AN ANALYSIS OF A CARBON OFFSET PROGRAM FOR THE UNITED STATES

Abstract

In the current absence of the federal government’s strong leadership to address climate change in the United States, mandatory regional tradable permit programs for greenhouse gas (GHG) emission reductions are being planned by several state governments. A carbon offset program, combined with a tradable permit program, induces a wider range of entities to implement offset projects that reduce GHG emissions within a wider range of industries than the industries regulated by the tradable permit program. An offset project has to be additional, meaning that it generates emission reductions as compared to the baseline emissions. Therefore, the additionality assessment is the most important element of a carbon offset program, but it is complicated because it requires estimating a counterfactual baseline scenario. For a carbon offset program in the United States, energy efficiency projects to reduce GHG emissions on the demand-side of energy are important. However, energy efficiency projects are prevented from being undertaken due to the high transaction costs of the project-specific additionality assessment method adopted by the Clean Development Mechanism. In this paper, a policy analysis is conducted to produce recommendations to solve this problem. First, along the rationally selected evaluative criteria, a qualitative comparative assessment is made on the policy alternatives implementing different additionality assessment methods as a definitive test. Then, based on the assessment, this paper discusses how to more flexibly implement and combine the different methods to address the problem. Finally, the recommendation is made for a comprehensive, simple and practical policy to assess additionality for a carbon offset program in the United States.