Local Visibility vs. Global Integrity: Evidence from Corporate Carbon Offsetting

Alvaro Pedraza, Tomas Williams and Federica Zeni

No 11331, Policy Research Working Paper Series from The World Bank

Abstract: Although the climate impact of carbon abatement is geographically invariant, this paper documents limited geographic fungibility in voluntary carbon markets. Firms disproportionately retire offsets in countries where they operate. The paper contrasts an Information Channel, whereby local presence improves project screening, with a Goodwill Channel, whereby supporting local projects enhances reputational visibility. The evidence supports the latter. Offsets retired within firms’ operational footprints exhibit systematically lower project quality than those sourced abroad, revealing a negative local quality gradient. This pattern persists with firm experience and generates equilibrium price-quality decoupling: in jurisdictions with concentrated local demand, prices become less responsive to project quality. The resulting distortions can generate a “market for lemons” dynamic, reallocating climate finance away from high-abatement-potential regions toward areas with greater multinational presence. Strategic corporate incentives thus weaken the allocative efficiency of voluntary carbon markets.

Date: 2026-03-16
New Economics Papers: this item is included in nep-inv and nep-ppm
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