TheCompensators* » Allowance canceling paper published by the OECD

Allowance canceling paper published by the OECD

In 2010, the OECD published a paper by Anja Kollmuss and Michael Lazarus from the Stockholm Environment Institute concerning the purchase of emission allowances. The paper explored scenarios under which a common citizen could voluntarily purchase and cancel allowances and thus, reduce the greatest amount of CO2 emissions and the benefits of carbon markets.

The authors argue that opportunities to buy and cancel emission allowances do exist, but in small quantities. If such practice remains limited to individuals and voluntary corporate buyers, it is unlikely to drastically alter the price of allowances. However, this could change if sub-national actors such as cities or states decide to voluntarily cancel allowances.

The authors agree that reducing ones own emissions does not necessarily mean a reduction of overall CO2 emissions for a nation. In reality, an emission leakage could occur. Simply reducing ones own emissions, (i.e using LED light bulbs, energy efficient appliances, etc.) is not enough as it allows power companies to buy fewer emission permits (meaning it allows other firms to use these permits and pollute) or enables them to sell spare permits to someone else. According to the authors, additional emissions reductions will only be achieved if the voluntary actor cancels allowances commensurate with their own emissions reductions. This will assure that the emissions are effectively deleted and will be counted towards the national cap.

The authors concluded that, CDM projects have great benefits in the short and medium term such as job creation and emission reduction. However, in the medium and long term, all actors must reduce their emission levels and thus additional emission reduction can be successfully achieved through allowance cancellation.

 

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