The Role of Carbon Offsets in Climate Policy: Theory and Practice

A call for papers for a conference at Cornell on the role of carbon offsets in climate policy.

Verification, leakage and permanence are important obstacles to the effective use of carbon offsets and this is an important policy issue.

I have my doubts on how effective carbon offsets will be given these difficulties. the post below on fraud in the EU carbon trading market gives pause for thought.

This is a timely conference. The forestry and agricultural sectors in the US in particular have powerful friends and the distributional impact will be important - unless this is fully understood there may be unintended consequences.

CALL FOR PAPERS

The Role of Carbon Offsets in Climate Policy: Theory and Practice [PDF]

A Conference at Cornell University, May 13-15, 2011

It is now recognized that Carbon Offsets should play a major role in Climate Policy, by providing cost-effective reductions in greenhouse gas (GHG) emissions and sequestering carbon. However, there are many challenges associated with the production of offsets, including its verification, as well as issues related to additionality, leakage and permanence. At the same time, there is also a need to guide the design of public policies that will regulate the market for carbon offsets.

Yet the challenges of implementing carbon offsets and the role that carbon offsets can play in climate policy is under-researched:

(i) There is insufficient theoretical work that integrates the various challenges associated with the production of offsets – leakage, additionality, permanence - in a unified framework; the potential interactions between these challenges need to be analyzed in depth;

(ii) There is limited empirical evidence of the magnitudes of leakage and additionality associated with various carbon offset projects for different countries;

(iii)There is virtually no work on the effectiveness of various public policies that regulate the market for carbon offsets, through standards (e.g. quality or quantity limits), or other ‘mechanism-design’ type policies;

(iv)The interactions between cap-and-trade systems, voluntary consumption of offsets, and the production of carbon offsets needs to be better understood. Specifically, potential unintended emissions or welfare consequences need to be identified and measured. And the voluntary consumption of offsets remains under researched;

(v) The distributional impacts associated with the production of carbon offsets needs to be better understood, especially for the agriculture and forestry sectors.

With this background, Cornell University will host a major international conference
– “The Role of Carbon Offsets in Climate Policy: Theory and Practice” – May 13-15, 2011. The conference organizers are Antonio Bento and Ravi Kanbur of the Dyson School of Applied Economics and Management, Cornell University.

The conference will discuss theoretical, empirical and policy-oriented papers. The suggested topics include, but are not limited to, the issues (i)-(v) highlighted above.

The organizers invite the submission of completed papers or substantive abstracts (3-5 pages) by December 15, 2010. Submissions should be sent electronically to amb396@cornell.edu. Decisions will be communicated by January 15, 2011.
Participants who can use their own funds to cover part or all of the cost of their participation are requested to do so. The conference will provide accommodation and economy class travel for one presenter per paper accepted for those who do not have funding. Please indicate with your submission what funding you need.

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Fraud, missing traders and the emissions market

Some readers maybe more surprised that others that there was fraud on the European carbon allowances market.

I am pleased that someone has looked at this issue using "forensic econometric methods" which sound fun to use (although seemingly difficult to understand).

It sounds good but I am still unclear how this works - I will have to read the paper.

MISSING TRADER FRAUD ON THE EMISSIONS MARKET[PDF]

Marius-Cristian Frunza, Dominique Guegan and Fabrice Thiebaut

Abstract

Purpose – The aim of this paper is to show evidence and to quantify with forensic econometric methods the impact of the missing trader fraud on European carbon allowances markets. This fraud occurred mainly between the end of 2008 and the beginning of 2009. In this paper we explore the financial mechanisms of the fraud and the impact on the market behaviour as well as the consequences on its econometric features.

Design/methodology/approach – In a previous work (Frunza and Guégan, 2010), we showed that the European carbon market is strongly influenced by fundamentals factors as oil, energy, gas, coal and equities. Therefore, we calibrated Arbitrage Pricing Theory-like models. These models enabled us to quantify the impact of each factor on the market. In this study, we focused more precisely on spot prices quoted on Paris based Bluenext market over 2008 and 2009. We observed during this period a significant drop in performances and robustness of our model and a reduced sensitivity of carbon prices to fundamentals.

Findings – Therefore, we identify the period where the market was driven by missing trader fraud movements and we were able to measure the value of this fraud. Soon after governments passed a law that cut the possibility of fraud occurrence the performance of the model improved rapidly. We estimate the impact of the VAT extortion on the carbon market at 1.3 billion euros.

Originality/value – This paper is the first study that attempts to prove and quantify scientifically the missing trader fraud on emission markets.

