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Use of Offsets to Reduce Greenhouse Gases
Natalie Tawil (au)
Discussions about reducing greenhouse gases often focus on limiting the use of fossil fuels to generate electricity or power cars and trucks, yet a variety of other actions — including disposing of waste in different ways, changing methods of farming, and lessening deforestation — could also reduce the concentration of greenhouse gases (GHGs) in the atmosphere. Both existing climate policies, such as the European Union’s Emission Trading System, and policies under consideration, such as the American Clean Energy and Security Act (ACESA) of 2009, which was recently passed by the House of Representatives, have recognized the potential for such actions to“offset” the extent to which the use of fossil fuels must be reduced to meet a chosen target for total GHG emissions. If such offsets — which can be defined as reductions in GHGs from activities not subject to limits on emissions — are less expensive than reductions from limitingthe use of fossil fuels, they can reduce the overall economic cost of meeting a target for emissions. Yet the difficulty of verifying offset activities raises concerns about whether the specified target will actually be met. This economic brief shows that although experience with offsets is not extensive, preliminary evidence suggests that they can significantly lower the economic cost of a cap-and-trade program, even after accounting for the costs of steps taken to increase confidencethat offsets represent true incremental reductions in GHGs. However, estimates of the savings that would result from including offsets in a cap-and-trade program are imprecise and depend importantly on policy design. Figures.
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