Publication: Temporary Sequestration Credits : An Instrument for Carbon Bears
Kenneth M. Chomitz
Temporary crediting of carbon storage is a proposed instrument that allows entities with emissions reductions obligations to defer some obligations for a fixed period of time. This instrument provides a means of guaranteeing the environmental integrity of a carbon sequestration project. But because the user of the temporary credit takes on the liability of renewing it, or replacing it with a permanent credit, the temporary credit must sell at a discount compared with a permanent credit. The authors show that this discount depends on the expected change in price of a permanent credit. Temporary credits have value only if restrictions on carbon emissions are not expected to tighten substantially. The intuition is illustrated by assessing the value of a hypothetical temporary sulfur dioxide sequestration credit using historical data on actual sulfur dioxide allowance prices.
“Kenneth M. Chomitz; Franck Lecocq. 2003. Temporary Sequestration Credits : An Instrument for Carbon Bears. Policy Research Working Paper;No. 3181. © World Bank, Washington, DC. http://openknowledge.worldbank.org/handle/10986/17430 License: CC BY 3.0 IGO.”
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