Evaluating Additionality Analyses: California Cap and Trade and the Regional Greenhouse Gas Initiative

This paper explores additionality analyses for offsets, a core theoretical requirement to ensure that emissions trading schemes reduce overall greenhouse gas emissions (GHGs). In the context of offsets, the additionality analysis evaluates whether an emission reduction would have occurred absent the incentive provided by the offset. The purpose is to determine whether reductions are caused by the policy intervention. The paper identifies a tension between adequate additionality analyses and the implementation costs they impose and evaluates these tensions in practice using two emissions trading programs in the United States, California Cap and Trade and the Regional Greenhouse Gas Initiative, as illustrative of the design challenges. The paper concludes that while holistic, project-specific quantifications of offset emissions relative to a counterfactual baseline scenario may not be necessary or practically feasible, evaluating one or two benchmarks may not be an adequate substitute to test such an important concept.