Domestic offset projects: Limited opportunities in Germany but potential for others?

This paper examines the potential for Domestic Offset Projects (DPs) in climate protection in Germany. DPs are unilateral GHG emissions reduction projects carried out in a country with a binding greenhouse gas emission reduction target under the Kyoto Protocol (Annex I Country). In contrast to the well known project-based mechanisms under the Kyoto Protocol - the Clean Development Mechanism (CDM) and Joint Implementation (JI) - Domestic Offset Projects are located in the same country as the investor. Therefore tradable emission reduction certificates for DPs are issued by the investor's domestic authority. This paper presents possible implementation options for DPs based on JI and CDM experience, as well as possible implementation problems. Policy additionality seems to be an especially crucial requirement and thus was analysed in more detail. In addition, the emission reduction potential resulting from DPs was estimated for the Federal state of Baden-Württemberg, in South-West Germany. Here, it is shown that the scope for DPs is restricted because of the extent of the German climate program. In Baden-Württemberg only some DPs and JI activities fulfil the criterion of policy additionality. For this reason, DPs are probably of more interest in Annex-I countries with a more limited climate policy mix.