Accounting methods for carbon credits: impacts on the minimum area of forestry projects under the Clean Development Mechanism

Abstract

The Ninth Conference of the Parties (COP-9) decided to adopt an accounting system based on expiring carbon credits to address the problem of non-permanent carbon storage in forests established under the Clean Development Mechanism (CDM). This article reviews and discusses carbon accounting methods that were under consideration before COP-9 and presents a model which calculates the minimum area that forest plantation projects should reach to be able to compensate CDM transaction costs with the revenues from carbon credits. The model compares different accounting methods under various sets of parameters on project management, transaction costs, and carbon prices. Model results show that under current carbon price and average transaction costs, projects with an area of less than 500 ha are excluded from the CDM, whatever accounting method is used. Temporary crediting appears to be the most favorable approach to account for non-permanent carbon removal in forests and also for the feasibility of smaller projects. However, lower prices for credits with finite lifetimes may prevent the establishment of CDM forestry projects. Also, plantation projects with low risk of unexpected carbon loss and sufficient capacity for insuring or buffering the risk of carbon re-emission would benefit from equivalence-adjusted average carbon storage accounting rather than from temporary crediting.     

The Role of Eucalyptus Globulus Forest and Products in Carbon Sequestration

This study is a contribution to the ongoing debate about the selection of the approach for carbon accounting in wood products to be used, in the future, in the national greenhouse gas inventories under the UNFCCC (United Nations Framework Convention on Climate Change). Two accounting approaches are used in this analysis: the stock-change approach and the atmospheric-flow approach. They are applied to the Portuguese Eucalyptus globulus forest sector. To achieve this objective, the fluxes of wood removed from the forest are tracked through its life cycle, which includes products manufacture (mainly pulp and paper), use and final disposal (landfilling, incineration and composting). This study develops a framework to the estimation of carbon sequestration in the forest of E. globulus, a fast growing species, more specifically, in the calculation of the conversion factors such as bark and foliage percentages and densities, used to convert wood volumes into total biomass. A mass balance approach based on real data from mills is also proposed, in order to assess carbon emissions from wood processing. The results show that E. globulus forest sector was a carbon sink, but the magnitude of the carbon sequestration differs substantially depending on the accounting approach used. The contribution of the forest ecosystem was smaller than the aggregated contribution of wood products in use and in landfills (including industrial waste), which reinforces the role that wood products play in national carbon budgets.     

Input–output and life-cycle emissions accounting: applications in the real world

A considerable body of academic literature has emerged that addresses methods for consumption-based accounting of greenhouse gas (GHG) emissions as opposed to the territorial approach used under the United Nations Framework Convention on Climate Change (UNFCCC). The consumption-based approach attributes emissions to consumers of final goods and services by accounting for the GHG emissions ‘embedded’ in raw materials and intermediate goods and services. Many authors have advocated the wider adoption of a consumption-based approach. This article does not take one side or another in the consumption-based versus territorial debate. Instead, it explores the extent to which consumption-based thinking has already found practical application by companies and public authorities and assesses the potential for further adoption. The methodologies underlying consumption-based approaches are critically reviewed to note criteria such as accuracy and the timeliness of data generation, which suggest the potential for practical application. A typology of applications is then developed and each category of application is systematically explored citing real-world examples where possible. The article concludes with a discussion of the potential for the wider application of consumption-based approaches and identifies further research needs.Policy relevanceConsumption-based approaches to accounting for GHG emissions are gradually being adopted in the policy domain, albeit in a haphazard way. This article (1) identifies the strengths and weaknesses associated with top-down input–output approaches and bottom-up life cycle assessment approaches to consumption-based accounting in terms of criteria such as accuracy and timeliness of data generation; (2) provides a comprehensive review of actual and proposed applications to date; (3) constructs a taxonomy of applications drawing on the analysis of strengths and weaknesses; and (4) considers the prospects for further application. The article will help policy makers and policy analysts to assess the feasibility and desirability of future applications of consumption-based approaches and address implementation barriers.     

