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Designing efficient markets for carbon offsets with distributional constraints

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  • Bento, Antonio M.
  • Kanbur, Ravi
  • Leard, Benjamin

Abstract

This paper presents an assessment of the relative efficacy of three key instruments – baselines, trade ratios and limits - which are under policy discussion in the design of carbon offset programs. We rank the instruments by their implications for total emissions, economic efficiency, and efficiency gain relative to a distributional transfer from capped to uncapped sectors. We find that the baseline is the best instrument for maximizing welfare as it directly reduces the share of offsets that are non-additional and that second-best policies do not sacrifice much welfare relative to the standard first-best policy prescription.

Suggested Citation

  • Bento, Antonio M. & Kanbur, Ravi & Leard, Benjamin, 2015. "Designing efficient markets for carbon offsets with distributional constraints," Journal of Environmental Economics and Management, Elsevier, vol. 70(C), pages 51-71.
    • Handle: RePEc:eee:jeeman:v:70:y:2015:i:c:p:51-71
    DOI: 10.1016/j.jeem.2014.10.003
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    Cited by:

    1. Leard, Benjamin & McConnell, Virginia, 2015. "New Markets for Pollution and Energy Efficiency: Credit Trading under Automobile Greenhouse Gas and Fuel Economy StandardsAbstract: Recent changes to the Corporate Average Fuel Economy (CAFE) standard," RFF Working Paper Series dp-15-16, Resources for the Future.
    2. Antonio Bento & Ravi Kanbur & Benjamin Leard, 2016. "On the importance of baseline setting in carbon offsets markets," Climatic Change, Springer, vol. 137(3), pages 625-637, August.
    3. Saint-Cyr, Legrand D.F. & Védrine, Lionel & Legras, Sophie & Le Gallo, Julie & Bellassen, Valentin, 2023. "Drivers of PES effectiveness: Some evidence from a quantitative meta-analysis," Ecological Economics, Elsevier, vol. 210(C).
    4. Bento, Antonio & Ho, Benjamin & Ramirez-Basora, Mario, 2015. "Optimal monitoring and offset prices in voluntary emissions markets," Resource and Energy Economics, Elsevier, vol. 41(C), pages 202-223.
    5. Femenias Rosselló, Llorenç B. & Bujosa Bestard, Angel & Riera Font, Antoni, 2024. "Is carbon footprint reduction always preferred over offsetting? An analysis of tourists' preferences in the Mallorca region," Economic Analysis and Policy, Elsevier, vol. 81(C), pages 1371-1381.
    6. Koch, Nicolas & Reuter, Wolf Heinrich & Fuss, Sabine & Grosjean, Godefroy, 2017. "Permits vs. offsets under investment uncertainty," Resource and Energy Economics, Elsevier, vol. 49(C), pages 33-47.
    7. Xing, Jianwei & Leard, Benjamin & Li, Shanjun, 2021. "What does an electric vehicle replace?," Journal of Environmental Economics and Management, Elsevier, vol. 107(C).
    8. Kavehei, Emad & Jenkins, G.A. & Adame, M.F. & Lemckert, C., 2018. "Carbon sequestration potential for mitigating the carbon footprint of green stormwater infrastructure," Renewable and Sustainable Energy Reviews, Elsevier, vol. 94(C), pages 1179-1191.
    9. Boaitey, Albert & Goddard, Ellen & Mohapatra, Sandeep, 2019. "Environmentally friendly breeding, spatial heterogeneity and effective carbon offset design in beef cattle," Food Policy, Elsevier, vol. 84(C), pages 35-45.
    10. Leard, Benjamin & Li, Shanjun & Xing, Jianwei, 2019. "What Does an Electric Vehicle Replace?," RFF Working Paper Series 19-05, Resources for the Future.
    11. Jianwei Xing & Benjamin Leard & Shanjun Li, 2019. "What Does an Electric Vehicle Replace?," NBER Working Papers 25771, National Bureau of Economic Research, Inc.
    12. Valentin Bellassen & Igor Shishlov, 2017. "Pricing Monitoring Uncertainty in Climate Policy," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 68(4), pages 949-974, December.
    13. Rossi, David J. & Baker, Justin S. & Abt, Robert C., 2023. "Quantifying additionality thresholds for forest carbon offsets in Mississippi pine pulpwood markets," Forest Policy and Economics, Elsevier, vol. 156(C).
    14. Leard, Benjamin & Ankney, Kevin, 2022. "Should Electric Vehicle Purchase Subsidies Be Linked with Scrappage Requirements?," RFF Working Paper Series 22-13, Resources for the Future.
    15. Ottmar Edenhofer & Max Franks & Matthias Kalkuhl & Artur Runge-Metzger, 2023. "On the Governance of Carbon Dioxide Removal – A Public Economics Perspective," CESifo Working Paper Series 10370, CESifo.
    16. Gren, Ing-Marie & Zeleke, Abenezer Aklilu, 2016. "Policy design for forest carbon sequestration: A review of the literature," Forest Policy and Economics, Elsevier, vol. 70(C), pages 128-136.
    17. Liu, Xiaoyu & Cui, Qingbin, 2018. "Value of performance baseline in voluntary carbon trading under uncertainty," Energy, Elsevier, vol. 145(C), pages 468-476.
    18. Anderson, Brilé & Bernauer, Thomas, 2016. "How much carbon offsetting and where? Implications of efficiency, effectiveness, and ethicality considerations for public opinion formation," Energy Policy, Elsevier, vol. 94(C), pages 387-395.
    19. Isla Globus‐Harris, 2020. "An Impossible Goal: When Trade Ratios Cannot Achieve No‐Net‐Loss," Southern Economic Journal, John Wiley & Sons, vol. 86(4), pages 1372-1392, April.

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    More about this item

    Keywords

    Carbon offsets; Cap and trade; Additionality; Distributional concerns;
    All these keywords.

    JEL classification:

    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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