Benefit sharing in emissions offsetting

The Methods for Economic Decision-Making under Uncertainty (MEDU) group has identified promising approaches to emissions offsetting in the energy sector under Reducing Emissions from Deforestation and Forest Degradation (REDD) mechanism. These include increasing risk-aversion of energy producers, exposing risk-averse behavior, and activating a benefit-sharing mechanism.

© Americanspirit | Dreamstime

© Americanspirit | Dreamstime

The current delay in Reducing Emissions from Deforestation and Forest Degradation (REDD) implementation is connected with the fact that regulated entities are not able to adequately assess the risks associated with CO2 prices (explained by the weak policy design). An additional hurdle for REDD development is its future acceptance on carbon markets, as illustrated by the case of the European Emission Trading System (EU ETS). The benefit sharing mechanism could provide REDD-supplier and consumer with an alternative control over future uncertainty, and hence facilitate REDD implementation at a larger scale [1]. Another mechanism for supporting REDD, although not cost-free, might involve public funds for closing the price gap between REDD demand and supply. This may be especially effective when other means are not sufficient and the uncertainty as perceived by the parties still remains too high for contracting REDD-offsets [2]. This is potentially the case where relatively small investments may play a decisive role in enabling REDD.

Figure 1. Benefit sharing mechanism increases contracted amount and at the same time decreases the price.

References

[1] Krasovskii A, Khabarov N, Obersteiner M (2015) Fair pricing of REDD-based emission offsets under risk preferences and benefit sharing. IIASA Interim Report IR-15-019

[2] Krasovskii A, Khabarov N, Obersteiner M (2015) CO2-intensive power generation and REDD-based emission offsets with a benefit sharing mechanism. IIASA Interim Report IR-15-018

Collaborators

Environmental Defense Fund (EDF), USA

Mercator Research Institute on Global Commons and Climate Change (MCC), Germany

London School of Economics (LSE), UK


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Last edited: 16 March 2016

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Nikolay Khabarov

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Ecosystems Services and Management

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