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Temporary sequestration credits : an instrument for carbon bears
 
Author:Kenneth M. Chomitz; Franck Lecocq; Collection Title:Policy, Research working paper series ; no. WPS 3181
Country:World; Date Stored:2004/01/16
Document Date:2003/12/01Document Type:Policy Research Working Paper
SubTopics:Environmental Economics & Policies; Carbon Policy and Trading; Payment Systems & Infrastructure; Montreal Protocol; Banks & Banking Reform; Insurance & Risk Mitigation; Financial IntermediationLanguage:English
Region:The World RegionReport Number:WPS3181
Volume No:1 of 1  

Summary: 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.

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