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Adverse Selection and Emissions Offsets

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  • Bushnell, James

Abstract

Programs where firms sell emissions ``offsets'' to reduce their emissions continue to provide important complementsto traditional environmental regulations. However in many cases, particularly with current and prospective climate change policy, they continue to be very controversial. The problem of adverse selection lies at the heart of this controversy, as critics of offset programs continue to produce evidence that these projects are paying firms for actions they would have undertaken anyway, and are not producing ``additional'' reductions. This paper explores the theoretical sources of non-additional offsets. An important distinction arises between sales that indicate adverse selection and those that reveal information about aggregate emissions levels.

Suggested Citation

  • Bushnell, James, 2011. "Adverse Selection and Emissions Offsets," Staff General Research Papers Archive 32736, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genres:32736
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    File URL: http://www2.econ.iastate.edu/papers/p12736-2011-04-06.pdf
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    Citations

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    Cited by:

    1. Knut Rosendahl & Jon Strand, 2015. "Emissions Trading with Offset Markets and Free Quota Allocations," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 61(2), pages 243-271, June.
    2. Charles F. Mason, 2018. "Optimal Contracts for Discouraging Deforestation with Risk Averse Agents," CESifo Working Paper Series 7067, CESifo.
    3. Suzi Kerr & Adam Millard-Ball, 2012. "Cooperation To Reduce Developing Country Emissions," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 3(04), pages 1-30.
    4. John F. Raffensperger, 2020. "A price on warming with a supply chain directed market," Papers 2003.05114, arXiv.org, revised Mar 2021.
    5. Jongmin Yu & Mindy L. Mallory, 2020. "Carbon price interaction between allocated permits and generated offsets," Operational Research, Springer, vol. 20(2), pages 671-700, June.
    6. Paula Cordero Salas & Brian E. Roe & Brent Sohngen, 2018. "Additionality When REDD Contracts Must be Self-Enforcing," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 69(1), pages 195-215, January.

    More about this item

    Keywords

    adverse selection; Emissions Markets; Offsets; Climate Policy;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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