Offset Trading Research Articles

절충교역 관점에서 본 한국의 방위산업 및 무기체계 국제거래 현황과 과제

South Korea has established the base for self-reliant defense and grown into an emerging defense exporter in 40 years since it first introduced a offset trade system in 1983, and aims to become the world's fourth-largest defense exporter by 2027. The purpose of this study is to draw implications for the development of Korea's defense industry and the expansion of defense exports from the perspective of offset trade. To this end, (1) the development process and status of Korea's defense industry were examined based on recent statistical data, and (2) the status of Korea's overseas purchase of weapons systems and defense exports were examined. Also, (3) after examining the current status of Korea's offset trade system, implications for the development of defense industry and the expansion of defense exports were drawn. In import offset trade, it is necessary to re-apply offset trade obligation to overseas purchase through FMS from the U.S.A., settle down the banking system, expand the offset value multiplier for SMEs, and strengthen the industrial cooperation quota system. In export offset trade, it needs to establish a cooperation system between government ministries by a strong control tower, form a consortium of government-defense companies for a proactive response system, introduce a mandatory reporting system for export offset trade, expand the policy support for defense export such as trade finance, and introduce a value offset system (SWAP).

Impact of introducing Chinese certified emission reduction scheme to the carbon market: Promoting renewable energy

The China Certified Emission Reduction scheme (CCER) and the Cap-and-Trade (CaT) mechanisms jointly constitute the Emission Trading Scheme (ETS), which is expected to have a profound impact on China's social and economic decarbonization. However, previous studies have primarily focused on the impact of the CaT mechanism, neglecting the fact that CCERs serve as a carbon offset trading mechanism. This paper focuses on the impact of the CCER mechanism on China's energy economy and environment by constructing a recursive dynamic computable general equilibrium model that couples CaT and CCER mechanisms. Introducing the CCER mechanism based on the CAT mechanism leads to increased output and reduced prices in renewable energy sectors, cascading positive effects across various energy-utilizing sectors to counter the decline in Gross Domestic Product (GDP) and residential welfare. The finding suggests that China's unique CCER mechanism is poised to play a more important role in promoting renewable energy to mitigate global warming, given its potential to transform the structure of energy production and consumption. Finally, targeted policy recommendations are proposed for implementing the CCER mechanism.

Finance “Blending” and NDC achievement under the Paris agreement

Climate finance, funded by governments of high-income (H) countries, can be used to purchase assets in the international carbon market for offset trading, thus “blending” with such transactions. In this paper it is shows analytically that when there are no distortions in credit markets, finance blending leads to too little greenhouse gas (GHG) mitigation in H countries, and too much in L countries. The offset market is then distorted by climate finance blending, given that all offset credits are attributed to the carbon market participants. This distortion is removed when such “blended” climate finance resources are instead attributed in proportion to their finance shares. Adding climate finance to the carbon market has no impact on global GHG mitigation as long as the trading countries’ targets for emissions reductions (their “climate ambition”) is not changed; higher ambition levels are thus always required for climate finance to contribute to a reduction in global GHG emissions. When L country market participants have limited access to credit markets, blending can increase global greenhouse-gas mitigation by adding climate finance resources to the carbon market, thus facilitating L country market participants’ access to funding of their planned mitigation projects.

Blockchain solutions for carbon markets are nearing maturity

Blockchain solutions for carbon markets are nearing maturity

Configuring Legitimate Blue Carbon Rights for Coastal Fishing Villages Based on Forestry Carbon MRV

Um, D.-B., 2021. Configuring legitimate blue carbon rights for coastal fishing villages based on forestry carbon MRV. In: Lee, J.L.; Suh, K.-S.; Lee, B.; Shin, S., and Lee, J. (eds.), Crisis and Integrated Management for Coastal and Marine Safety. Journal of Coastal Research, Special Issue No. 114, pp. 380–384. Coconut Creek (Florida), ISSN 0749-0208. Blue carbon refers to carbon dioxide removed from the atmosphere by the coastal ecosystems. The price of carbon credit in South Korea initiated in January 2015 has soared more than five times as of 2020. Even if domestic companies participating in emission trading want to invest in offset trading of blue carbon abundant in the coastal area of South Korea, there is no fundamental governance to trade blue carbon. This article suggests ways to configure legitimate carbon rights through Measurement, Reporting and Verification (MRV) by defining the sub-category of blue carbon compared to forest carbon. This MRV contract between wetland villages and local companies could be implemented by guaranteeing carbon rights to wetland village communities from land ownership. Although South Korea has been selected as a case study for this paper, this discussion is relevant to other countries that face blue carbon incentives to attract local companies' emission reduction demand.

