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Explaining The Price Of Voluntary Carbon Offsets

  • MARC N. CONTE

    ()

    (Stanford University, Stanford, CA 94305, USA)

  • MATTHEW J. KOTCHEN

    ()

    (Yale University and NBER, New Haven, CT 06511, USA)

This paper identifies 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% higher than providers located in either North America or Australasia. Contrary to what one might expect, offset prices are generally higher, by roughly 20%, 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%; however, third-party certification from the Voluntary Carbon Standard, one of the popular 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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Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal Climate Change Economics.

Volume (Year): 01 (2010)
Issue (Month): 02 ()
Pages: 93-111

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Handle: RePEc:wsi:ccexxx:v:01:y:2010:i:02:p:93-111
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  1. Matthew J. Kotchen, 2003. "Green Markets and Private Provision of Public Goods," Department of Economics Working Papers 2003-05, Department of Economics, Williams College.
  2. 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.
  3. 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, vol. 35(2), pages 203-221, November.
  4. Kim, Man-Keun & McCarl, Bruce A. & Murray, Brian C., 2008. "Permanence discounting for land-based carbon sequestration," Ecological Economics, Elsevier, vol. 64(4), pages 763-769, February.
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