Offsets can build momentum for a global effort
Q: The idea of selling "offsets" for greenhouse-gas pollution seems to be losing some steam -- at least in the U.S. A recent media report said the demand for them is slackening, thanks to the economy, to the failed attempts at creating a sweeping international climate accord in Copenhagen, and to the gridlock on climate on Capitol Hill. Do you think offsets still ought to be part of wide-scale efforts to tackle climate change, either in the U.S. or around the world?
Carbon offsets are interesting for three interrelated reasons:
1. Offsets make combating climate change less expensive, by allowing resources to flow to projects that deliver the most reductions for the money.
2. Offset schemes help globalize the emissions reductions challenge, by giving countries and sectors that do not have their emissions capped an incentive to start taking action, thus building financial and operational capacity to reduce emissions around the world.
3. Offsets link together the 'carbon economies' of different countries, creating gradual convergence towards a global price on emissions. This gradual process is one of the keys to preventing carbon-based trade wars - if the value of reductions is converging across economies, interest in so-called 'border adjustments' for traded goods will decrease.
Investors already understood that a global price and a global market for trading reductions was some years away, and if demand for offsets is now weakening that may reflect pessimism about the pace of integration. But it would be a shame if policy-makers reinforced this momentum by abandoning efforts to link their climate efforts. Whether or not a country opts for a cap-and-trade system like the European ETS, there are ways to use offsets to link climate regimes at the national and industry level. The government of Japan, for example, has not used cap and trade, but has itself been a major purchaser of offsets to meet its Kyoto obligations. In the future, countries that opt for a carbon tax could also allow companies to receive credits for reductions abroad.
International offsets are not easy to implement. Their reductions need to be trustworthy, their overall availability has to be kept in line with domestic objectives, and they need to be a part of a broader political movement towards integration and collaboration. But the benefits of offset systems outweigh the risks.
Lars G. Josefsson
March 19, 2010; 12:00 PM ET
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