The Market for Voluntary Carbon Offsets

The paper presented in this Decarbonization Seminar/Joint Seminar ZEW and MISES studies pricing in the voluntary carbon market (VCM) using a novel proprietary dataset of sales of emission reduction certificates (credits) by a leading VCM dealer. The authors document extraordinary price dispersion, with carbon credits trading between a few cents and $100 per ton of CO2. Prices are systematically related to the credit project, buyer, and trade characteristics, rather than to a common value of carbon emissions. Credits from the least reliable emission reduction technologies, but with positive non-carbon externalities, are twice as expensive as trusted industrial solutions. Buyers in low-emission industries, wealthier countries, and large firms pay a premium for carbon credits, while heavy polluters and firms with explicit sustainability commitments do not. VCM pricing also features volume and client relationship discounts typical for over-the-counter markets. Finally, the authors document a causal link between the introduction of the VCM futures market and price premia for credits eligible for expiring futures settlement.