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Climate Economics Seminar: Adverse Selection and Carbon Offsets

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Date(s): October 19, 2010, 2:00 - 3:30 PM

Location: Room 4144, EPA West Building, 1301 Constitution Ave., NW, Washington, DC

Contact: Carl Pasurka, 202-566-2275

Presenter: James Bushnell, Department of Economics, Iowa State University

Description: Although international programs for carbon offsets play an important role in current and prospective climate-change policy, they continue to be very controversial. Asymmetric information creates several incentive problems, include adverse selection and moral hazard, in offset markets. The current regulatory focus on additionality tends to paint all these problems with a broad brush without proper consideration of the context or their implications.  A key issue is the extent to which any misestimate of "business as usual" emissions baselines is a firm-specific or aggregate phenomenon. The regulators information about aggregate emissions is also a factor. If the additivity problem stems from the fact that the regulator overestimated the baselines from the entire sector, then the implications of an offset program can be very different. The result is still less ``abatement'' than expected, but this does not necessarily translate into more emissions than expected.

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