Temporary Sequestration Credits: An Instrument for Carbon Bears

14 Pages Posted: 20 Apr 2016

See all articles by Kenneth M. Chomitz

Kenneth M. Chomitz

World Bank, Independent Evaluation Group

Franck Lecocq

World Bank - Development Economics Research Group - PFCplus Research

Date Written: December 2003

Abstract

Temporary crediting of carbon storage is a proposed instrument that allows entities with emissions reductions obligations to defer some obligations for a fixed period of time. This instrument provides a means of guaranteeing the environmental integrity of a carbon sequestration project. But because the user of the temporary credit takes on the liability of renewing it, or replacing it with a permanent credit, the temporary credit must sell at a discount compared with a permanent credit. Chomitz and Lecocq show that this discount depends on the expected change in price of a permanent credit. Temporary credits have value only if restrictions on carbon emissions are not expected to tighten substantially. The intuition is illustrated by assessing the value of a hypothetical temporary sulfur dioxide sequestration credit using historical data on actual sulfur dioxide allowance prices.

This paper - a product of Infrastructure and Environment, Development Research Group - is part of a larger effort in the group to assess policies for mitigating climate change.

Suggested Citation

Chomitz, Kenneth M. and Lecocq, Franck, Temporary Sequestration Credits: An Instrument for Carbon Bears (December 2003). World Bank Policy Research Working Paper No. 3181. Available at SSRN: https://ssrn.com/abstract=636600

Kenneth M. Chomitz (Contact Author)

World Bank, Independent Evaluation Group ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

Franck Lecocq

World Bank - Development Economics Research Group - PFCplus Research ( email )

1818 H Street, N.W.
Washington, DC 20433
United States
202-473-1000 (Phone)
202-477-6391 (Fax)

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