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

Author

Listed:
  • Qiaoyi Chen

    (Fudan University)

  • Nicholas Ryan

    (Yale University)

  • Daniel Yi Xu

    (Duke University)

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

  • Qiaoyi Chen & Nicholas Ryan & Daniel Yi Xu, 2025. "Firm Selection and Growth in Carbon Offset Markets: Evidence from the Clean Development Mechanism," Cowles Foundation Discussion Papers 2434, Cowles Foundation for Research in Economics, Yale University.
    • Handle: RePEc:cwl:cwldpp:2434
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    References listed on IDEAS

    as
    1. Joseph S. Shapiro & Reed Walker, 2018. "Why Is Pollution from US Manufacturing Declining? The Roles of Environmental Regulation, Productivity, and Trade," American Economic Review, American Economic Association, vol. 108(12), pages 3814-3854, December.
    2. Jaraitė, Jūratė & Kurtyka, Oliwia & Ollivier, Hélène, 2022. "Take a ride on the (not so) green side: How do CDM projects affect Indian manufacturing firms’ environmental performance?," Journal of Environmental Economics and Management, Elsevier, vol. 114(C).
    3. Hémous, David & Cicala, Steve & Olsen, Morten, 2022. "Adverse Selection as a Policy Instrument: Unraveling Climate Change," CEPR Discussion Papers 17546, C.E.P.R. Discussion Papers.
    4. Qiaoyi Chen & Zhao Chen & Zhikuo Liu & Juan Carlos Suárez Serrato & Daniel Yi Xu, 2025. "Regulating Conglomerates: Evidence from an Energy Conservation Program in China," American Economic Review, American Economic Association, vol. 115(2), pages 408-447, February.
    5. Alberto Abadie & Guido W. Imbens, 2012. "A Martingale Representation for Matching Estimators," Journal of the American Statistical Association, Taylor & Francis Journals, vol. 107(498), pages 833-843, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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