Most market-based regulatory proposals to limit GHG emissions include provisions that allow market participants to seek reductions outside the regulated system. These reductions are typically referred to as offsets.
Offsets are attractive because they can expand the available pool of low-cost reduction options, particularly in the near future. Many potential offset projects, however, present challenges because the emissions reductions they generate are difficult to measure or, in the case of sequestration, carry risks of impermanence. The challenge is to design an offset program that incentivizes reductions while also ensuring their integrity.
Will REDD Really Be Cheap?
Offsets: Incentivizing Reductions While Managing Uncertainty and
Conserving the Climate: Scaling-up Global Markets for Forest Carbon
Policies to Reduce Emissions from Deforestation and Degradation (REDD) in Tropical Forests: An Examination of the Issues Facing the Incorporation of REDD into Market-Based Climate Policies