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The social value of offsets

Nature volume 619, pages 768–773 (2023)Cite this article

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Abstract

It is unclear how much carbon should be stored in temporary and risky offsets to compensate one ton of CO2 emissions. Here we cast the social value of an offset (SVO), measured in terms of economic damages avoided, as a well-defined fraction of the social cost of carbon reflecting offset duration, and risks of non-additionality and failure. The SVO reflects the value of temporary storage, and overcomes shortcomings in the climate science and economics of previous contributions1,2,3,4. The SVO is policy relevant. An efficient net-zero policy will consist of offsets if their SVO/cost ratio exceeds the benefit/cost ratio of alternatives. The SVO yields an indicator of the equivalence of offsets to permanent carbon storage measured by the ratio of the SVO to the social cost of carbon. We provide a matrix of equivalence factors for different risks, permanence and climate scenarios. Estimation yields a rule of thumb: one offset sequestering one ton for 50 years is equivalent to between 0.33 and 0.5 tons permanently locked away. Equivalence offers a means of replacing perpetual offset contracts by simpler, easy to monitor short-term contracts, has applications to carbon life cycle analysis5 and the valuation of carbon debts6, and can be the basis of comparing offsets of different qualities in the voluntary and compliance markets.

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Fig. 1: The effect of an offset on warming.
Fig. 2: The time profile of additionality risk.

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Data availability

The data used to create the figures, and the Excel spreadsheet that underpins the tables, are available at GitHub (https://doi.org/10.5281/zenodo.7848892).

Code availability

The code used to create the figures, and the Excel spreadsheet that underpins the tables, is available at GitHub (https://doi.org/10.5281/zenodo.7848892).

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Acknowledgements

For helpful comments, we thank the participants of the following conferences in 2022: European Association of Environmental and Resource Economists, European Economic Association, Biodiversity and Economics for Conservation, American Association of Environmental and Resource Economics, UK Network of Environmental Economists, Sustainable Resource Use and Economic Dynamics and the European Society for Benefit Cost Analysis. For helpful comments, we also thank the participants of the San Francisco Federal Reserve Virtual Climate seminar and the Banque de France seminar on biodiversity and nature. We thank A. Balmford, S. Dietz and T Swinfield for very helpful comments on an early draft. B.G. thanks Dragon Capital for financing the Dragon Capital Chair in Biodiversity Economics. Any remaining errors are our own. Both B.G. and F.V. acknowledge financial support from the Grantham Research Institute on Climate Change and the Environment at the London School of Economics and the Economic and Social Research Council Centre for Climate Change Economics and Policy through Economic and Social Research Council grant reference ES/R009708/1. B.G. and F.V. acknowledge financial support from the UK Research and Innovation–Natural Environment Research Council BIOADD project (reference NE/X002292/1).

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Authors and Affiliations

  1. LEEP Institute, Department of Economics, University of Exeter Business School, Exeter, UK

    Ben Groom

  2. Grantham Research Institute on Climate Change and the Environment, London School of Economics and Political Science, London, UK

    Ben Groom & Frank Venmans

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  1. Ben Groom
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Contributions

F.V. and B.G. contributed 75% and 25% to the theory and 25% and 75% to the writing, respectively. On all other aspects, the contribution was equal.

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Correspondence to Ben Groom or Frank Venmans.

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Nature thanks Kenneth Gillingham and Wilfried Rickels for their contribution to the peer review of this work. Peer reviewer reports are available.

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Supplementary Sections 1–10, including Supplementary Figs. 1–4, Tables 1–4 and References.

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Groom, B., Venmans, F. The social value of offsets. Nature 619, 768–773 (2023). https://doi.org/10.1038/s41586-023-06153-x

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