The Evolving Role of Greenhouse Gas Emission Offsets in Combating Climate Change

Joseph E. Aldy and Zachery M. Halem

Review of Environmental Economics and Policy, 2024, vol. 18, issue 2, 212 - 233

Abstract: Governments, firms, and universities adopting ambitious greenhouse gas emission goals—including net-zero emission targets—stimulate demand for emission offsets. Suppliers of emission offsets undertake projects that reduce or remove emissions relative to what they would have been otherwise. However, there are concerns about permanence, double-counting, whether an offset will actually reduce emissions relative to the status quo, and whether the emissions will simply shift somewhere else. We review the roles of offsets in regulatory compliance, as incentives for early action, and when implementing voluntary emission goals. The rules and institutions governing offsets result in large variations in the prices of offsets and in the types of projects. Entities in one region may not know about the prices and environmental integrity of offset project activities in other places. An array of financial and technological innovations could enhance offsets’ environmental integrity and promote liquidity in offset markets. Unresolved questions about the future of policy will influence the evolution of voluntary markets for emission offsets.

Date: 2024
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