Carbon offsets and the green transistion
In progress
Project goal
Carbon offsets are a controversial means of lowering greenhouse gas emissions. Advocates argue they are “low hanging fruit” for mitigation, thus lowering mitigation costs and buying time for more expensive mitigation measures to become cost effective. Critics raise issues with additionality, leakage, and permenance as reasons for carbon offsets to be banned or severely limited. The goal of this work is to elucidate when carbon offsets are net-positives or net-negatives for the green transition. We develop a general equilibrium model that sets offset prices based on shareholders’ willingness to pay for a lower carbon footprint and firms’ willingness to pay for access to productive, dirty capital. We then evaluate the welfare implications of several regulation mechanisms for carbon offset markets, including equivalency ratios and strict monitoring, reporting and verification practices.
