Potential for International Offsets to Provide a Net Decrease of GHG Emissions (policy brief)

International greenhouse gas emission offsets are a central piece of most climate policy architectures. By allowing flexibility in the location of emission reductions, they make it possible to reduce the overall costs of GHG abatement. The Clean Development Mechanism (CDM), created under the Kyoto Protocol, has issued over one billion offset credits to date. While the potential to reduce costs may lead to more ambitious climate targets, in principle, offsets provide no net benefit to the atmosphere. However, analysts have proposed ways in which offset projects could offer a net benefit, by reducing emissions by more than the offsets issued.

At COP 17 in Durban, the Parties to the United Nations Framework Convention on Climate Change (UNFCCC) embraced this approach, calling for new market mechanisms, and more broadly, “various approaches, including markets” to “achieve a net decrease and/or avoidance of greenhouse gas emissions”. This policy brief, based on SEI Working Paper No. 2013-06, explores what that means, how it might be achieved, and what it might deliver.

Several crucial questions still need to be answered, starting with what constitutes a “net decrease”: From the perspective of an offset instrument or individual offset activity, surplus reductions can be achieved if actual emission reductions exceed the offset credits issued or used. From the perspective of global GHG emissions, however, emissions would also have to be reduced beyond what countries have already pledged, leading to a net atmospheric benefit.

The analysis also shows that achieving a net decrease in global GHG emissions requires an ability to do all of the following: generate offsets for which additionality is relatively certain; produce more GHG abatement than is credited (surplus reductions); avoid double counting of emission reductions; and ensure that surplus reductions do not count towards the host country’s mitigation pledge. Approaches to achieving a net decrease are currently available to policy-makers, such as unit discounting or cancellation, some of which are already in use.

Download the policy brief (PDF, 502kb)