Measuring Carbon Offsets

The markets for voluntary carbon offsets are gaining significant importance worldwide. An increasing number of companies purchase certificates that promise to remove carbon dioxide from the atmosphere through reforestation, conservation, or new technologies. By 2050, this market could reach a volume of around 250 billion US dollars. Yet despite this growth, current practices are subject to criticism: many carbon certificates are based on subjective estimates by the providers, and these claims are difficult to verify reliably. As a consequence, there are substantial doubts as to whether the reported climate effects are reliable. Against this backdrop, researchers, policymakers, and the broader public are increasingly concerned with how carbon offsets can be measured more accurately and transparently. Although various measurement methods have been proposed in the academic literature, little is known about how such methods influence provider behavior: Does more precise measurement truly improve the quality of reported information? How does the measurement of offsets affect providers incentives to invest in climate protection projects? The aim of this research project is to examine how the initial and repeated measurement of carbon offsets affects information quality and investment decisions in offset projects. To this end, we develop a theoretical model that incorporates both measurement subjectivity and providers discretion in measuring carbon offsets. The project contributes to a central question in sustainability reporting: how voluntary carbon offsets can be made more credible and effectivefor the benefit of businesses, the research community, regulators, and society at large.