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Health effects of climate change

When writing an environmental economics paper one always needs to provide motivation and there is nothing better than some scary numbers on the health and mortality impacts of climate change.

These numbers are real and it is important that as economists we try to relate economics to the real world. I have used the WTO quote before and will probably do so again.

This new working paper by Grasso, Maera, Chiabai and Markandya provides a good survey of the literature.

The Health Effects of Climate Change: A Survey of Recent Quantitative Research [PDF]

In recent years there has been a large scientific and public debate on climate change and its direct as well as indirect effects on human health. According to World Health Organization (WHO, 2006), some 2.5 million people die every year from non-infectious diseases directly attributable to environmental factors such as air pollution, stressful conditions in the workplace, exposure to chemicals such as lead, and exposure to environmental tobacco smoke. Changes in climatic conditions and climate variability can also affect human health both directly and indirectly, via changes in biological and ecological processes that influence the transmission of several infectious diseases (WHO, 2003). In the past fifteen years a large amount of research on the effects of climate changes on human health has addressed two fundamental questions (WHO, 2003). First, can historical data be of some help in revealing how short-run or long-run climate variations affect the occurrence of infectious diseases? Second, is it possible to build more accurate statistical models which are capable of predicting the future effects of different climate conditions on the transmissibility of particularly dangerous infectious diseases? The primary goal of this paper is to review the most relevant contributions which have directly tackled those questions, both with respect to the effects of climate changes on the diffusion of non-infectious and infectious diseases. Specific attention will be drawn on the methodological aspects of each study, which will be classified according to the type of statistical model considered. Additional aspects such as characteristics of the dependent and independent variables, number and type of countries investigated, data frequency, temporal period spanned by the analysis, and robustness of the empirical findings are examined.

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Green accounting II

No sooner does one "green accounting" story come along then it is followed by another.
This time the world bank is putting in its twopeneth.

I have been covering green accounting in Econ101 for years but I expect this is a "deeper" integration.

"Embeding nature in the national accounts" sounds good to me although it certainly is not a "silver bullet". These are all small steps in the right direction.

World Bank Launches Scheme To Green Government Accounts

The World Bank on Thursday launched a program to help nations put a value on nature just like GDP in a bid to stop the destruction of forests, wetlands and reefs that underpin businesses and economies.

The five-year pilot project backed by India, Mexico and other nations aims to embed nature into national accounts to draw in the full benefits of services such as coastal protection from mangroves or watersheds for rivers that feed cities and crops.

"We're here today to create something that no one has tried before: a global partnership that can fundamentally change the way governments value their ecosystems," World Bank President Robert Zoellick told reporters in the Japanese city of Nagoya.

More than 100 ministers are in Nagoya for a U.N. meeting that aims to seal a historic deal to set new 2020 targets to combat the rapid loss of plant and animal species from deforestation, pollution, over-hunting and climate change.

One of the targets before the ministers is to agree to include the values of biological diversity into national development plans, or possibly national accounts.

"For economic ministries in particular, it's important to have an accounting measure that they can use to evaluate not only the economic value but the natural wealth of nations," Zoellick told Reuters in an interview.

"It's not a silver bullet. It's a way of trying to help people understand better in economic terms the value of natural wealth."

While economists try to get a handle on the value of nature, scientists are struggling to get a full picture of the variety of wildlife species around the globe as climate change, exploitation and pollution threaten "mass extinctions," a series of studies published on Wednesday showed.

BENEFITS

Envoys at the Japan meeting, the product of years of negotiations, are trying to win agreement on a 20-point plan that aims to protect fish stocks, fight the loss and degradation of natural habitats and conserve larger land and marine areas.

Greater financing from rich nations, possibly through redirecting subsidies from the fossil fuel, fishing and other industries is key.

Envoys are also aiming to clinch by Friday a new pact that sets laws for the sharing of genetic resources between governments and companies, such as drug and agri-resources firms.

Poorer nations want greater controls to protect their environment and to potentially earn billions of dollars in extra revenue from the benefits of trees to fungi, insects to frogs.

Delegates and greens say the talks are making progress ahead of Friday's deadline but were still deadlocked on some issues and negotiations were expected to continue deep into the night.

"There is definitely a positive atmosphere," Norwegian Environment Minister Erik Solheim told Reuters. "Everyone wants to reach a consensus here."

The World Bank program will give developing countries tools to help them measure the value and benefits of their ecosystems. India's Environment Secretary Vijai Sharma said at the launch the tools would make impact assessments more objective when looking at bids by miners or steelmakers to set up operations in India.