Tax transition in developing countries: do value added tax and excises really work?

This paper investigates the role of Value Added Tax (VAT) and excises in first wave tax transition (movement away from international trade taxes towards domestic revenue collection) of developing countries. Focusing on a sample of 96 developing countries over the period 1985–2013, we investigate whether the adoption of VAT enables developing countries to increase the likelihood of succeeding tax transition. Results indicate that having a VAT, allows developing countries to increase the probability of succeeding tax transition by 12%. We further investigate the extent to which VAT and excises offset trade tax revenue losses of trade liberalization in these countries. Our estimates reveal that VAT is offsetting by 52% trade tax revenue losses in developing countries with a U relationship, while this effect holds for excises duties with a U inverted relationship. The study also points out heterogeneities (while VAT-tax transition effect is robust to African and Asian countries, it seems not for Latin American countries), as well as asymmetries (the revenue collection of VAT and excises didn’t increase the period over which developing countries face an increase in trade tax). While enhancing tax administration fosters the transition process in these countries, the study however suggests taking with closer attention VAT and excises as powerful first wave tax transition tools in developing countries.

The hidden biodiversity risks of increasing flexibility in biodiversity offset trades

Market-like mechanisms for biodiversity offsetting have emerged globally as supposedly cost-effective approaches for mitigating the impacts of development. In reality, offset buyers have commonly found that required credits are scarce and/or expensive. One response has been to seek improved market functionality, increasing eligible offset supply by allowing greater flexibility in the offset trading rules. These include increasing the size of geographical trading areas and expanding out-of-kind trades (‘geographical’ and ‘ecological’ flexibility). We summarise the arguments for and against flexibility, ultimately arguing that increasing flexibility undermines the achievement of No Net Loss (or Net Gain) of biodiversity where high-quality governance is lacking. We argue expanding out-of-kind trading often increases the pool of potentially eligible offsets with limited conservation justification. This interferes with vital information regarding the scarcity of the impacted biodiversity feature, thereby disincentivising impact avoidance. When a biodiversity feature under threat of development is scarce, expensive offsets are an essential feature of the economics of offsetting which communicate that scarcity, not a problem to be regulated away. We present examples where increasing ecological flexibility may be justifying the loss of conservation priorities. We also discuss how increasing geographical flexibility might compromise the additionality principle. We highlight alternative mechanisms for enhancing offset supply without the risks associated with increasing flexibility, including reducing policy uncertainty and improving engagement and awareness to increase landholder participation. Although there are legitimate reasons for increasing offsetting flexibility in some specific contexts, we argue that the biodiversity risks are considerable, and potentially undermine ‘no net loss’ outcomes.

What’s Left to Tax? Partisan Reallocation of Trade Taxation in Less Developed Countries

Trade liberalization has reduced trade tax revenue in most less developed countries (LDCs). The options to replace this tax, which has historically been LDCs’ primary source of tax revenue, are limited by competitive pressures in the global economy. Using time-series error correction models, we assess how partisan politics shaped the reallocation of taxes in thirty-eight LDCs from 1975 to 2009. We argue that leftist governments have a vested interest in recovering lost revenue to fund spending that benefits their constituencies but they are highly constrained by the market signaling effects of increasing taxes. We find that leftist governments retained higher levels of falling tax revenue and offset trade tax losses with progressive personal income taxes (PITs). Nonetheless, leftist governments appeared reluctant to increase revenue from corporate income or social security taxes, which impose costs on business. To make up for the trade revenue loss, leftists instead relied more heavily on regressive consumption taxes, which are the most lucrative and market-friendly supplements to preferred PIT. Leftist parties in LDCs demonstrate redistributive concerns, but their tools and the lasting effects of their reforms are limited by strong market constraints.

