This article published by the Program on Energy and Sustainable Development at Stanford University reviews the actual experience in the world's largest offset market—the Kyoto
Protocol Clean Development Mechanism (CDM)—and finds an urgent need for reform.
As the United States designs its strategy for regulating emissions of greenhouse gases, two central issues have emerged. One is how to limit the cost of compliance while still maintaining environmental integrity. The other is how to “engage” developing countries in serious efforts to limit emissions. Industry and economists are rightly concerned about cost control yet have found it difficult to mobilize adequate political support for control mechanisms such as a “safety valve;” they also rightly caution that currently popular ideas such as a Fed-like Carbon Board are not sufficiently fleshed out to reliably play a role akin to a safety valve. Many environmental groups have understandably feared that a safety valve would undercut the environmental effectiveness of any program to limit emissions of greenhouse gases. These politics are, logically, drawing attention to the possibility of international offsets as a possible cost control mechanism. Indeed, the design of the emission trading system in the northeastern U.S. states (RGGI) and in California (the recommendations of California’s AB32 Market Advisory Committee) point in this direction, and the debate in Congress is exploring designs for a cap and trade system that would allow a prominent role for international offsets.