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Estimates of Future Supply of International Greenhouse Gas Offsets: A Critical Review

Author(s): Erickson, P. ; Lazarus, M. ; Kelly, A.
Year: 2010


U.S. policymakers have relied on offsets from developing countries as a primary form of cost containment in proposed cap-and-trade legislation. These legislative proposals allow for emitters to use up to 1.5 billion tons CO2e of offsets from developing countries to meet their annual compliance obligations. In this paper, we review estimates of the projected availability (i.e. supply) of international offsets, and evaluate the various methods used. We find that:

(1) Estimates of supply of international offsets to global markets vary widely, with estimates differing by billions of tons CO2e annually in 2020;
(2) Despite the variation, existing studies suggest that by 2020 gross international offset supply will likely exceed U.S. demand for international offsets under current Congressional cap-and-trade designs;
(3) Competition with governments and entities with emission reduction obligations (e.g. the EU), as well as with policies and measures undertaken by developing countries as part of their own mitigation contributions, could reduce the net offset supply available to U.S. entities; and
(4) Several important offset program design and market factors that are central to future offset markets and credit issuance (e.g. sources of offset supply, program stringency and crediting methods, establishment of international governance and market structures) have yet to be systematically considered in offset supply assessments.

This paper outlines factors that should be incorporated into future analyses of international offset supply and quality. Such analyses could prove particularly germane as policymakers continue to deliberate on the role of international offsets, including whether and how to recognize credits from the Clean Development Mechanism (CDM), develop new sectoral crediting mechanisms, and consider offsets for reduced deforestation.

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