Early REDD+ Implementation: The Journey of an Indigenous Community in Eastern Panama

Reducing Emissions from Deforestation and Forest Degradation (REDD+) offers developing countries an opportunity to engage in global climate change mitigation through the sale of carbon credits for reforestation, avoided deforestation and forest conservation projects. Funding for REDD+ projects has increased in recent years and REDD+ projects have proliferated, but relatively few studies have, as yet, examined their implementation. Here, we present a synthesis of the challenges and lessons learned while implementing a REDD+ project in an Emberá community in Panama. Our case study, documented in four cycles of collaborative action research over 11 years, examines how local communities sought to reduce emissions from deforestation and benefit from carbon offset trading while improving local livelihoods. Through semi-structured interviews and participatory methods, we found that success with REDD+ hinges on broader issues than those widely discussed in the literature and in policy circles. Though economic incentives for participants and the equitable distribution of benefits remain important to project participants, our study finds that, in adapting REDD+ strategies to best suit community needs, the role of a support system for implementation (“bridging institutions”) and REDD+’s potential as a conflict resolution mechanism for tenure issues deserve more attention as key factors that contribute to meaningful participation in REDD+.

A Theoretical Inquiry of the Offset Mechanism in Mitigating Global Warming: Economic Welfare Implications of the Clean Development Mechanism Investment

This study attentively examines the role of the offset mechanism like the Clean Develop Mechanism (CDM) in mitigating global warming problems and considers its economic welfare implications in a theoretical offset environment. The CDM is a kind of offset trading scheme of carbon dioxide (CO2) emissions between advanced and developing economies. Formulating the essence of the offset market into a simple model, we interpret the right to trade CO2 emissions at an ideal price as rewards to advanced economies for investing in more CO2 saving technologies and/or factories in developing economies. Our model shows that under some conditions the CDM can succeed in suppressing CO2 emissions and become a second-best measure to mitigate global warming. Nevertheless, we also clarify that the prices of carbon offset in advanced economies are not generally sustainable without the help of the outside agencies such as the governments. This fact suggests that offset mechanism like the CDM incurs an additional burden, such as taxes to advanced economies for preserving the scheme, although the resultant transfer evidently equalizes the international income distribution.

Offset Credits in the EU ETS: A Quantile Estimation of Firm-Level Transaction Costs

International carbon offset certificates were cheaper than European Union Allowances, although they were substitutes within the EU Emissions Trading System (EU ETS). Thus, firms had a strong incentive to use offset certificates. However, a considerable number of firms did not exhaust their offset quota and, by doing so, seemingly forwent profits. While most literature on emissions trading evaluates the efficiency of regulation in a frictionless world, in practice firms incur costs when complying with regulation. In order to assess the relevance of trade-related fixed transaction costs, this study examines the use of international offset credits in the EU ETS. It establishes a model of firm decision under fixed (quantity-invariant) entry costs and estimates the size of such costs rationalizing firm behavior using semi-parametric binary quantile regressions. Comparing binary quantile results with probit estimates shows that high average transaction costs result from a strongly skewed underlying distribution. For most firms, the bulk of transaction costs stems from certificate trading in general, rather than additional participation in offset trading.

Effectiveness of vegetation-based biodiversity offset metrics as surrogates for ants.

Biodiversity offset schemes are globally popular policy tools for balancing the competing demands of conservation and development. Trading currencies for losses and gains in biodiversity value at development and credit sites are usually based on several vegetation attributes combined to yield a simple score (multimetric), but the score is rarely validated prior to implementation. Inaccurate biodiversity trading currencies are likely to accelerate global biodiversity loss through unrepresentative trades of losses and gains. We tested a model vegetation multimetric (i.e., vegetation structural and compositional attributes) typical of offset trading currencies to determine whether it represented measurable components of compositional and functional biodiversity. Study sites were located in remnant patches of a critically endangered ecological community in western Sydney, Australia, an area representative of global conflicts between conservation and expanding urban development. We sampled ant fauna composition with pitfall traps and enumerated removal by ants of native plant seeds from artificial seed containers (seed depots). Ants are an excellent model taxon because they are strongly associated with habitat complexity, respond rapidly to environmental change, and are functionally important at many trophic levels. The vegetation multimetric did not predict differences in ant community composition or seed removal, despite underlying assumptions that biodiversity trading currencies used in offset schemes represent all components of a site's biodiversity value. This suggests that vegetation multimetrics are inadequate surrogates for total biodiversity value. These findings highlight the urgent need to refine existing offsetting multimetrics to ensure they meet underlying assumptions of surrogacy. Despite the best intentions, offset schemes will never achieve their goal of no net loss of biodiversity values if trades are based on metrics unrepresentative of total biodiversity.

