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Firm Selection and Growth in Carbon Offset Markets: Evidence from the Clean Development Mechanism in China

Author

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  • Chen, Qiaoyi
  • Ryan, Nicholas
  • Xu, Daniel Yi

Abstract

We study carbon offsets sold by firms in China under the Clean Development Mechanism (CDM).We find that offset-selling firms, meant to cut carbon emissions, instead increase them by 49% after starting an offset project. In a model of firm investment decisions and offset review, we estimate that CDM firms increase emissions due to both the selection of higher-growth firms into projects (35 pp) and because offset projects themselves boost firm growth and therefore emissions (14 pp). The CDM reduces global surplus by causing damages from increased emissions four times greater than private gains from trade in the offset market.

Suggested Citation

  • Chen, Qiaoyi & Ryan, Nicholas & Xu, Daniel Yi, 2025. "Firm Selection and Growth in Carbon Offset Markets: Evidence from the Clean Development Mechanism in China," CEPR Discussion Papers 20126, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:20126
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    File URL: https://cepr.org/publications/DP20126
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    JEL classification:

    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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