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Discounting Offsets: Issues and Options

SEI Working Paper WP-US-1005

Author(s): Kollmuss, A. ; Lazarus, M. ; Smith, G.
Year: 2010

Research Area(s): Emissions Trading & Offsets ; Climate Mitigation Policy

Description: This paper describes the different types of discounting, their objectives and their potential impacts on carbon markets. Discount factors can be used to strengthen the environmental integrity of offsets and to give preference to certain projects types or geographic regions. All discounting approaches face the difficulty of having to establish the right discount rate that is politically acceptable, maximizes benefits and minimizes negative effects. While discounting is no silver bullet - its potential pitfalls are significant - it should be considered by policy makers as a mechanism to address specific objectives, in particular to remedy perverse incentives and to maximize the environmental benefit of offset markets.

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