Abstract:

Climate change is one of the main challenges to economic development in the 21st century. One proposed solution to mitigate climate change is to create a global market mechanism to incentivize greenhouse gas emissions (GHGs) reduction where some parties may purchase verified emissions reductions from other parties to offset their own emissions. These “carbon offsets” were first introduced in the Kyoto Protocol in 1997 and have since led to the creation of both voluntary and compliance carbon markets. While most of the volume of traded carbon credits has been for compliance with government cap and trade schemes, the voluntary carbon offsets market has nevertheless grown to fund a large variety of projects over the past decade. Significantly, it has done so without the oversight of government regulators. In this study, we conducted an in-depth analysis of the voluntary carbon market and interviews with key stakeholders to understand the mechanics of the market and its key challenges. We found that while transparency and quality remain key issues for participants, the high cost of top-down protocols and compliance needed to improve these key issues also run the risk of limiting the growth of the marketplace. This study concludes that an alternative approach, exploring the development of a robust reputation system that leverages behavioural economics to meet the needs to grow the Voluntary Carbon Offset Marketplace warrants further analysis.

Authors: Chen, Si and Marbouh, Dounia and Moore, Sherwood and Stern, Kris, Voluntary Carbon Offsets: An Empirical Market Study (December 9, 2021). Available at SSRN: https://ssrn.com/abstract=3981914 or http://dx.doi.org/10.2139/ssrn.3981914

Date Written: December 9, 2021

Keywords: Climate change, carbon offsets, greenhouse emissions, market analysis, transparency, quality

JEL Classification: F64, F22, O44