WASHINGTON (October 20, 2021)—With the UN Climate Change Conference coming up at the end of the month, the global community will once again tackle questions regarding how international climate investments could work as part of a global climate strategy. Carbon offset markets should be a key part of the conversation as we move closer to 2050 and the existential need to decrease carbon emissions globally.

When considering mandates of all scales, there is little appreciation for just how high the costs can run in hard-to-abate sectors like airlines. Carbon offset markets may present an opportunity for those sectors to provide a climate benefit at a lower cost. The potential economic benefits of carbon offset markets have been underappreciated, because analysis usually only looks at the potential sales volume.

In a new policy study, R Street fellow of energy Philip Rossetti demonstrates the strong economic benefit of using carbon offsets as a substitute for more expensive potential climate policies, such as emission mandates in hard-to-abate sectors.

“The total required carbon offsets for offsetting U.S. industrial emissions and international aviation is roughly in line with or below the estimated number of offsets that can be produced, which stands at 1.2 and 2.9 gigatons in 2030 and 2050 respectively. The benefits are in present value roughly $220 billion in 2030, and $340 billion in 2050. Compared to the IETA analysis, this is 23 percent higher in 2030, and 147 percent higher in 2050,” said Rossetti.

While carbon dioxide is dispersed evenly globally, the opportunities to mitigate are not: expansion of markets allows us to rely on the tried and true economic principles of comparative advantage to gain greater climate benefit than we would without the presence of a market.

Read the paper here.

Top 3 Points

1) When considering mandates of all scales, there is little appreciation for just how high the costs can run in hard-to-abate sectors like airlines. Carbon offset markets may present an opportunity for those sectors to provide a climate benefit at a lower cost.

2) The potential economic benefits of carbon offset markets have been underappreciated, because analysis usually only looks at the potential sales volume. Our analysis shows that if carbon offsets substitute for more expensive potential climate policies, there is a much greater economic benefit compared to emission mandates on hard-to-abate sectors.

3) While carbon dioxide is dispersed evenly globally, the opportunities to mitigate are not: expansion of markets allows us to rely on the tried and true economic principles of comparative advantage to get more climate benefit than we would without the presence of a market.