We thank the editor Daniel Petrolia and an anonymous referee for helpful suggestions as well as participants of the 2020 AAEA meeting in the invited paper session titled BERCKnomics (Bonding over Environment, Resources, Coffee and Kindness). We thank CalRecycle for financial support via the California Department of Resources Recycling and Recovery (CalRecycle), Award No. DRR15053. This paper was finished after the passing of Peter Berck, the lead author of this paper. We thank the editor Daniel Petrolia and an anonymous referee for helpful suggestions as well as participants of the 2020 AAEA meeting in the invited paper session titled BERCKnomics (Bonding over Environment, Resources, Coffee and Kindness). We thank CalRecycle for financial support via the California Department of Resources Recycling and Recovery (CalRecycle), Award No. DRR15053. This paper was finished after the passing of Peter Berck, the lead author of this paper.
The efficient use of market-based policy instruments is an area of increasing importance as scholars and policymakers work to balance effective climate policy with economic growth. Carbon allowances and carbon offsets, despite being statutorily substitutable, behave in practice like imperfect substitutes. This paper provides a synthesis of extant work, market data and the regulatory frameworks of the world’s major carbon markets, and provides a comprehensive assessment of the drivers of demand for carbon offsets. It also provides a detailed assessment of the process through which international carbon offsets are produced, the UN’s Clean Development Mechanism. Demand for carbon offsets is heavily influenced by key programme design parameters that are specific to carbon market design and its implementation. These design parameters heavily influence the degree to which transaction costs, regulatory uncertainty and risk factor into the decisions of firms operating within the carbon trading programme. This paper also identifies key extra-statutory drivers that are outside of the policymaker’s control, which should be considered in both the policy design and the implementation process. This paper provides an instructive set of guiding criteria for policymakers and scholars for the design of future market-based environmental policy.
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