Additionality of Carbon Offsets: Project-specific vs. Standardized Baselines

42 Pages Posted: 11 Dec 2023

See all articles by Vishal Agrawal

Vishal Agrawal

Georgetown University - McDonough School of Business

Soudipta Chakraborty

University of Kansas, School of Business

Şafak Yücel

Georgetown University - McDonough School of Business

Date Written: November 27, 2023

Abstract

A carbon offset represents reduction in emissions that can be used to compensate for emissions elsewhere. Developers generate offsets through emissions-reduction projects. A non-profit carbon registry issues offsets to developers while ensuring additionality. That is, an offset needs to represent one unit of reduction from a developer's business-as-usual emissions---what the developer's emissions would have been in the absence of the market for offsets. Accordingly, environmental groups raise greenwashing concerns against non-additional offsets. Ensuring additionality is challenging because business-as-usual emissions is a developer's private information and an unobservable counterfactual for the registry. In practice, the registry assigns a baseline to represent business-as-usual emissions through one of the two methods: Under the project-specific method, a developer self-reports its business-as-usual emissions to the registry, which then inspects the report and assigns reported emissions as the baseline if it accepts the project. Under the standardized method, the registry assigns a common baseline to a group of developers. It is unclear which method leads to fewer non-additional offsets, greater reduction in emissions, and should be chosen by a registry. We analyze these economic and environmental implications. We find that project-specific baselines may lead to fewer non-additional offsets but lower reduction in emissions, cautioning environmental groups against simply advocating for the method that leads to fewer non-additional offsets. We also find that a registry may prefer project-specific baselines even when they result in more non-additional offsets. Finally, we find that a registry's preference between the two methods is typically consistent with a corporate buyer's.

Keywords: Sustainable Operations, Carbon Offsets, Climate Change

Suggested Citation

Agrawal, Vishal and Chakraborty, Soudipta and Yücel, Şafak, Additionality of Carbon Offsets: Project-specific vs. Standardized Baselines (November 27, 2023). Available at SSRN: https://ssrn.com/abstract=4645822 or http://dx.doi.org/10.2139/ssrn.4645822

Vishal Agrawal

Georgetown University - McDonough School of Business ( email )

3700 O Street NW
Washington, DC 20057
United States

Soudipta Chakraborty

University of Kansas, School of Business ( email )

1654 Naismith Drive
Lawrence, KS 66045-0001
United States

HOME PAGE: http://soudipta.com/

Şafak Yücel (Contact Author)

Georgetown University - McDonough School of Business ( email )

3700 O Street, N.W.
Washington, DC 20057
United States

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