IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Carbon Offsets, Reversal Risk And Us Climate Policy

  • Bryan K. Mignone

    ()

  • Matthew D. Hurteau

    ()

  • Yihsu Chen

    ()

  • Brent Sohngen

    ()

Background - One controversial issue in the larger cap-and-trade debate is the proper use and certification of carbon offsets related to changes in land management. Advocates of an expanded offset supply claim that inclusion of such activities would expand the scope of the program and lower overall compliance costs, while opponents claim that it would weaken the environmental integrity of the program by crediting activities that yield either nonexistent or merely temporary carbon sequestration benefits. Our study starts from the premise that offsets are neither perfect mitigation instruments nor useless "hot air." Results - We show that offsets provide a useful cost containment function, even when there is some threat of reversal, by injecting additional "when-flexibility" into the system. This allows market participants to shift their reduction requirements to periods of lower cost, thereby facilitating attainment of the least-cost time path without jeopardizing the cumulative environmental integrity of the system. By accounting for market conditions in conjunction with reversal risk, we develop a simple offset valuation methodology, taking into account the two most important factors that typically lead offsets to be overvalued or undervalued. Conclusions - The result of this paper is a quantitative "model rule" that could be included in future legislation or used as a basis for active management by a future "carbon fed" or other regulatory authority with jurisdiction over the US carbon market to actively manage allowance prices.

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.

File URL: http://cbe.anu.edu.au/research/papers/camawpapers/Papers/2009/Mignone_Hurteau_Chen_Sohngen_192009.pdf
Our checks indicate that this address may not be valid because: 500 Can't connect to www.cbe.anu.edu.au:443 (http://cbe.anu.edu.au/research/papers/camawpapers/Papers/2009/Mignone_Hurteau_Chen_Sohngen_192009.pdf [301 Moved Permanently]--> https://www.cbe.anu.edu.au/research/papers/camawpapers/Papers/2009/Mignone_Hurteau_Chen_Sohngen_192009.pdf). If this is indeed the case, please notify (Cama Admin)


Download Restriction: no

Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2009-19.

as
in new window

Length: 17 pages
Date of creation: Jul 2009
Date of revision:
Handle: RePEc:een:camaaa:2009-19
Contact details of provider: Postal: Crawford Building, Lennox Crossing, Building #132, Canberra ACT 2601
Phone: +61 2 6125 4705
Fax: +61 2 6125 5448
Web page: http://cama.crawford.anu.edu.au
Email:


More information through EDIRC

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:een:camaaa:2009-19. 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: (Cama Admin)

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.