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Climatic Change

, Volume 137, Issue 3–4, pp 625–637 | Cite as

On the importance of baseline setting in carbon offsets markets

  • Antonio Bento
  • Ravi Kanbur
  • Benjamin Leard
Article

Abstract

Incorporating carbon offsets in the design of cap-and-trade programs remains a controversial issue because of its potential unintended impacts on emissions. At the heart of this discussion is the issue of crediting of emissions reductions. Projects can be correctly, over- or under-credited for their actual emissions reductions. We develop a unified framework that considers the supply of offsets within a cap-and-trade program that allows us to compare the relative impact of over-credited offsets and under-credited emissions reductions on overall emissions under different levels of baseline stringency and carbon prices. In the context of a national carbon pricing scheme that includes offsets, we find that the emissions impacts of over-credited offsets can be fully balanced out by under-credited emissions reductions without sacrificing a significant portion of the overall supply of offsets, provided emissions baselines are stringent enough. In the presence of high predicted business-as-usual (BAU) emissions uncertainty or low carbon prices, to maintain the environmental integrity of the program, baselines need to be set at stringent levels, in some cases below 50 percent of predicted BAU emissions. As predicted BAU emissions uncertainty declines or as the carbon market achieves higher equilibrium prices, however, less stringent baselines can balance out the emissions impacts of over-credited offsets and under-credited emissions reductions. These results imply that to maintain environmental integrity of offsets programs, baseline stringency should be tailored to project characteristics and market conditions that influence the proportion of over-credited offsets to under-credited emissions reductions.

Keywords

Carbon offsets Crediting Environmental integrity 

Supplementary material

10584_2016_1685_MOESM1_ESM.pdf (705 kb)
(PDF 704 KB)

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Copyright information

© Springer Science+Business Media Dordrecht 2016

Authors and Affiliations

  1. 1.Sol Price School of Public Policy and the Department of EconomicsUniversity of Southern California and NBER Los AngelesLos AngelesUSA
  2. 2.Charles H. Dyson School of Applied Economics and ManagementCornell University IthacaIthacaUSA
  3. 3.Resources for the FutureWashingtonUSA

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