The Voluntary Carbon Market: An Autopsy

Abstract

The voluntary carbon market (VCM) is built on the premise that one offset credit compensates one tonne of emissions. While a growing body of evidence has raised concerns about the environmental integrity of many credits, much less is known about how access to voluntary offsets affects firms’ incentives to reduce their own emissions. Using a buyer-linked transaction dataset covering the near-universe of voluntary carbon offset retirements, we exploit the 2023 market integrity scandals as a quasi-natural experiment to study this question. We find that firms that reduce or exit voluntary offsetting following the shock subsequently achieve larger reductions in operational emissions intensity than firms that continue to rely on offsets. This pattern persists under conservative assumptions about credit effectiveness and is consistent with a moral-licensing mechanism in which access to offsets weakens incentives for internal abatement. Beyond this behavioral channel, we document persistent oversupply, intermediary opacity, and sharp price and volume responses to integrity shocks in the VCM.

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