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Explaining the Price of Voluntary Carbon Offsets

  • Marc N. Conte
  • Matthew J. Kotchen

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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File URL: http://www.nber.org/papers/w15294.pdf
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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. Matthew J. Kotchen, 2006. "Green Markets and Private Provision of Public Goods," Journal of Political Economy, University of Chicago Press, vol. 114(4), pages 816-845, August.
  2. 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.
  3. Matthew J. Kotchen, 2009. "Voluntary Provision of Public Goods for Bads: A Theory of Environmental Offsets," Economic Journal, Royal Economic Society, vol. 119(537), pages 883-899, 04.
  4. 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.
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