Environmental integrity of international carbon market mechanisms under the Paris Agreement

The Paris Agreement establishes provisions for using international carbon market mechanisms to achieve climate mitigation contributions. Environmental integrity is a key principle for using such mechanisms under the Agreement. This paper systematically identifies and categorizes issues and options to achieve environmental integrity, including how it could be defined, what influences it, and what approaches could mitigate environmental integrity risks. Here, environmental integrity is assumed to be ensured if the engagement in international transfers of carbon market units leads to the same or lower aggregated global emissions. Four factors are identified that influence environmental integrity: the accounting for international transfers; the quality of units generated, i.e. whether the mechanism ensures that the issuance or transfer of units leads to emission reductions in the transferring country; the ambition and scope of the mitigation target of the transferring country; and incentives or disincentives for future mitigation action, such as possible disincentives for transferring countries to define future mitigation targets less ambitiously or more narrowly in order to sell more units. It is recommended that policy-makers combine several approaches to address the significant risks to environmental integrity.

Key policy insights

• Robust accounting is a key prerequisite for ensuring environmental integrity. The diversity of nationally determined contributions is an important challenge, in particular for avoiding double counting and for ensuring that the accounting for international transfers is representative for the mitigation efforts by Parties over time.

• Unit quality can, in theory, be ensured through appropriate design of carbon market mechanisms; in practice, existing mechanisms face considerable challenges in ensuring unit quality. Unit quality could be promoted through guidance under Paris Agreement Article 6, and reporting and review under Article 13.

• The ambition and scope of mitigation targets is key for the incentive for transferring countries to ensure unit quality because countries with ambitious and economy-wide targets would have to compensate for any transfer of units that lack quality. Encouraging countries to adopt ambitious and economy-wide NDC targets would therefore facilitate achieving environmental integrity.

• Restricting transfers in instances of high environmental integrity risk – through eligibility criteria or limits – could complement these approaches.

     

Can the uncertainty of full carbon accounting of forest ecosystems be made acceptable to policymakers?

In accordance with the concept that only full accounting of major greenhouse gases corresponds to the goals of the United Nations Framework Convention on Climate Change and its Kyoto Protocol, this paper considers uncertainties of regional (national) terrestrial biota Full Carbon Accounting (FCA), both those already achieved and those expected. We analyze uncertainties of major components of the FCA of forest ecosystems of a large boreal region in Siberia (~300 × 10⁶ ha). Some estimates for forests of other regions and Russia as a whole are used for comparison. The systems integration of available information sources and different types of models within the landscape-ecosystem approach are shown to have enabled an estimation of the major carbon fluxes (Net Primary Production, NPP, and heterotrophic respiration, HR) for the region for a single year at the level of 7–12% (confidential interval, CI, 0.9), Net Ecosystem Production (NEP) of 35–40%, and Net Biome Production (NBP) of 60–80%. The most uncertain aspect is the assessment of change in the soil carbon pool, which limits practical application of a pool-based approach. Regionalization of global process-based models, introduction of climatic data in empirical models, use of an appropriate time period for accounting and reporting, harmonization and multiple constraints of estimates obtained by different independent methods decrease the above uncertainties of NEP and NBP by about half. The results of this study support the idea that FCA of forest ecosystems is relevant in the post-Kyoto international negotiation process.     

Applying personal carbon trading: a proposed ‘Carbon,Health and Savings System’ for British Columbia,Canada

Addressing climate change requires the synergy of technological, behavioural and market mechanisms. This article proposes a policy framework that integrates the three, deploying personal carbon trading as a key element within a policy portfolio to reduce personal carbon footprints. It draws on policy and human motivation literatures that address the behavioural changes that may be needed in the context of a long-term threat such as climate change. This proposal builds on an analysis of the British Columbia carbon tax, international examples of carbon pricing instruments and strategies for behavioural change such as social networks, loyalty management, mobile apps and gamification. Interviews were conducted with experts in financial services, energy conservation and clean technology, as well as with specialists in climate, health and taxation policy. Their input, together with a review of the theoretical literature and practical case studies, informed the proposed design of a Carbon, Health and Saving System for promoting individual engagement and collective action by linking long-term climate mitigation measures with short-term personal and social goals, including health, recreation and social reinforcement.

Policy Relevance

This article identifies areas for climate policy innovation and recommends policies that can support, promote and enable personal carbon budgeting and collective action. Although this study is focused on British Columbia, both the input provided by key opinion leaders and the proposed framework are applicable to other jurisdictions.

This policy proposal shows how personal carbon trading could work in the context of a Canadian province with an existing climate mitigation policy. It also specifies a minimum viable product approach to establishing the economic, social and technological foundations for personal carbon trading.

