In this discussion paper we estimate the marginal cost of supplying certified emissions reduction units (CERs) from projects that are currently registered under the Clean Development Mechanism (CDM). We develop a supply curve using data on the individual ability of projects to potentially supply CERs over the period up to 2020. We analyse changes to the supply curve based on a number of scenarios which restrict the eligibility of CERs based on the timing of emission reductions, the timing of project investment decisions and registration under the CDM, as well as an assessment of the extent to which projects are vulnerable to the risk of discontinuing abatement activities without CER revenues.
The International Civil Aviation Organisation is in the process of finalising the design of a scheme – the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) – to address carbon dioxide emissions from international aviation. In this discussion paper we estimate the potential supply of carbon offset credits to meet demand from international aviation under CORSIA under a number of different scenarios which include different types of restrictions imposed on the eligibility of offset credits. Our analysis considers supply from the four largest offsetting programmes: the Clean Development Mechanism, the Verified Carbon Standard, the Gold Standard and the Climate Action Reserve for emission reductions over the period from 2013 – 2035.
We find that existing projects under the four programmes could supply approximately 18 billion offset credits or more than six times the total demand anticipated for CORSIA over its intended duration. In the absence of robust eligibility restrictions, CORSIA will not result in significant emissions reductions beyond those that would occur without the scheme. This is because over 80 percent of the supply comes from projects that are likely to continue abatement regardless of whether they can sell offset credits. Allowing the use of all of these credits would therefore undermine the objective of the scheme to achieve carbon neutral growth. To address these risks, we recommend that policy-makers apply eligibility restrictions that either promote new emission reduction projects or support existing vulnerable projects that require offset credit revenues to continue GHG abatement.