The Economics of Carbon Offsets
Although international programs for carbon offsets play an important role in current and prospective climate-change policy, they continue to be very controversial. Asymmetric information creates several incentive problems, include adverse selection and moral hazard, in offset markets. The current regulatory focus on additionality tends to paint all these problems with a broad brush without proper consideration of the context or their implications.
I am grateful for helpful discussion and comments from Severin Borenstein, Tristan Brown, Kala Krishna, Erin Mansur, and Stephen Holland. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.
The Economics of Carbon Offsets, James B. Bushnell. in The Design and Implementation of U.S. Climate Policy, Fullerton and Wolfram. 2012