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Explaining the Price of Voluntary Carbon Offsets

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  • Marc N. Conte
  • Matthew J. Kotchen

Abstract

This paper investigates factors that explain the large variability in the price of voluntary carbon offsets. We estimate hedonic price functions using a variety of provider- and project-level characteristics as explanatory variables. We find that providers located in Europe sell offsets at prices that are approximately 30 percent higher than providers located in either North America or Australasia. Contrary to what one might expect, offset prices are generally higher, by roughly 20 percent, when projects are located in developing or least-developed nations. But this result does not hold for forestry-based projects. We find evidence that forestry-based offsets sell at lower prices, and the result is particularly strong when projects are located in developing or least-developed nations. Offsets that are certified under the Clean Development Mechanism or the Gold Standard, and therefore qualify for emission reductions under the Kyoto Protocol, sell at a premium of more than 30 percent; however, third-party certification from the Voluntary Carbon Standard, one of the largest certifiers, is associated with a price discount. Variables that have no effect on offset prices are the number of projects that a provider manages and a provider’s status as for-profit or not-for-profit.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15294.

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Date of creation: Aug 2009
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Publication status: published as Marc N. Conte & Matthew J. Kotchen, 2010. "Explaining The Price Of Voluntary Carbon Offsets," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 1(02), pages 93-111.
Handle: RePEc:nbr:nberwo:15294

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  1. Pfaff, Alexander S. P. & Kerr, Suzi & Hughes, R. Flint & Liu, Shuguang & Sanchez-Azofeifa, G. Arturo & Schimel, David & Tosi, Joseph & Watson, Vicente, 2000. "The Kyoto protocol and payments for tropical forest:: An interdisciplinary method for estimating carbon-offset supply and increasing the feasibility of a carbon market under the CDM," Ecological Economics, Elsevier, Elsevier, vol. 35(2), pages 203-221, November.
  2. Kim, Man-Keun & McCarl, Bruce A. & Murray, Brian C., 2008. "Permanence discounting for land-based carbon sequestration," Ecological Economics, Elsevier, Elsevier, vol. 64(4), pages 763-769, February.
  3. Matthew J. Kotchen, 2003. "Green Markets and Private Provision of Public Goods," Department of Economics Working Papers 2003-05, Department of Economics, Williams College.
  4. Matthew J. Kotchen, 2007. "Voluntary Provision of Public Goods for Bads: A Theory of Environmental Offsets," NBER Working Papers 13643, National Bureau of Economic Research, Inc.
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Cited by:
  1. Julia Blasch & Mehdi Farsi, 2012. "Retail demand for voluntary carbon offsets - A choice experiment among Swiss consumers," IED Working paper, IED Institute for Environmental Decisions, ETH Zurich 12-18, IED Institute for Environmental Decisions, ETH Zurich.
  2. Hilary Sigman, 2010. "Monitoring and Enforcement of Climate Policy," Departmental Working Papers, Rutgers University, Department of Economics 201006, Rutgers University, Department of Economics.
  3. Larson, Donald F. & Dinar, Ariel & Blankespoor, Brian, 2012. "Aligning climate change mitigation and agricultural policies in Eastern Europe and Central Asia," Policy Research Working Paper Series 6080, The World Bank.
  4. Jonah Busch, 2013. "Supplementing REDD+ with Biodiversity Payments: The Paradox of Paying for Multiple Ecosystem Services - Working Paper 347," Working Papers, Center for Global Development 347, Center for Global Development.
  5. Jacobsen, Grant D. & Kotchen, Matthew J. & Vandenbergh, Michael P., 2012. "The behavioral response to voluntary provision of an environmental public good: Evidence from residential electricity demand," European Economic Review, Elsevier, Elsevier, vol. 56(5), pages 946-960.
  6. Larson, Donald F. & Dinar, Ariel & Frisbie, J. Aapris, 2011. "Agriculture and the clean development mechanism," Policy Research Working Paper Series 5621, The World Bank.
  7. Mizrach, Bruce, 2012. "Integration of the global carbon markets," Energy Economics, Elsevier, Elsevier, vol. 34(1), pages 335-349.

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