Background und objectives
Offset approaches enable governments and also companies to meet part of their climate change mitigation obligations by using imported emission reductions achieved elsewhere. Offset approaches are associated with both, potentials and risks. On the one hand, they allow greater flexibility on the demand side by reducing the costs of meeting climate protection commitments, potentially allowing for a higher mitigation ambition. Under certain circumstances, however, offset approaches could also undermine domestic mitigation efforts by reducing the incentive to implement domestic abatement measures because of the low costs of offset use. In view of these and other effects, UBA has commissioned the research project "Analysis of the advantages and disadvantages of offset approaches in selected sectors", which is being carried out by the Wuppertal Institute together with South Pole. The project explores how offset approaches can be made future-proof and aligned with the objectives of the Paris Agreement.
Based on the experience gained so far, this project asks which framework conditions are required and how offset approaches should be designed for being successfully applied in selected sectors post-2020.
To this end, the researchers are first compiling the experience gained in the use of offset approaches to date. The empirical analysis comprises the following five carbon pricing schemes and their offset component:
- European Union Emissions Trading Scheme (EU ETS)
- Alberta’s different ETS from 2007 to now
- Australia Emission Reduction Scheme and Safeguard Mechanism
- Colombia’s carbon tax
- Japan’s Joint Crediting Mechanism (JCM)
In a second step, the insights gained will be transferred to the changed conditions of the Paris Agreement. The project team identifies factors and conditions for the successful use of offset approaches and explores different design options for offset approaches. Subsequently, selected sectors are examined and their suitability for inclusion in an offset approach assessed. In doing so, both, their possible role on the demand side and on the supply side will be examined. The research results are to inform the ongoing discussion about the future role of offsets and assist policymakers in the design of their offset approaches.
Results and outlook
The empirical analysis of the five existing offset approaches has now been completed. One finding is that offsets can be a viable and environmentally sound cost containment measure when introduced as part of an ambitious compliance scheme. On the other hand, , clear evidence on the role of offsets in helping to increase the ambition level of carbon pricing schemes was not found. These and other research results will be discussed with experts at an I4C webinar at the end of September 2020. Furthermore, a publication of the research results is planned in form of discussion papers during the project period.