The Carbon, Health and Saving System identifies the technologies and stakeholders needed to implement personal carbon trading, and offers the possibility of motivating a widespread conscious human response in the event that carbon taxation proves insufficient to generate economic adaptation in a changing climate.     

Foreign policy ‘trilemmas’: understanding China's stance on international cap-and-trade

This article uses a policy analogy approach to explore China's attitude toward the possibility of global carbon market integration, including the development of a common cap-and-trade market for the global civil aviation industry. Like in other foreign policy domains, in international cap-and-trade, China faces a ‘trilemma’ between carbon market integration, state sovereignty and policy flexibility. By referring to how China has approached a comparable trilemma in foreign exchange policy making, we analyse China's possible stance on international cap-and-trade. We argue that China will prefer to gradually establish and strengthen, to a limited extent, intergovernmental governance mechanisms, which allow nation-states to prioritize sovereignty and policy flexibility in carbon trading policy making. In the conclusion we use this argument to explain China's responses to the carbon-trading initiatives of Australia, the EU, the International Civil Aviation Organization (ICAO), and the World Bank.

Policy relevance

The international community has reached a consensus on the use of market mechanisms for mitigating climate change. While opposing the EU's plan to include Chinese airlines in the EU Emissions Trading Scheme, China has started to co-explore with Australia the possibility of linking their carbon markets, and has adopted a supportive attitude toward the carbon trading initiatives led by the ICAO and the World Bank. Considering China's status as the largest emitting country of GHGs and its interdependence with major developed and developing countries, China's substantial participation would be crucial to the success of the global market-based efforts to reduce GHG emissions. This article presents an initial attempt to develop a better understanding of China's stance on international cap-and-trade.     

REDD+ readiness process in Cameroon: an analysis of multi-stakeholder perspectives

Cameroon has been a keen participant in Reducing Emissions from Deforestation and Forest Degradation plus conservation, sustainable management of forests and enhancement of carbon stocks (REDD+) negotiations since 2005 and has engaged in activities to enhance the implementation of REDD+. This article reviews progress on REDD+ readiness in Cameroon based on a multiple REDD+ functions framework. Results show that some progress has been made in terms of planning and coordination, institutional development, and the development of some REDD+ projects. Absence of a legal framework, inadequate procedures for stakeholder participation, slow progress in the development of a national strategy, monitoring, reporting, and verification (MRV) challenges, and weak financing remain prominent constraints. Despite having one of the slowest REDD Readiness Preparation Proposal (R-PP) processes in the Congo Basin, stakeholders feel strong ownership because the R-PP was done almost entirely by Cameroonian experts. Some opportunities for improving REDD+ can be considered going forward, including the establishment of procedures for a broader participatory process, speeding up the operationalization of the National Observatory on Climate Change, making use of the ongoing forestry law reform, consideration of a carbon concessions concept, tapping from international initiatives to build on MRV, and improving benefit sharing and financing through the development of an appropriate and decentralized mechanism. Enhancing these opportunities is fundamental for successful REDD+ implementation in Cameroon.

Policy relevance

This article offers a new multidimensional approach to assessing the REDD+ readiness process in Cameroon. This critical assessment, which is done using six key functions, provides an opportunity for enhanced understanding of the process by policy makers, decision makers, and professionals with a view to enabling improvements in the readiness process. Furthermore, the article proffers a series of opportunities that the government and other relevant stakeholders can capitalize on to overcome current hurdles affecting the REDD+ readiness process. It is hoped that policy makers driving the REDD+ process in Cameroon will be able to incorporate the findings of this research into their strategic policy, formulated to advance the REDD+ readiness process. More importantly, it is hoped that the multidimensional framework applied in this study could be useful for assessing REDD+ in similar contexts in the Congo Basin.     

Action targets: a new approach to international greenhouse gas controls

Abstract

This article introduces and explores a new form of international commitment to limit greenhouse gas (GHG) emissions, called an action target. Action targets differ from other forms of targets, such as the Kyoto Protocol's fixed targets, in that they define a quantity of GHG abatement to be achieved, rather than a future emission level to be reached. This article explains the basic mechanics of how action targets might operate, and analyses the approach across a range of criteria, including uncertainty management and contributions to sustainable development in non-Annex I (developing) countries. The analysis suggests that action targets might improve the prospects of widening and deepening developing country participation in the international climate regime.     

