Offsetting in Carbon Taxes

Potentials and Limitations of Different Requirements (Offsetting) in Bilateral and Global Carbon Pricing Systems

  • Project no.250592
  • Duration 08/2015 - 06/2016

This report explores the introduction of carbon taxes with a national offset component and their interactions with other policy areas, and makes recommendations on this topic. In this task, the study focuses on the approaches Chile, Mexico and South Africa have chosen for elaborating their carbon taxes. By allowing the use of offsets for compliance with the tax load to some extent, South Africa and Mexico are pioneering a novel approach. Chile, too, is assessing this option. The report identifies the objectives the three countries pursue by introducing these new systems as well as the requirements they establish for the use of offsets. Furthermore, it analyses the interaction between the use of offsets and other policy areas, in particular on co-benefits, co-costs and long-term emissions mitigation trajectories, and defines options to maximise synergies and reduce negative impacts. It sheds light on procedural and institutional provisions needed to allow for the transfer of mitigation outcomes into the (proposed) carbon tax systems and identifies support needs as well as possible sources of international climate finance. The report provides recommendations on how national offset policies for carbon taxes should be designed to maximise their potential.

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