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

Qiaoyi Chen, Nicholas Ryan and Daniel Yi Xu

No 20126, CEPR Discussion Papers from Centre for Economic Policy Research

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.

Keywords: Carbon; offsets (search for similar items in EconPapers)
JEL-codes: Q56 (search for similar items in EconPapers)
Date: 2025-04
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