Governance of bioenergy with carbon capture and storage (BECCS): accounting,rewarding, and the Paris agreement

Studies show that the ‘well below 2°C’ target from the Paris Agreement will be hard to meet without large negative emissions from mid-century onwards, which means removing CO₂ from the atmosphere and storing the carbon dioxide in biomass, soil, suitable geological formations, deep ocean sediments, or chemically bound to certain minerals. Biomass energy combined with Carbon Capture and Storage (BECCS) is the negative emission technology (NET) given most attention in a number of integrated assessment model studies and in the latest IPCC reports. However, less attention has been given to governance aspects of NETs. This study aims to identify pragmatic ways forward for BECCS, through synthesizing the literature relevant to accounting and rewarding BECCS, and its relation to the Paris Agreement. BECCS is divided into its two elements: biomass and CCS. Calculating net negative emissions requires accounting for sustainability and resource use related to biomass energy production, processing and use, and interactions with the global carbon cycle. Accounting for the CCS element of BECCS foremost relates to the carbon dioxide capture rate and safe underground storage. Rewarding BECCS as a NET depends on the efficiency of biomass production, transport and processing for energy use, global carbon cycle feedbacks, and safe storage of carbon dioxide, which together determine net carbon dioxide removal from the atmosphere. Sustainable biomass production is essential, especially with regard to trade-offs with competing land use. Negative emissions have an added value compared to avoided emissions, which should be reflected in the price of negative emission ‘credits’, but must be discounted due to global carbon cycle feedbacks. BECCS development will depend on linkages to carbon trading mechanisms and biomass trading.

Key policy insights

• A standardized framework for sustainable biomass should be adopted.

• Countries should agree on a standardized framework for accounting and rewarding BECCS and other negative emission technologies.

• Early government support is indispensable to enable BECCS development, scale-up and business engagement.

• BECCS projects should be designed to maximize learning across various applications and across other NETs.

• BECCS development should be aligned with modalities of the Paris Agreement and market mechanisms.

     

Transaction costs analysis of low-carbon technologies

Transaction costs (TCs) must be taken into account when assessing the performance of policy instruments that create markets for the diffusion and commercialization of low-carbon technologies (LCTs). However, there are no comprehensive studies on the development and application of transaction cost analysis to LCTs. In this meta-analysis, a wide-ranging evaluation of TCs associated with energy efficiency, renewable energy, and carbon market technologies is provided. There is a plethora of different definitions of, and measurement techniques to estimate, TCs. There is wide variation in the quantitative estimates, which can be attributed to factors such as the definition used, data collection, quantification methods, the type and size of technologies, the regulatory frameworks, the complexity of transactions, and the maturity of policy instruments. It is concluded that TCs are highly specific to both LCTs and policy instruments and that a common methodological approach is needed to avoid misleading policy analysis of the extant and future assessments.

Policy relevance

Transaction costs (TCs) accrued by, for instance, the search for information, due diligence, monitoring and verification (M&V) activities, must be considered in the design, implementation, and assessment of policy instruments. Such costs can have a negative effect on the performance of policy instruments aimed at the diffusion and commercialization of low-carbon technologies. It is shown here that TC analysis is mostly technology and policy context-specific and hence that it is not advisable to make generalizations about sources and estimates. The nature and scale of TCs are likely to differ due to a variety of endogenous determinants (e.g. size and performance of technologies), exogenous drivers (e.g. regulatory policy frameworks), and methodological aspects (e.g. quantification techniques). Several measures and strategies have the potential to reduce TCs, including standardized full cost accounting systems, an ex ante M&V approach, project bundling, and streamlining of procedures.     

