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Managing uncertainty in carbon offsets: insights from California’s standardized approach

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  • Barbara Haya
  • Danny Cullenward
  • Aaron L. Strong
  • Emily Grubert
  • Robert Heilmayr
  • Deborah A. Sivas
  • Michael Wara

Abstract

Carbon offsets allow greenhouse gas emitters to comply with an emissions cap by paying others outside of the capped sectors to reduce emissions. The first major carbon offset programme, the United Nations’ Clean Development Mechanism (CDM), has been criticized for generating a large number of credits from projects that do not actually reduce emissions. Following the controversial CDM experience, California pioneered a second-generation compliance offset programme that shifts the focus of quality control from assessments of individual projects to the development of offset protocols, which define project type-specific eligibility criteria and methods for estimating emissions reductions. We assess the ability of California’s ‘standardized approach’ to mitigate the risk of over-crediting greenhouse gas reductions by reviewing the development of two California offset protocols – Mine Methane Capture and Rice Cultivation. We examine the regulator’s treatment of three sources of over-crediting under the CDM: non-additional projects, inflated counterfactual baseline scenarios, and perverse incentives that inadvertently increase emissions. We find that the standardized approach offers the ability to reduce, but not eliminate, the risk of over-crediting. This requires careful protocol-scale analysis, conservative methods for estimating reductions, ongoing monitoring of programme outcomes, and restricting participation to project types with manageable levels of uncertainty in emission reductions. However, several of these elements are missing from California’s regime, and even best practices result in significant uncertainty in true emission reductions. Relying on carbon offsets to lower compliance costs risks lessening total emission reductions and increases uncertainty in whether an emissions target has been met.Key policy insights Substantial and ongoing oversight by offset programme administrators is needed to contain uncertainty and avoid over-crediting.California’s Mine Methane Capture Protocol may have influenced federal decisions not to regulate methane emissions from coal mines on federally-owned lands.Government priorities and methodological choices drive outcomes in carbon pricing policies with large offset programmes, contrary to the common perception that these policies delegate decision-making to private actors.Offsets are better understood as a way for regulated emitters to invest in an incentive programme that achieves difficult-to-estimate emission reductions, than as accurately quantified tons of reductions.

Suggested Citation

  • Barbara Haya & Danny Cullenward & Aaron L. Strong & Emily Grubert & Robert Heilmayr & Deborah A. Sivas & Michael Wara, 2020. "Managing uncertainty in carbon offsets: insights from California’s standardized approach," Climate Policy, Taylor & Francis Journals, vol. 20(9), pages 1112-1126, October.
  • Handle: RePEc:taf:tcpoxx:v:20:y:2020:i:9:p:1112-1126
    DOI: 10.1080/14693062.2020.1781035
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    Cited by:

    1. Natalie Warzywoda & Paul Dargusch & Genia Hill, 2022. "How Meaningful Are Modest Carbon Emissions Reductions Targets? The Case of Sumitomo Electrical Group’s Short-Term Targets towards Longer-Term Net Zero," Sustainability, MDPI, vol. 14(7), pages 1-10, April.
    2. Huwe, Vera & Krahé, Max & Sigl-Glöckner, Philippa, 2021. "Effektiv und mehrheitsfähig? Der Emissionshandel auf dem Prüfstand," Papers 277891, Dezernat Zukunft - Institute for Macrofinance, Berlin.
    3. Estelle Cantillon & Aurélie Slechten, 2023. "Market Design for the Environment," NBER Chapters, in: New Directions in Market Design, National Bureau of Economic Research, Inc.
    4. Brian P. McCullough & Andrea Collins & Jack Roberts & Shelley Villalobos, 2023. "Sport Events and Emissions Reporting: An Analysis of the Council for Responsible Sport Standard in Running Events," Sustainability, MDPI, vol. 15(19), pages 1-12, September.
    5. Lilit Popoyan & Alessandro Sapio, 2023. "Prevention first vs. cap-and-trade policies in an agent-based integrated assessment model with GHG emissions permits," LEM Papers Series 2023/29, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    6. Femenias Rosselló, Llorenç B. & Bujosa Bestard, Angel & Riera Font, Antoni, 2024. "Is carbon footprint reduction always preferred over offsetting? An analysis of tourists' preferences in the Mallorca region," Economic Analysis and Policy, Elsevier, vol. 81(C), pages 1371-1381.
    7. Comello, Stephen & Reichelstein, Julia & Reichelstein, Stefan, 2023. "Corporate carbon reporting: Improving transparency and accountability," ZEW Discussion Papers 23-026, ZEW - Leibniz Centre for European Economic Research.
    8. Bruno D. V. Marino & Nahuel Bautista & Brandt Rousseaux, 2021. "Howland Forest, ME, USA: Multi-Gas Flux (CO 2 , CH 4 , N 2 O) Social Cost Product Underscores Limited Carbon Proxies," Land, MDPI, vol. 10(4), pages 1-17, April.
    9. Gregory Trencher & Sascha Nick & Jordan Carlson & Matthew Johnson, 2024. "Demand for low-quality offsets by major companies undermines climate integrity of the voluntary carbon market," Nature Communications, Nature, vol. 15(1), pages 1-15, December.
    10. Eli Mitchell-Larson & Myles Allen, 2022. "Prosets: a new financing instrument to deliver a durable net zero transition," Climatic Change, Springer, vol. 174(1), pages 1-13, September.
    11. Ning, Zhuo & Hou, Yuke & Xu, Xia, 2024. "Optimized strategies for nitrogen fertilizer application in Populus plantations in the context of climate change mitigation," Forest Policy and Economics, Elsevier, vol. 159(C).

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