.

Keywords: Carbon O ffsets, Crediting, Environmental Integrity

Suggested Citation

Bento, Antonio and Kanbur, Ravi and Leard, Benjamin, On the Importance of Baseline Setting in Carbon Offsets Markets (March 21, 2016). Resources for the Future Discussion Paper 16-11. Available at SSRN: https://ssrn.com/abstract=2789784 or http://dx.doi.org/10.2139/ssrn.2789784

Antonio Bento (Contact Author)

University of Southern California - Sol Price School of Public Policy ( email )

Los Angeles, CA 90089-0626
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

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
9
Abstract Views
255
PlumX Metrics