13. Carbon leakage and offsets

Question 1

What does the social cost of carbon mean?

Answer 1

The total damages from emitting one tonne of CO2

Question 2

What is a stock pollutant?

Answer 2

SCC depends on future emissions

Question 3

What does a full treatment of carbon leakage require?

Answer 3

It requires another sector which consumption substitutes towards or from

Question 4

What side of policy creates carbon leakage?

Answer 4

Both demand and supply side policies cause carbon leakage

Question 5

What do carbon leakage rates depend on?

Answer 5

The leakage rate depends on demand and supply side elasticities in domestic and foreign regions

Question 6

Where are high leakage rates rational?

Answer 6

• Grandfathering permits
• Subsidising output

Question 7

What is the idea of a carbon offset?

Answer 7

Pay someone else to reduce emissions so that you don’t have to

Question 8

What 3 factors affect carbon offsets?

Answer 8

1. Jurisdiction of climate policy
2. Strength of institutions
3. Baseline emissions

Question 9

What is the controversy of carbon offsets?

Answer 9

Reduction are measured below the baseline (counterfactual emissions) but these are never observed

Question 10

What is additionality?

Answer 10

Casual reductions in emissions due to the purchase of an offset