OECD Environment Working Papers

ISSN :
1997-0900 (online)
DOI :
10.1787/19970900
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This series is designed to make available to a wider readership selected studies on environmental issues prepared for use within the OECD. Authorship is usually collective, but principal authors are named. The papers are generally available only in their original language English or French with a summary in the other if available.
 

Buying and Cancelling Allowances as an Alternative to Offsets for the Voluntary Market

A Preliminary Review of Issues and Options You or your institution have access to this content

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Author(s):
Anja Kollmuss1, Michael Lazarus1
Author Affiliations
  • 1: Stockholm Environment Institute, Sweden

Publication Date
04 Aug 2010
Bibliographic information
No.:
21
Pages
31
DOI
10.1787/5km975qmwp5c-en

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In recent years, businesses, local governments and individuals have set goals for reducing their emissions of greenhouse gases. In addition to directly reducing their own emissions, many of these entities have purchased carbon offsets to help achieve their mitigation goals. Yet establishing offset quality can be difficult, due to issues such as additionality, measurement, leakage, permanence, and verification. This paper explores scenarios under which, as an alternative to offsets, voluntary buyers could instead buy and cancel allowances from compliance markets. The purchase and cancellation of allowances reduces the available allowances in a cap-and-trade system, "tightening the cap" and, in principle, reducing the emissions that can be produced by covered sources. By this logic, purchasing and cancelling an allowance compels covered sources to achieve additional mitigation. Opportunities for voluntary buyers to purchase and cancel tradable compliance units currently exist in several markets, but in small quantities. If the practice of cancelling allowances remains limited to individuals and voluntary corporate buyers, it is likely to remain small and is unlikely to send a strong price signal. In the medium and long-term this might change if large numbers of sub-national actors came into play and chose to cancel allowances.
Keywords:
emissions trading systems, climate change
JEL Classification:
  • Q54: Agricultural and Natural Resource Economics; Environmental and Ecological Economics / Environmental Economics / Climate; Natural Disasters; Global Warming
  • Q58: Agricultural and Natural Resource Economics; Environmental and Ecological Economics / Environmental Economics / Government Policy