Voluntary offsetting does not compete with reduction measures, study finds

The debate on whether offsetting distracts attention from measures to reduce emissions at the source is as old as the market itself. A recent study from the universities of Hamburg and Kassel, written by Andreas Lange, Claudia Schwirplies and Andreas Ziegler provides for the first time theoretical and empirical insights about this issue. Using data from over 2000 citizens from the US and Germany, researchers found that offsetting is complementary to other climate-friendly activities in both countries.

They explain that in order to limit the negative consequences of anthropogenic climate change, voluntary carbon offsetting is supposed to be a promising measure for directly reducing carbon emissions, which are produced by the energy consumption associated with individual everyday actions, such as driving, flying, and heating buildings. Offsetting gives individuals, organizations, and corporations the opportunity to financially compensate their emissions by investing in climate protection projects. While 23.7 million tons of CO2e were traded at a value of $ 91 million in 2006 (e.g. Hamilton et al., 2007), by 2012 the voluntary carbon market was around 101 million tons of CO2e and $ 523 million, respectively (e.g. Peters-Stanley and Yin, 2013). This strong growth is not surprising since the voluntary carbon market provides several benefits like potentially lower costs of emission reduction as well as the opportunity to enhance reputation or emotional well-being and to carry out projects that could not be supported under compliance schemes which require verified and quantified emissions reductions.

This paper contributes to the theoretical literature on offsetting and carries out empirical evidence by conducting cross-country analyzes of the interrelation between voluntary offsetting and other climate-friendly activities. Firstly, they set up a theoretical model of individual consumption, which considers individuals’ demand for private consumption and a public good. In this respect, they explicitly study the impact of the option of offsetting on the consumption of the impure public good and show that this impact is potentially ambiguous. Assuming a specific form of the utility function, they show that offsetting may even increase the consumption of the impure public good in particular for a sufficiently large weight on environmental preference combined with consumption of the impure public good being relative ineffective providing this public good.

Based on this theoretical modeling, they econometrically analyze the determinants of different activities to reduce greenhouse gas emissions. This paper examines impact of the individual purchase of carbon offsets in the past on the stated willingness to engage in climate-friendly activities.

You can read the study here http://www.webmeets.com/files/papers/wcere/2014/1472/paper_substitution_feb2014.pdf