Resource information
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.
