By Alexander Cheema-Fox, Megan Czasonis, Piyush Kontu, and George Serafeim
We investigate reliance on carbon offsets for decarbonization, associated risks, and factors that explain variation in offset prices.
Relying on carbon offsets for decarbonization has become an increasingly contentious approach in the fight against climate change. Many companies view the purchase of credits in carbon reduction or removal projects, such as reforestation or renewable energy initiatives, as an effective way to offset their green house emissions. However, critics argue that offset reliance is a temporary solution that allows for continued emissions rather than addressing the root cause. In a recent paper, we investigate firm reliance on carbon offsets and find that companies tend to use carbon offsets as a complement to their decarbonization activities rather than a substitute. Moreover, we find little evidence that market-based or analyst-derived risk measures reflect the inherent risk associated with offset reliance. Finally, we explore key factors, such as project type and geography, that explain carbon offset quality and prices.
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