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

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  • Qiaoyi Chen
  • Nicholas Ryan
  • Daniel Xu

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.

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  • Qiaoyi Chen & Nicholas Ryan & Daniel Xu, 2025. "Firm Selection and Growth in Carbon Offset Markets: Evidence from the Clean Development Mechanism," NBER Working Papers 33636, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:33636
    Note: DEV EEE IO
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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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