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Carbon offsets – bigger bang for the buck

Updated: Nov 25, 2020

Policy Pulse - 1 August 2019 - George Anjaparidze

Only 7 weeks remain until the UN Climate Action Summit. The Summit aims to address the urgent need to boost ambition and accelerate action to implement the Paris Agreement on climate change (See our post Paris Agreement: the inconvenient gap between ambition and reality). In addition to scaling-up finance and action, the Summit needs to improve the political acceptance of using international collaboration for achieving emission reductions.

The World Bank estimates that international collaboration (the use of offsetting, emission trading and other market-based measures) will lower 2030 mitigation costs by 32%. By 2050, international collaboration will lower mitigation costs by 54% (See chart). Widely used global standards, such as the Gold Standard, offer certification mechanisms that ensure projects that reduce carbon emissions offer the highest levels of environmental integrity and also contribute to sustainable development.

The 2019 World Bank report on State and Trends of Carbon Pricing, highlights the continued uptick in carbon pricing initiatives. In 2020, about 20% of global greenhouse gas will have a price signal for emitting. The price signal will range from below $1 and up to $127 per tonne of CO2 equivalent (tCO2e). These measures have delivered favorable mitigation outcomes and the progress achieved should be welcomed. However, through the use of international carbon trading, there is scope to achieve more emission reductions within the existing resource envelope. Charging companies and consumers $127 in Sweden or $96 in Switzerland per tCO2e is much more costly compared to supporting mitigation actions in developing countries.

Much higher global environmental benefits could be delivered within the current resource envelope if abatement potential in developing countries is more actively incentivized and supported. For example, through crediting of carbon emission reductions, international emission trading and using revenues raised through carbon taxes to support further actions in developing countries. The biggest opportunity is in developing Asia. McKinsey estimates that about half of all global cost-effective abatement by 2030 is in this region, put differently, 70% of all cost-effective abatement opportunities in developing countries are in developing Asia. This is also broadly consistent with the experience under the Clean Development Mechanism of the Kyoto Protocol, where about 85% of the emission reductions were generated from projects located in Asia.

GHGs are global pollutants. Their concentration in the atmosphere contributes to climate change. Where they are emitted has no bearing on where the impacts of global warming are felt. This means that from a climate change perspective it does not matter in which jurisdiction GHG emissions are reduced. This is very different from most other forms of pollution where impacts are more localized.

One key metric for defining success will be if the UN Climate Action Summit achieves greater political acceptance of using mechanisms such as carbon crediting, offsetting and other forms of international collaboration.

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