IDEAS home Printed from https://ideas.repec.org/a/eee/jeeman/v70y2015icp51-71.html
   My bibliography  Save this article

Designing efficient markets for carbon offsets with distributional constraints

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0095069614000862
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Harrison Fell & Dallas Burtraw & Richard Morgenstern & Karen Palmer, 2012. "Climate Policy Design with Correlated Uncertainties in Offset Supply and Abatement Cost," Land Economics, University of Wisconsin Press, vol. 88(3), pages 589-611.
    2. Bovenberg, A. Lans & Goulder, Lawrence H. & Jacobsen, Mark R., 2008. "Costs of alternative environmental policy instruments in the presence of industry compensation requirements," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1236-1253, June.
    3. Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
    4. Harrison Fell & Richard Morgenstern, 2010. "Alternative Approaches to Cost Containment in a Cap-and-Trade System," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 47(2), pages 275-297, October.
    5. Kim, Man-Keun & McCarl, Bruce A. & Murray, Brian C., 2008. "Permanence discounting for land-based carbon sequestration," Ecological Economics, Elsevier, vol. 64(4), pages 763-769, February.
    6. Hilary Sigman, 2011. "Monitoring and Enforcement of Climate Policy," NBER Chapters,in: The Design and Implementation of U.S. Climate Policy, pages 213-225 National Bureau of Economic Research, Inc.
    7. A. Lans Bovenberg & Lawrence H. Goulder & Derek J. Gurney, 2005. "Efficiency Costs of Meeting Industry-Distributional Constraints Under Environmental Permits and Taxes," RAND Journal of Economics, The RAND Corporation, vol. 36(4), pages 950-970, Winter.
    8. van Benthem, Arthur & Kerr, Suzi, 2013. "Scale and transfers in international emissions offset programs," Journal of Public Economics, Elsevier, vol. 107(C), pages 31-46.
    9. Goulder, Lawrence H. & Hafstead, Marc A.C. & Dworsky, Michael, 2010. "Impacts of alternative emissions allowance allocation methods under a federal cap-and-trade program," Journal of Environmental Economics and Management, Elsevier, vol. 60(3), pages 161-181, November.
    10. De Cian, Enrica & Tavoni, Massimo, 2012. "Do technology externalities justify restrictions on emission permit trading?," Resource and Energy Economics, Elsevier, vol. 34(4), pages 624-646.
    11. Spulber, Daniel F., 1988. "Optimal environmental regulation under asymmetric information," Journal of Public Economics, Elsevier, vol. 35(2), pages 163-181, March.
    12. 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.
    13. Lambert Schneider, 2009. "A Clean Development Mechanism with global atmospheric benefits for a post-2012 climate regime," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 9(2), pages 95-111, May.
    14. Richard G. Newell & William A. Pizer & Daniel Raimi, 2013. "Carbon Markets 15 Years after Kyoto: Lessons Learned, New Challenges," Journal of Economic Perspectives, American Economic Association, vol. 27(1), pages 123-146, Winter.
    15. Stavins Robert N., 1995. "Transaction Costs and Tradeable Permits," Journal of Environmental Economics and Management, Elsevier, vol. 29(2), pages 133-148, September.
    16. Baumol,William J. & Oates,Wallace E., 1988. "The Theory of Environmental Policy," Cambridge Books, Cambridge University Press, number 9780521322249, May.
    17. Rubin, Jonathan D., 1996. "A Model of Intertemporal Emission Trading, Banking, and Borrowing," Journal of Environmental Economics and Management, Elsevier, vol. 31(3), pages 269-286, November.
    18. Robert W. Hahn, 1984. "Market Power and Transferable Property Rights," The Quarterly Journal of Economics, Oxford University Press, vol. 99(4), pages 753-765.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. 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.
    2. 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.
    3. 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.
    4. repec:eee:energy:v:145:y:2018:i:c:p:468-476 is not listed on IDEAS
    5. 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.
    6. 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," Discussion Papers dp-15-16, Resources For the Future.
    7. repec:eee:resene:v:49:y:2017:i:c:p:33-47 is not listed on IDEAS
    8. repec:eee:rensus:v:94:y:2018:i:c:p:1179-1191 is not listed on IDEAS
    9. repec:kap:enreec:v:68:y:2017:i:4:d:10.1007_s10640-016-0055-x is not listed on IDEAS

    More about this item

    Keywords

    Carbon offsets; Cap and trade; Additionality; Distributional concerns;

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jeeman:v:70:y:2015:i:c:p:51-71. 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: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/inca/622870 .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.