Paper - Harvard Kennedy School

The Evolving Role of Greenhouse Gas Emission Offsets in Combating Climate Change

| August 2022


As governments, firms, and universities advance ambitious greenhouse gas emission goals, the demand for emission offsets — projects that reduce or remove emissions relative to a counterfactual scenario — will increase. Reservations about an offset’s additionality, permanence, double-counting, and leakage pose environmental, economic, and political challenges. We review the role of offsets in regulatory compliance, as an incentive for early action, and in implementing voluntary emission goals. The rules and institutions governing offsets drive large variations in prices and in the types of projects deployed to reduce or remove emissions across offset programs. A lack of carbon price convergence and potential information asymmetries may contribute to limited price discovery and market segmentation. Taking into account the financial properties of offsets, an array of financial and technological innovations could enhance offsets’ environmental integrity and promote liquid offset markets. Unresolved questions about the future of policy will influence the evolution of voluntary offsets markets.

For more information on this publication: Please contact Harvard Project on Climate Agreements
For Academic Citation:

Aldy, Joseph E. and Zachery Halem. “The Evolving Role of Greenhouse Gas Emission Offsets in Combating Climate Change.” HKS Working Paper No. 011, Harvard Kennedy School, August 2022.

The Authors