Offsets in Carbon Taxes

The current global momentum for carbon pricing has lately produced innovative hybrids: carbon taxes allowing the use of offsets from emission sources not targeted by the carbon tax for compliance with the tax load.
In the study "The potential impacts of a domestic offset component in a carbon tax on mitigation of national emissions", Hanna Wang-Helmreich and Nicolas Kreibich (both the Research Unit Global Climate Governance in the Energy, Transport and Climate Policy Divison at the Wuppertal Institute) aim at filling a significant knowledge gap in existing literature by investigating the potential impacts of domestic offset components in carbon taxes on mitigation of national emissions, including the country examples Colombia, Mexico and South Africa.
The findings indicate that the use of offsets in carbon taxes may significantly influence mitigation of national emissions both positively (via real emission reductions from offset projects, positive spillover effects, as a bargaining chip in political negotiations) and negatively, e.g. with compromising environmental integrity, curbing emissions in the emission sources covered by the carbon tax, lock-in effects, opposition to further climate policies and measures for emission sources generating offsets, general opposition of stakeholder groups to the introduction of offsets may even hinder the introduction of carbon pricing instruments and offsetting altogether.

The study identifies options that could be employed to increase potential positive effects of introducing an offset component to a carbon tax and mitigate related risks, pointing to the country examples included, where appropriate.

The article has been published in "Renewable and Sustainable Energy Reviews" and available under the following link.