Temporary sequestration credits : an instrument for carbon bears
AbstractTemporary 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. The authors 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.
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Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 3181.
Date of creation: 01 Dec 2003
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Payment Systems&Infrastructure; Montreal Protocol; Banks&Banking Reform; Environmental Economics&Policies; Financial Intermediation; Environmental Economics&Policies; Carbon Policy and Trading; Montreal Protocol; Banks&Banking Reform; Insurance&Risk Mitigation;
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