Offset Credits in the EU ETS: A Quantile Estimation of Firm-Level Transaction Costs

International offset certificates trade at lower prices than European Union Allowances (EUAs), although they are substitutes within the EU Emissions Trading System (EU ETS) for CO2. Firms therefore had a strong incentive to use the cheaper certificates. However, a considerable number of firms did not use their allowed offset quota and, by doing so, seemingly forwent profits. While most of the literature on emissions trading evaluates the efficiency of regulation in a frictionless world, in practice firms incur costs when complying with regulation. In order to assess the relevance of managerial and information-related transaction costs, this study examines the use of international offset credits in the EU ETS. It establishes a model of firm decision under fixed entry costs and estimates the size of transaction costs rationalizing firm behavior using semi-parametric binary quantile regressions. Comparing binary quantile results with probit estimates shows that high average transaction cost result from a strongly skewed underlying distribution. I find that for most firms the bulk of transaction costs stems from participation in the EU ETS in general, rather than additional participation in the offset trade.

Locking in loss: Baselines of decline in Australian biodiversity offset policies

Biodiversity offset trades usually aim to achieve ‘no net loss’ of biodiversity. But the question remains: no net loss compared to what? Determining whether an offset can compensate for a given impact requires assumptions about the counterfactual scenario—that which would have happened without the offset—against which the gain at an offset site can be estimated. Where this counterfactual scenario, or ‘crediting baseline’, assumes a future trajectory of biodiversity decline, the intended net outcome of the offset trade is maintenance of that declining trajectory. If the rate of decline of the crediting baseline is implausibly steep, biodiversity offset trades can exacerbate biodiversity decline. We examined crediting baselines used in offset policies across Australia, and compared them with recent estimates of decline in woody vegetation extent. All jurisdictions permitted offset credit generated using averted loss—implying an assumption of background decline—but few were explicit about their crediting baseline. The credit calculation approaches implied assumed crediting baselines of up to 4.2% loss (of vegetation extent and/or condition) per annum; on average, the crediting baselines were >5 times steeper than recent rates of vegetation loss. For these crediting baselines to be plausible, declines in vegetation condition must be rapid, but this was not reflected in the approaches for which assumptions about decline in extent and condition could be separated. We conclude that crediting baselines in Australian offset schemes risk exacerbating biodiversity loss. The near-ubiquitous use of declining crediting baselines risks ‘locking in’ biodiversity decline across impact and offset sites, with implications for biodiversity conservation more broadly.

Additionality, common practice and incentive schemes for the uptake of innovations

Crucial components of carbon offset trading schemes are the determination of whether a technology or practice is innovative (i.e. not common practice), and whether the practice is adopted as a result of incentives (termed additional). Under schemes such as the Clean Development Mechanism (CDM), early adopters of carbon reducing technologies receive tradable carbon credits that can be sold to businesses to offset their emissions. However, frameworks for distinguishing early adopters are inconsistent, and the effect of incentive schemes on uptake is poorly understood. In this study we: 1) review measures of common practice taken from the literature with the purpose of informing a standardised approach; and 2) using the Bass model we explore the effects of incentive schemes on adoption with the purpose of establishing the proportion of uptake attributable to the scheme. We found that a fixed common practice threshold of approximately 20% adoption is well supported by a wide range of approaches, and that 85–95% (approximately) of early adoption can be attributed to incentives, such as offset schemes. Although we focussed on carbon reducing technologies, our results have broad implications for general practice and product diffusion, and the effect of promotions on adoption.

