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

Qiaoyi Chen, Nicholas Ryan and Daniel Xu
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Qiaoyi Chen: Fudan University
Nicholas Ryan: Yale University
Daniel Xu: Duke University

No 2434, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale 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.

Pages: 96 pages
Date: 2025-03-18
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