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Supply and demand structure for international offset permits under the Copenhagen Pledges

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Abstract

International carbon offsets from developing countries and emerging economies, such as permits from the clean development mechanism, could potentially play an important role for cost containment in domestic greenhouse gas regulation by industrialised countries. Assuming that major emitters such as the EU, the USA, Canada, Japan, Australia and New Zealand implement the “Copenhagen Pledges” and seek cost containment, the potential demand for offset permits is estimated to be 627–667 MtCO2e per year. To describe the supply structure, marginal abatement cost curves for developing countries and emerging economies are derived. Developing countries and emerging economies could supply 627–667 MtCO2e p.a. at costs of approximately EUR 10 (in 2004 EUR), neglecting transaction costs and country-specific risks. The highest potentials for the generation of carbon offsets are present in China, India and the rest of Asia.

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Notes

  1. Hahn and Richards (2010) provide a comprehensive overview of offset programs in environmental regulation. Tietenberg (2006) summarizes the use of offset permits in emissions trading programs.

  2. These targets contain the 20 % reduction of greenhouse gas emissions, a 20 % increase in energy efficiency, and a 20 % share of renewables in total energy consumption by 2020.

  3. Since the full extent of designs of possible emissions trading systems is not yet known, the costs in Fig. 1 are calculated under the assumption that the trading scheme is applied to all sectors (industry, agriculture, services) of the economy, except for the EU. The regulation design might yield different prices if, for instance, only industrial sectors were covered by an ETS. As it is not clear which design might eventually be implemented in the different regions, we decided to use the actual policy design for the EU and a uniform carbon price for all economic sectors in the other regions.

  4. The APA was a comprehensive proposal for GHG regulation in the USA in 2010 by the Senators Kerry and Lieberman.

  5. The CDM Pipeline can be accessed at http://www.cdmpipeline.org/.

Abbreviations

AAUs:

Assigned amount units

APA:

American power act

BAU:

Business as usual

CAIT:

Climate analysis indicators tool

CDM:

Clean development mechanism

CERs:

Certified emission reductions (permits generated in the CDM)

CGE:

Computable general equilibrium (model)

CO2e:

Carbon dioxide equivalent

COP15:

15th conference of the parties (Copenhagen climate change summit 2009)

EPA:

US Environmental Protection Agency

EU:

European Union

EU ETS:

European emissions trading scheme

EUR:

Euro (Currency)

GHG:

Greenhouse gases

GTAP:

Global trade analysis project

JI:

Joint implementation

LULUCF:

Land use, land-use change and forestry

Mt:

Megatonnes

NAMA:

Nationally appropriate mitigation action

NZ ETS:

New Zealand emissions trading scheme

PACE:

Policy analysis based on computable equilibrium

PoAs:

Programs of activities

REDD:

Reducing emissions from deforestation and degradation

RGGI:

Regional greenhouse gas initiative

ROW:

Rest of the world

UNFCCC:

United Nations framework convention on climate change

USA:

United States of America

WCI:

Western climate initiative

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Acknowledgments

We would like to thank Henrike Koschel (KfW Bankengruppe), Bodo Sturm (Centre for European Economic Research (ZEW)/Univ. of Applied Science, Leipzig), Andreas Löschel (Centre for European Economic Research (ZEW)/University of Heidelberg), Frank Jotzo (Australian National University), the Klimaschutzfonds of KfW Bankengruppe and the participants of seminars held at ZEW in January 2011, at the University of Heidelberg in February 2011 and at the EAERE Annual Meeting in Rome in June 2011 as well as two anonymous referees for useful comments and discussion.

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  1. Department of Environmental and Resource Economics, Environmental Management, Centre for European Economic Research (ZEW), L7, 1, 68161, Mannheim, Germany

    Peter Heindl & Sebastian Voigt

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  1. Peter Heindl
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  2. Sebastian Voigt
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Correspondence to Peter Heindl.

Appendix

Appendix

See Table 7.

Table 7 Regions and sectors of the PACE model version used for the current analysis
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Heindl, P., Voigt, S. Supply and demand structure for international offset permits under the Copenhagen Pledges. Int Environ Agreements 12, 343–360 (2012). https://doi.org/10.1007/s10784-012-9171-4

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