Additionality revisited: guarding the integrity of market mechanisms under the Paris Agreement

ABSTRACT

The Paris Agreement requires mitigation contributions from all Parties. Therefore, the determination of additionality of activities under the market mechanisms of its Article 6 will need to be revisited. This paper provides recommendations on how to operationalize additionality under Article 6. We first review generic definitions of additionality and current approaches for testing of additionality before discussing under which conditions additionality testing of specific activities or policies is still necessary under the new context of the Paris Agreement, that is, in order to prevent increases of global emissions. We argue that the possibility of ‘hot air’ generation under nationally-determined contributions (NDCs) requires an independent check of the NDC’s ambition. If the NDC of the transferring country does contain ‘hot air’, or if the transferred emission reductions are not covered by the NDC, a dedicated additionality test should be required. While additionality tests of projects and programmes could continue to be done through investment analysis, for policy instruments new approaches are required. They should be differentiated according to type of policy instrument. For regulation, we suggest calculating the resulting pay-back period for technology users. If the regulation generates investments exceeding a payback period threshold, it could be deemed additional. Similarly, carbon pricing policies that generate a carbon price exceeding a threshold could qualify; for trading schemes an absence of over-allocation needs to be shown. The threshold should be differentiated according to country categories and rise over time.

Key policy insights

• Without additionality testing, market mechanisms under the Paris Agreements might lead to an international diffusion of ‘hot air’. To avoid this, an independent assessment of NDC ambition is in order. Otherwise, activities under the mechanisms need to undergo specific additionality tests.

• Additionality testing of projects and programmes should build on the experience developed under the Kyoto Protocol mechanisms.

• Bold approaches are needed for assessing additionality of policies. To avoid cumbersome assessment of all activities triggered by such policies, highly aggregated approaches are suggested, ranging from payback period thresholds for technologies mandated by regulation to minimum price levels triggered by carbon pricing policies. Over time, the stringency of threshold values should increase.

     

Biofuels and carbon management

Public policy supports biofuels for their benefits to agricultural economies, energy security and the environment. The environmental rationale is premised on greenhouse gas (GHG, “carbon”) emissions reduction, which is a matter of contention. This issue is challenging to resolve because of critical but difficult-to-verify assumptions in lifecycle analysis (LCA), limits of available data and disputes about system boundaries. Although LCA has been the presumptive basis of climate policy for fuels, careful consideration indicates that it is inappropriate for defining regulations. This paper proposes a method using annual basis carbon (ABC) accounting to track the stocks and flows of carbon and other relevant GHGs throughout fuel supply chains. Such an approach makes fuel and feedstock production facilities the focus of accounting while treating the CO₂ emissions from fuel end-use at face value regardless of the origin of the fuel carbon (bio- or fossil). Integrated into cap-and-trade policy and including provisions for mitigating indirect land-use change impacts, also evaluated on an annual basis, an ABC approach would provide a sound carbon management framework for the transportation fuels sector.     

Aligning climate action with the self-interest and short-term dominated priorities of decision-makers

The global and long-term nature of climate change conflicts with the self-interest and short-term dominated priorities of decision-makers. Climate change mitigation makes sense at the global level, but not at the level of the individual decision-maker. This conflict has been and remains the main obstacle to effective global cooperation and mitigation. This paper proposes a framework that aligns climate action with short-term self-interest through results-based payments to governments. Its key components are: determining an emission benchmark for each country as well as a price for carbon saving; paying countries annually for reducing emissions below their respective benchmark; a new international fund to finance these annual payments by borrowing capital from private investors; and repaying borrowings in the long-term through payments made by countries to the fund based on a pre-determined allocation mechanism. This framework would offer important benefits over an approach focused on allocating climate action or a carbon budget among countries. These include the improved prospect of reaching an effective climate agreement and delivering fast and dramatic mitigation thanks to stronger political commitment, the transformation of short-term self-interest from an obstacle into a driver of climate action, and the additional financing created. The paper also proposes a pilot scheme focusing on hydrofluorocarbon emissions with a considerably lower financing requirement. This offers the possibility of an alternative financing mechanism, and thus a faster and more straightforward implementation path. Short-term financial incentives offered to governments could turn policy action from a burden into an opportunity from their perspective unlocking a huge potential for timely mitigation.

Key policy insights

• A new international framework that offers short-term, results-based payments to governments to promote mitigation action could lead to much more effective global mitigation and international cooperation.

• The financing of such an approach could be solved through a novel financing structure, backed by the long-term commitments of participating countries and thus aligning the timeframe of the financial costs of mitigation with its climate benefits.

• The effectiveness of results-based payments and the concept behind this new approach could be proven through a pilot scheme focusing on hydrofluorocarbon emissions.

