Outside the Cap: Opportunities and Limitations of Greenhouse Gas Offsets

The document examines the role of carbon offsets within a cap-and-trade system, specifically focusing on the challenges of certifying reductions from forestry and agriculture. It argues that while offsets can lower compliance costs for capped entities, the rigorous requirements for offsets—being real, additional, verifiable, permanent, and enforceable—can create high transaction costs for certain project types. The authors suggest that instead of forcing all uncapped reductions into an offset framework, policymakers should use a mix of offsets, direct regulations, and incentive payments to achieve the lowest overall cost to the economy.

• To maintain the integrity of an emissions trading system, carbon offsets must meet five core criteria: they must be "real, surplus (or additional), verifi able, permanent, and enforceable".
• Different project types face varying levels of risk and uncertainty. Landfill methane flaring is identified as having low measurement difficulty and baseline uncertainty, while avoided deforestation is associated with high baseline uncertainty, high leakage potential, and high reversibility risk.
• Forestry and agriculture carbon sequestration projects are particularly challenging to certify as offsets because they often face greater measurement difficulty, baseline uncertainty, leakage potential, and reversibility risk compared to other project types.
• Addressing the inherent risks of certain projects—such as using conservative estimates for measurement or establishing insurance buffers for reversibility—increases transaction costs, which can reduce the overall cost-containment benefit of using offsets.
• The authors propose three options for achieving GHG reductions at uncapped sources: including them under the cap, using traditional regulation, or providing incentive payments (such as subsidies or tax credits).
• Incentive payments are presented as a more cost-effective alternative to offsets for high-uncertainty projects because they do not require the same rigorous ton-for-ton scrutiny regarding additionality and permanence to maintain the integrity of an emissions cap.

APA

Broekhoff, D., & Zyla, K. (2008). Outside the Cap: Opportunities and Limitations of Greenhouse Gas Offsets. World Resources Institute. http://wriorg.s3.amazonaws.com/s3fs-public/outside_the_cap.pdf

Chicago

Broekhoff, Derik, and Kathryn Zyla. Outside the Cap: Opportunities and Limitations of Greenhouse Gas Offsets. World Resources Institute, 2008. http://wriorg.s3.amazonaws.com/s3fs-public/outside_the_cap.pdf.

Wikipedia

{{cite report |last1=Broekhoff |first1=Derik |last2=Zyla |first2=Kathryn |title=Outside the Cap: Opportunities and Limitations of Greenhouse Gas Offsets |publisher=World Resources Institute |date=December 2008 |url=http://wriorg.s3.amazonaws.com/s3fs-public/outside_the_cap.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{broekhoff2008outside, author = {Broekhoff, Derik and Zyla, Kathryn}, title = {{Outside the Cap: Opportunities and Limitations of Greenhouse Gas Offsets}}, institution = {World Resources Institute}, year = {2008}, month = dec, url = {http://wriorg.s3.amazonaws.com/s3fs-public/outside_the_cap.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }