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The social value of offsets

Author

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  • Ben Groom

    (University of Exeter Business School
    London School of Economics and Political Science)

  • Frank Venmans

    (London School of Economics and Political Science)

Abstract

It is unclear how much carbon should be stored in temporary and risky offsets to compensate one ton of CO2 emissions. Here we cast the social value of an offset (SVO), measured in terms of economic damages avoided, as a well-defined fraction of the social cost of carbon reflecting offset duration, and risks of non-additionality and failure. The SVO reflects the value of temporary storage, and overcomes shortcomings in the climate science and economics of previous contributions1–4. The SVO is policy relevant. An efficient net-zero policy will consist of offsets if their SVO/cost ratio exceeds the benefit/cost ratio of alternatives. The SVO yields an indicator of the equivalence of offsets to permanent carbon storage measured by the ratio of the SVO to the social cost of carbon. We provide a matrix of equivalence factors for different risks, permanence and climate scenarios. Estimation yields a rule of thumb: one offset sequestering one ton for 50 years is equivalent to between 0.33 and 0.5 tons permanently locked away. Equivalence offers a means of replacing perpetual offset contracts by simpler, easy to monitor short-term contracts, has applications to carbon life cycle analysis5 and the valuation of carbon debts6, and can be the basis of comparing offsets of different qualities in the voluntary and compliance markets.

Suggested Citation

  • Ben Groom & Frank Venmans, 2023. "The social value of offsets," Nature, Nature, vol. 619(7971), pages 768-773, July.
    • Handle: RePEc:nat:nature:v:619:y:2023:i:7971:d:10.1038_s41586-023-06153-x
    DOI: 10.1038/s41586-023-06153-x
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    Cited by:

    1. Assmuth, Aino & Autto, Hilja & Halonen, Kirsi-Maria & Haltia, Emmi & Huttunen, Suvi & Lintunen, Jussi & Lonkila, Annika & Nieminen, Tiina M. & Ojanen, Paavo & Peltoniemi, Mikko & Pietilä, Kaisa & Pohj, 2024. "Forest carbon payments: A multidisciplinary review of policy options for promoting carbon storage in EU member states," Land Use Policy, Elsevier, vol. 147(C).
    2. J. Sartori, Pedro & Schons, Stella Z. & Amacher, Gregory S. & Burkhart, Harold, 2024. "Deferred rotation carbon programs for even-aged forests: Aligning landowner and societal objectives," Forest Policy and Economics, Elsevier, vol. 168(C).
    3. Li, Li & Wang, Shuai & Wu, Jiaqi & Sun, Zhenqing, 2024. "Exploring the efficacy of renewable energy support policies in uncertain environments: A real options analysis," Energy Economics, Elsevier, vol. 132(C).
    4. Parkatti, Vesa-Pekka & Suominen, Antti & Tahvonen, Olli & Malo, Pekka, 2024. "Assessing economic benefits and costs of carbon sinks in boreal rotation forestry," Forest Policy and Economics, Elsevier, vol. 166(C).
    5. Thomas Knoke & Nick Hanley & Rosa Maria Roman-Cuesta & Ben Groom & Frank Venmans & Carola Paul, 2023. "Trends in tropical forest loss and the social value of emission reductions," Nature Sustainability, Nature, vol. 6(11), pages 1373-1384, November.

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