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Carbon Banks

An Efficient Means to Exchange Sequestered Carbon

Department of Food, Agriculture and Resource Economics, University of Guelph, Guelph, ON, Canada N1G 2W1

^* Corresponding author (aesuola{at}uoguelph.ca)

Received for publication May 16, 2005. Carbon sequestration is one of the options that can be used to reduce atmospheric carbon, but its use in an offset market is complicated by the temporary nature of sequestered carbon and the risks associated with carbon release and price. In this paper a carbon bank is proposed to handle these problems. The bank is both an aggregator and a risk bearer. Sink generators deposit their credits with the bank and are paid for maintaining their "savings" with the bank. The carbon bank is also the source where large-scale emitters can come and buy either a temporary or permanent credit and pay the bank in return for the credit and services provided. The advantages of the bank over alternative institutional designs include lower transaction costs, flexible carbon credits and price, and lower risk to risk-averse parties. The carbon bank could be an effective means to deal with many of the unresolved issues within the forthcoming Canadian offset system.

Abbreviations: CDM, Clean Development Mechanism • CO₂e, carbon dioxide equivalent • GHG, greenhouse gas • JI, joint implementation • LFEs, large final emitters