India recently scrapped London-listed Vedanta Resources' plans to mine bauxite and expand its alumina refinery in Orissa over environmental concerns, worrying investors.

The government has also expressed concerns over a $12 billion steel mill planned by South Korean firm Posco.

The Bank and other groups also launched a "save our species" initiative in Nagoya aimed at getting businesses to contribute to new conservation fund.

"It's nice that you may have a tiger as a logo but what does it do for your logo if the tiger goes extinct?" Zoellick told Reuters.

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Green accounting to tackle "greenwashing"

Although many undergraduate economics students go on to become accountants it is not an area of interest to many academic economists. However, when it comes to "greenwashing" the following post is of interest.

Software to Hold “Greenwashers” Accountable [Software advice]

Greenwash (verb, \ˈgrēn-wȯsh\) – to market a product or service by promoting a deceptive or misleading perception of environmental responsibility.

It’s no secret that “going green” has become the next big thing in the corporate world. Riding the wave of consumers’ growing interest in environmental sustainability, companies are launching major ad campaigns to tout their green credentials. But many of their claims are misleading or downright false. The ads are compelling, but how are we to know who’s telling the truth? “Greenwashing” is eroding the credibility of well-intentioned green businesses and turning would-be green consumers into skeptics.

It’s reminiscent of the challenge to hold corporations accountable for their financial reporting. While the recent financial crisis highlighted the shortcomings of our markets and reporting structures, the United States business community is still a leader in financial accounting, reporting and ethics. Our system is sophisticated, consisting of a combination of generally accepted accounting principles (GAAP), fairly rigorous government oversight, a massive industry of accounting professionals and mature accounting software technologies that keep track of every last dollar.

We must develop the same infrastructure for environmental accounting. The development of Enterprise Carbon Accounting (ECA) software is well underway, with roughly 60 vendors bringing solutions to market. ECA software enables companies to track their carbon footprint and the footprint of their suppliers as well as the impact of customer use of their products. It’s a promising innovation that can help us manage corporate America’s environmental footprint, but it’s still at the early stages of adoption. We need a number of things to happen for the ECA market to mature and develop environmental accounting to the same level as financial accounting.

So what will it take to develop the ECA software market and have the infrastructure necessary to hold greenwashers accountable? We think there are five key requirements to get us there:

* Clear government action on regulations;
* Adoption of carbon accounting principles;
* Expansion of “Scope 3” emissions accounting;
* Better business incentives to go green; and
* Demanding, informed consumers.

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WTO-Related Matters in Trade and Environment:

This 2004 paper covers an issue of increasing importance in my mind. The failure of Copenhagen and the failure (so far) of the Doha round may in fact be partially explained by the need to bring negotiations on the environment and trade to the same table.

There are a complex set of interactions here and this paper sets the scene.

WTO-Related Matters in Trade and Environment: Relationship Between WTO Rules and MEAs [PDF]

Date: 2010
By: Aparna Sawhney
URL: http://d.repec.org/n?u=RePEc:ess:wpaper:id:2984&r=env

Environmental issues began to be systematically addressed in the WTO following the Decision on Trade and Environment taken towards the end of the Uruguay Round at Marrakesh in 1994. The Committee on Trade and Environment was established in the same year, with the explicit mandate to resolve environmental issues in the trading system. [WTO Research Series No. 5]

Keywords: Environmental, systematically. Trade, Environment,

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"Weather throws the punches but climate trains the boxer"

In a recent grant application those of us contributing had a long debate over the appropriate use of "weather" and "climate".

In the end it was clear we were talking about "weather" although it sounds far less "current" and interesting than using "climate".

We were talking about the economic impact of severe weather events (not climate events).

The quote "weather throws the punches but climate trains the boxer" now makes it all clear to me and would have saved a number of long email debates on the distinction between the two.

This quote came up when reading a review of a new book.



In a review in the TES the reviewer continues the boxer theme and suggests that some of climate change's heavyweight contenders have not even entered the ring yet. Rising sea levels are one such heavy weight.

This book is suitably doom-laden so should appeal to economists everywhere.

"At the end of the last Ice Age, for instance, oceans rose over 420ft over a few millennia, including one period when the process topped 15ft per century".

If the same speed of change occurred today it would be far harder for humans to adapt. Back them you would quite literally just "up sticks" and move inland.

Those economists who argue that even if man made climate change is real it does not matter because we can adapt would do well to read this book. There are practical limits to adaption under extreme scenarios.

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