Assessing the likelihood of widespread landholder adoption of afforestation and reforestation projects

Tree planting for carbon sequestration is a commonly proposed climate change mitigation strategy, with afforestation projects forming part of voluntary and mandatory carbon offset trading schemes. Afforestation is often promoted as a new economic opportunity for private landholders. While multiple studies have identified physical and economic opportunities for afforestation, few have examined the willingness of private landholders to adopt afforestation, and the factors that influence this willingness. We examine this using data from a survey of Australian landholders. The willingness of landholders to adopt afforestation for carbon sequestration varies substantially depending on how this afforestation is designed and implemented: landholders prefer small plantings on less productive land, which minimise the disturbance afforestation presents to land management, and to landholder values about appropriate uses of agricultural land. Landholders are less willing to consider afforestation if it involves planting the large areas required by many current carbon afforestation schemes. Willingness to adopt afforestation is influenced in particular by landholder's perceptions of its potential to provide a diversified income stream, and its impacts on flexibility of land management. More broadly, it is influenced by their views about the social acceptability of afforestation, particularly whether the landholder believes trees should be planted on agricultural land, and how they believe others in the community view afforestation. Our results suggest that widespread adoption requires designing afforestation so it (i) provides a range of socio-economic benefits that go beyond provision of income; (ii) minimises disruption to land management flexibility; and (iii) is compatible with landholder beliefs about appropriate use of agricultural land.

A Study on the Identification of Risk Factors in the Process of Defense Technology Transfer via Offset Trade

A Study on the Identification of Risk Factors in the Process of Defense Technology Transfer via Offset Trade

The potential for carbon offset trading to provide added incentive to adopt silvopasture and alley cropping in Missouri

Global carbon trading may present a unique opportunity to change the rural landscape by allowing landowners to make an environmental impact with financial incentives. By enticing point source polluters to trade to an optimal level of pollution by offsetting their emissions with compatible carbon reduction projects, markets are able to facilitate a cleaner environment. Agroforestry provides a set of practices that can sequester carbon with managed tree and crop plantings. However, the initial lack of financial resources has been an obstacle to its adoption in the United States. This paper explores the potential for carbon offset trading to provide an added incentive to adopt agroforestry practices. Chicago Climate Exchange carbon sequestration projects are used as a baseline assessment, and the requirements that Missouri landowners would need to do in terms of contracting and ownership are identified. Data from landowners in central Missouri and the Ozarks (353 individuals) are used to determine characteristics of potentially interested landowners in agroforestry. A model to evaluate agroforestry profitability scenarios is used to compare the added carbon credit trading revenue to traditional alternate uses for the property. The findings from this analysis indicate that in the current context carbon trading does not provide an added incentive value for Missouri landowners to adopt either silvopasture or alley cropping practices because of the low magnitude of annual return.

Carbon Reduction in the Post-Kyoto era. Have we progressed? A comparison

In a fragmented global environment, the efforts of state and non-state actors are important in assessing the state of play on climate change mitigation actions around the world. This article will consider from a comparative perspective the various legislative models for addressing climate change and the reduction of GHG emissions with particular focus on the EU, USA, Australia and Switzerland. As legal developments are not limited to legislative schemes, this article will examine the voluntary carbon offset market and other trade related solutions to GHG emissions which have emerged in the absence of mandatory limitation systems. Also warranting attention are the actions of private parties in common law jurisdictions to bring legal proceedings against power companies for damage caused by climate change. Together, these developments demonstrate that climate change abatement is not the sole remit of the legislature.

An evaluation of nutrient nonpoint offset trading in Virginia: A role for agricultural nonpoint sources?

Many advocates of water quality trading in the United States frequently assume that agricultural nonpoint sources will be the primary trading partner for regulated point sources. Virginia requires regulated point sources to offset new nutrient discharges. Nutrient offsets generated by agricultural nonpoint source reductions are compared against urban nonpoint source and nutrient assimilation offsets. Evidence suggests that agricultural nonpoint source offsets may not be a technically feasible or particularly cost effective compliance option for regulated point sources.