     

Consumption-based GHG emission accounting: a UK case study

Global GHG emissions continue to rise, with nearly a quarter of it due to trade that is not currently captured within global climate policy. In the context of current trade patterns and limited global cooperation on climate change, the feasibility of consumption-based emissions accounting to contribute to a more comprehensive (national) policy framework in the UK is investigated. Consumption-based emissions results for the UK from a range of models are presented, their technical robustness is assessed, and their potential application in national climate policy is examined using examples of policies designed to reduce carbon leakage and to address high levels of consumption. It is shown that there is a need to include consumption-based emissions as a complementary indicator to the current approach of measuring territorial emissions. Methods are shown to be robust enough to measure progress on climate change and develop and inform mitigation policy. Finally, some suggestions are made for future policy-oriented research in the area of consumption-based accounting that will facilitate its application to policy.

Policy relevance

Emissions embodied in trade are rapidly increasing and there is thus a growing gap between production emissions and the emissions associated with consumption. This is a growing concern due to the absence of a global cap and significant variation in country-level mitigation ambitions. Robust measurements of consumption-based emissions are possible and provide new insights into policy options. This includes trade-related policy (e.g. border carbon adjustments) and domestic policies (e.g. resource efficiency strategies). As climate policy targets deepen, there is a need for a broad range of policy options in addition to production and technological solutions. Consumption-based emissions are complementary to production-based emissions inventories, which are still the most accurate estimate for aggregated emissions at the global level. However, without consumption-based approaches, territorial emissions alone will not provide a complete picture of progress in regional and national emissions reduction.     

Stock changes or fluxes? Resolving terminological confusion in the debate on land-use change and forestry

Abstract

This article collates definitions of some key terms commonly used in greenhouse gas reporting and accounting for the Land Use, Land-Use Change and Forestry (LULUCF) sector, and highlights areas of ambiguity and divergent interpretations of key concepts. It uses the example of harvested wood products to demonstrate the impact of different interpretations. The objective is to facilitate clear communication amongst negotiators and practitioners in relation to the terms emissions, removals, sources and sinks. Confusion and misunderstandings that have arisen in the past are rooted in diverging interpretations of the terms ‘emissions’ and ‘removals’ in the context of land use and wood products. One interpretation sees emissions and removals to be approximated by a change in carbon stocks in a number of selected carbon pools that may include or exclude harvested wood products. Another interpretation views emissions and removals as gross fluxes between the atmosphere and the land/wood products system. The various alternative approaches that have been proposed for reporting for harvested wood products are applicable to one or the other of these interpretations: the stock-change and production approaches, focused on stock changes, are applicable to the first interpretation; whereas the atmospheric flow and simple decay approaches focus on fluxes, as in the second interpretation. Whether emissions/removals are approximated by stock change or from gross fluxes, it is critical that a consistent approach is applied across the whole LULUCF/AFOLU sector. Approaches based on stock change are recommended over those based on fluxes.     

Giving Credit where Credit is Due. A Practical Method to Distinguish between Human and Natural Factors in Carbon Accounting

Net carbon emissions from the biosphere differ from fossil-fuel based emissions in that: (i) a large proportion of biospheric carbon exchange is not under direct human control; (ii) land-use decisions often have only a small short-term effect on net emissions, but a large long-term effect; and (iii) biospheric carbon exchange is potentially reversible. Because of these differences, carbon accounting approaches also need to be different for fossil-fuel and biosphere-based emissions. Recognising that, the international negotiators at COP 7 adopted a range of guiding principles for accounting for biospheric carbon exchange, including: that accounting excludes removals resulting from (a) elevated carbon dioxide concentrations above pre-industrial level; (b) indirect nitrogen deposition; and (c) the dynamic effects of age structure resulting from activities and practices before the reference year. In this paper, we highlight some of the challenges in biospheric carbon accounting for Canada, the U.S.A, New Zealand and Australia, four nations for which biospheric net carbon exchange is large relative to fossil-fuel based emissions. We discuss an accounting scheme that is based on assessing changes in average carbon stocks due to changes in land use. That scheme is tailored to the special needs of biospheric carbon management and is consistent with the accounting principles adopted at COP 7. The paper shows how the accounting scheme would resolve many of the biospheric carbon accounting anomalies identified for the four nations we studied.     

