The trouble with voluntary emissions trading: Uncertainty and adverse selection in sectoral crediting programs☆☆Special thanks to Suzi Kerr, Lawrence Goulder, Michael Wara, Arthur van Benthem, Lee Schipper, Chris Barrington-Leigh and two anonymous reviewers for helpful suggestions and comments on earlier drafts. I appreciate assistance with the predictive modeling from Mark Bryan and Vera Troeger. I also thank Sonny Kim and Kenny Gillingham for assistance with the GCAM modeling runs, and the Joint Global Change Research Institute for making GCAM available. This research was completed while I was an assistant professor in the Department of Geography and McGill School of Environment, McGill University. I acknowledge support from a U.S. Department of Transportation Eisenhower Graduate Fellowship, a William C. and Jeanne M. Landreth IPER Fellowship, and a David and Lucille Packard Foundation Stanford Graduate Fellowship
Sectoral crediting has been proposed as a way to scale up project-level carbon offset programs, and provide sector-wide incentives for developing countries to reduce greenhouse gas emissions. However, simulations presented here suggest that information asymmetries and large uncertainties in predicting counterfactual business-as-usual (BAU) emissions are likely to render sectoral crediting an extremely unattractive mechanism in practice, at least for the transportation sector. The regulator faces a tradeoff between efficiency and transfers/environmental damage when setting the crediting baseline in relation to uncertain BAU emissions. A generous baseline promotes efficiency, as more developing countries participate and implement abatement measures. However, a generous baseline also produces large volumes of non-additional offsets, which lead to either increased global emissions, or transfers between developed and developing countries if developed country emission reduction targets are made more stringent in order to leave global emissions unchanged. I show that any crediting baseline that encourages a non-negligible number of countries to participate in a sectoral crediting mechanism results in environmental damage or transfers that are likely to be too high to be politically feasible.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Fischer, Carolyn & Herrnstadt, Evan & Morgenstern, Richard D., 2008.
"Understanding Errors in EIA Projections of Energy Demand,"
dp-08-54, Resources For the Future.
- Fischer, Carolyn & Herrnstadt, Evan & Morgenstern, Richard, 2009. "Understanding errors in EIA projections of energy demand," Resource and Energy Economics, Elsevier, vol. 31(3), pages 198-209, August.
- van Benthem, Arthur A. & Kerr, Suzi, 2010.
"Optimizing Voluntary Deforestation Policy in the Face of Adverse Selection and Costly Transfers,"
2010 Conference, August 26-27, 2010, Nelson, New Zealand
96813, New Zealand Agricultural and Resource Economics Society.
- Arthur van Benthem & Suzi Kerr, 2010. "Optimizing Voluntary Deforestation Policy in the Face of Adverse Selection and Costly Transfers," Working Papers 10_04, Motu Economic and Public Policy Research.
- Fischer, Carolyn, 2004.
"Project-Based Mechanisms for Emissions Reductions: Balancing Trade-offs with Baselines,"
dp-04-32, Resources For the Future.
- Fischer, Carolyn, 2005. "Project-based mechanisms for emissions reductions: balancing trade-offs with baselines," Energy Policy, Elsevier, vol. 33(14), pages 1807-1823, September.
- Winebrake, James J. & Sakva, Denys, 2006. "An evaluation of errors in US energy forecasts: 1982-2003," Energy Policy, Elsevier, vol. 34(18), pages 3475-3483, December.
- Suzi Kerr & Adam Millard-Ball, 2012.
"Cooperation To Reduce Developing Country Emissions,"
Climate Change Economics (CCE),
World Scientific Publishing Co. Pte. Ltd., vol. 3(04), pages 1250023-1-1.
- Suzi Kerr & Adam Millard-Ball, 2012. "Cooperation to Reduce Developing Country Emissions," Working Papers 12_03, Motu Economic and Public Policy Research.
- Linderoth, Hans, 2002. "Forecast errors in IEA-countries' energy consumption," Energy Policy, Elsevier, vol. 30(1), pages 53-61, January.
- Juan-Pablo Montero, 1999. "Voluntary Compliance with Market-Based Environmental Policy: Evidence from the U.S. Acid Rain Program," Journal of Political Economy, University of Chicago Press, vol. 107(5), pages 998-1033, October.
- Son H. Kim, Jae Edmonds, Josh Lurz, Steven J. Smith, and Marshall Wise, 2006. "The objECTS Framework for integrated Assessment: Hybrid Modeling of Transportation," The Energy Journal, International Association for Energy Economics, vol. 0(Special I), pages 63-92.
- Suzi Kerr & Andrew Sweet, 2008. "Inclusion of Agriculture and Forestry in a Domestic Emissions Trading Scheme: New Zealand's Experience to Date," Working Papers 08_04, Motu Economic and Public Policy Research.
- Richard Baron & Barbara Buchner & Jane Ellis, 2009. "Sectoral Approaches and the Carbon Market," OECD/IEA Climate Change Expert Group Papers 2009/3, OECD Publishing.
- Millard-Ball, Adam & Ortolano, Leonard, 2010. "Constructing carbon offsets: The obstacles to quantifying emission reductions," Energy Policy, Elsevier, vol. 38(1), pages 533-546, January.
- Montero, Juan-Pablo, 2000. "Optimal design of a phase-in emissions trading program," Journal of Public Economics, Elsevier, vol. 75(2), pages 273-291, February.
- Zhang, Chi & Shukla, P.R. & Victor, David G. & Heller, Thomas C. & Biswas, Debashish & Nag, Tirthankar, 2006. "Baselines for carbon emissions in the Indian and Chinese power sectors: Implications for international carbon trading," Energy Policy, Elsevier, vol. 34(14), pages 1900-1917, September.
- FUJIWARA Noriko & GEORGIEV Anton & ALESSI Monica, 2010. "The merit of sectoral approaches in transitioning towards a global carbon market," ESRI Discussion paper series 235, Economic and Social Research Institute (ESRI).
When requesting a correction, please mention this item's handle: RePEc:eee:jeeman:v:65:y:2013:i:1:p:40-55. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.