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HomePaperCarbon Offsets: Decarbonization or Transition-Washing?

Carbon Offsets: Decarbonization or Transition-Washing?

1 February 2024
Authors: Sehoon Kim (University of Florida), Tao Li (University of Florida) and Yanbin Wu (University of Florida)
Presenter: Sehoon Kim (University of Florida)
Abstract:

Using rich hand-collected data, we examine how corporations use carbon offset credits issued by third-party developers to claim emission reductions. Larger firms with higher institutional ownership and net-zero commitments tend to use offsets. However, offsets are used intensively in low-emission industries. After an exogenous ESG rating downgrade, triggered by a leading ESG rating agency’s methodology change, low emission firms retire larger quantities of cheap, low-quality offsets while heavy emitters decarbonize more in-house. Our findings are consistent with a separating equilibrium where firms choose whether to outsource their transition efforts, but also with firms using offsets strategically for certification and ranking benefits.

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