When less is more: limits to international transfers under Article 6 of the Paris Agreement

International carbon markets can be an important tool in achieving countries’ mitigation targets under the Paris Agreement, but they are subject to a number of environmental integrity risks. An important risk is that some countries have mitigation targets that correspond to higher levels of emissions than independent projections of their likely emissions. If such ‘hot air’ can be transferred to other countries, it could increase aggregated emissions and create a perverse incentive for countries not to enhance the ambition of future mitigation targets. Limits to international transfers of mitigation outcomes have been proposed to address this risk. This article proposes a typology for such limits, explores key design options, and tests different types of limits in the context of 15 countries. Our analysis indicates that limits to international transfers could, if designed appropriately, prevent most of the hot air contained in current mitigation targets from being transferred, but also involve trade-offs between different policy objectives. Given the risks from international transfer of hot air and the uncertainty over whether other approaches will be effective in ensuring environmental integrity, we recommend that countries take a cautious approach and pursue a portfolio of approaches to ensure environmental integrity, in which case limits could provide for additional safeguards.

Key policy insights

• Limits to international transfers involve trade-offs between different policy objectives, in particular reducing the risk that countries transfer hot air and enabling participation in carbon markets.

• Under ‘relative’ limits a country may transfer mitigation outcomes to the extent that its actual emissions are below the limit. Relative limits derived from historical emissions data have significant limitations, and none of the tested approaches was found to be effective for all countries. Relative limits based on emission projections could be a more valid approach, although they are also technically and politically challenging.

• Under ‘absolute’ limits a country could only issue, transfer or acquire a certain amount of mitigation outcomes. Absolute limits set at sufficiently low levels could prevent countries from transferring large amounts of hot air, but are bluntly applicable to all countries, whether or not they have hot air.

     

Giving Credit where Credit is Due. A Practical Method to Distinguish between Human and Natural Factors in Carbon Accounting

Net carbon emissions from the biosphere differ from fossil-fuel based emissions in that: (i) a large proportion of biospheric carbon exchange is not under direct human control; (ii) land-use decisions often have only a small short-term effect on net emissions, but a large long-term effect; and (iii) biospheric carbon exchange is potentially reversible. Because of these differences, carbon accounting approaches also need to be different for fossil-fuel and biosphere-based emissions. Recognising that, the international negotiators at COP 7 adopted a range of guiding principles for accounting for biospheric carbon exchange, including: that accounting excludes removals resulting from (a) elevated carbon dioxide concentrations above pre-industrial level; (b) indirect nitrogen deposition; and (c) the dynamic effects of age structure resulting from activities and practices before the reference year. In this paper, we highlight some of the challenges in biospheric carbon accounting for Canada, the U.S.A, New Zealand and Australia, four nations for which biospheric net carbon exchange is large relative to fossil-fuel based emissions. We discuss an accounting scheme that is based on assessing changes in average carbon stocks due to changes in land use. That scheme is tailored to the special needs of biospheric carbon management and is consistent with the accounting principles adopted at COP 7. The paper shows how the accounting scheme would resolve many of the biospheric carbon accounting anomalies identified for the four nations we studied.     

Pricing carbon consumption: synthesizing an emerging trend

Nearly every carbon price regulates the production of carbon emissions, typically at midstream points of compliance such as power plants, consistent with typical advice from the literature. Since the early 2010s however, policymakers in Australia, California, China, Japan and Korea have implemented carbon prices that regulate the consumption of carbon emissions, where points of compliance are further downstream, such as distributors or final consumers. This article identifies the pivot towards placing the point of compliance for carbon prices further downstream as an emerging international trend, describes the designs of different prices on carbon consumption around the world, and explains the various motivations of the policymakers implementing them. Findings reveal that policymakers tend to layer prices on carbon consumption on top of prices on carbon production in an effort to improve economic outcomes by addressing incomplete pass-through of the carbon price from producer to consumer, thereby facilitating more cost-effective abatement. Policymakers also use prices on carbon consumption to reduce emissions leakage or because large producers of carbon are not within their jurisdiction. The prevalence of prices on carbon consumption will likely increase as evidenced by proposals in China and Europe.

Key policy insights

• The recent surge in the number of jurisdictions implementing prices on carbon consumption represents an emerging international trend.

• Policymakers use prices on carbon consumption in an effort to improve economic outcomes and capture environmental benefits.

• While this article offers insights that detail initial challenges and successes, whether these prices on carbon consumption actually achieve their intended goals is an academically rich topic that requires further research on individual policies.