Implications of international GHG offsets on global climate change mitigation

Abstract

With the United Nations Framework Convention on Climate Change (UNFCCC) Agreements reached in Cancún, Mexico, in December 2010, the future role of international GHG offsets in climate action has become particularly uncertain. One of the more vexing questions is: how offsets will be accounted for in reporting and reviewing progress toward meeting countries’ emission-reduction pledges under the Cancún Agreements. This article quantifies the implications of double-counting international offsets by constructing and applying a model to analyse how potential offset supply and demand balances may evolve, based on specific assumptions about accounting rules, offset mechanisms, and country pledges for the year 2020. It is found that extensive use of international offsets, if counted both by the supplying (developing) and buying (developed) country, could effectively reduce the ambition of current pledges by up to 1.6 billion tonnes CO₂e in 2020, suggesting that the current pledges could well fall even further short of the abatement needed to stay on a path consistent with limiting warming to 2 °C or 1.5 °C. If offsets do not represent additional reductions, then the dilution of pledges could be even greater. Possible remedies are described to address the risks of offset double-counting.

Policy relevance

This article finds that international GHG offsets could play a significant role in meeting developed-country pledges in 2020 – providing abatement to these countries exceeding 1 GtCO₂e. Yet significant decisions remain that will substantially determine whether offsets will contribute productively to meeting a global mandate to reduce emissions on a pathway consistent with limiting warming to 1.5 °C or 2 °C. The prospect of double-counting is a loophole that could weaken the lower end of pledges by as much as 1.1 GtCO₂e, and on the higher end of pledges by as much as 1.6 GtCO₂e, significantly diluting the ambition of the Cancun Agreements. Coupled to this is the possibility of considerable non-additional credits, which could lead to the further weakening of pledges. Upcoming negotiations under the UNFCCC process will provide the opportunity to address these concerns directly.

Keywords:

• Clean Development Mechanism (CDM)
• climate change mitigation
• emissions accounting
• policy options
• post-2012 architecture
• UNFCCC

Acknowledgements

This research was supported by the Energy Foundation. The authors wish to thank John Larsen of the World Resources Institute for helpful discussions and contributions to the policy assessment. The authors also wish to thank Alexia Kelly and Kelly Levin of the World Resources Institute, Andrew Prag of the OECD, and SEI colleague Sivan Kartha for reviewing this paper and providing helpful insights.

Notes

The possibility also exists that some developing countries might elect to invest in offset projects in other developing countries to meet their own pledges, as a means to build markets for their low-emission technologies, and/or to sell additional emission units to other countries.

Spalding-Fecher et al. (2012) investigated the influence of the CDM and JI on the ambition of Annex I targets under Kyoto, and found limited evidence.

Without strong, internationally coordinated offset accounting rules, there is also a risk of counting a given tonne of emissions reductions even more than twice towards pledge attainment. This could occur if, in addition to offsets counting for both buyer and seller, multiple crediting systems cover the same regions and sectors, and each system issues offsets for the same avoided emissions. This could result from uncoordinated bilateral mechanisms or from inadequately designed multilateral ones, such as sectoral mechanisms that do not adequately account for CDM activity in the same sectors. Although a scenario was not analysed where offsets count more than twice, these issues further underscore the need for a careful, robust, and internationally coordinated offset accounting system with minimum standards that all countries agree to meet in their respective systems.

Because under this scenario, abatement in developing countries is counted whether or not CDM offsets are awarded, the issuance of non-additional offsets would have no direct effect on developing country emissions, and thus on pledge attainment. In contrast, because developed countries could count these offsets towards their pledges, these non-additional offsets would allow them to increase emissions by 0.6 GtCO₂e.