Selective carbon credits: Market preferences and ecosystem restoration in Senegal

The voluntary carbon market is presented as a solution to fund land and ecosystem restoration in developing economies. While the empirical literature has focused on assessing its ecological effectiveness, limited attention has been given to how this market interacts with other funding streams within national contexts. Delineating the types of projects that the voluntary carbon market can effectively fund is essential for designing a coherent and integrated funding strategy at the national level. This paper investigates the contribution of the voluntary carbon market to ecological restoration projects in Senegal. Grounded in transaction costs and organizational economics and drawing on a novel dataset of restoration projects from 2007 to 2023, we identify a pattern in which the voluntary carbon market focuses on significantly less context-specific and more certain restoration protocols. The uncertainty of ecological outcomes and the specificity of natural capital explain the recourse to the market, and the market shapes specificity by attempting to standardize assets and facilitate transactions. This impacts restoration protocols, ecosystem targeted and local benefits. Our analysis offers a detailed understanding of how market preferences influence funding allocation and project implementation. Our findings underscore the need to integrate market-based funding with other mechanisms to address land degradation.