The Social Value of Offsets
It is unclear how much carbon should be stored in temporary and risky offsets to compensate one ton of CO2 emissions. Here we cast the social value of an offset (SVO), measured in terms of economic damages avoided, as a well-defined fraction of the social cost of carbon reflecting offset duration, and risks of non-additionality and failure. The SVO reflects the value of temporary storage, and overcomes shortcomings in the climate science and economics of previous contributions1,2,3,4. The SVO is policy relevant. An efficient net-zero policy will consist of offsets if their SVO/cost ratio exceeds the benefit/cost ratio of alternatives. The SVO yields an indicator of the equivalence of offsets to permanent carbon storage measured by the ratio of the SVO to the social cost of carbon. We provide a matrix of equivalence factors for different risks, permanence and climate scenarios. Estimation yields a rule of thumb: one offset sequestering one ton for 50 years is equivalent to between 0.33 and 0.5 tons permanently locked away. Equivalence offers a means of replacing perpetual offset contracts by simpler, easy to monitor short-term contracts, has applications to carbon life cycle analysis5 and the valuation of carbon debts6, and can be the basis of comparing offsets of different qualities in the voluntary and compliance markets.
Date: 26 February 2024, 16:05 (Monday, 7th week, Hilary 2024)
Venue: Manor Road Building, Manor Road OX1 3UQ
Venue Details: Lecture Theatre or https://zoom.us/j/97534799321?pwd=V2pOWGQ2N3l3WWg3eXFSK25hc0laQT09
Speaker: Frank Venmans (London School of Economics)
Organising department: Department of Economics
Part of: Environment and Resource Economics Seminar
Booking required?: Not required
Audience: Members of the University only
Editors: Shreyasi Banerjee, Edward Clark