Empirical analysis of the Voluntary Carbon Market: Impact of project characteristics on carbon credit projects

Abstract

In this thesis, I explore the dynamics and effectiveness of carbon offset projects within the Voluntary Carbon Market (VCM), examining how regional, technological, and economic factors influence the performance of these initiatives globally. The need for climate action is growing, thus understanding the nuances of carbon offset becomes important. This study delves into whether the effectiveness of carbon offset projects varies significantly across different regions, project scales, and the presence of carbon pricing mechanisms, translating these broad queries into a focused investigation. Through the formulation and testing of specific hypotheses, I analyse a dataset comprising information on over 7,466 carbon offset projects sourced from the Berkeley Voluntary Registry Offset Database.

The thesis goal is to estimate the quantitative impact of factors on the retirement rate of carbon credits, the effectiveness of projects. Firstly, I examine the effectiveness of carbon offset projects across various factors such as scales of projects, the location, and the used technology scope using comparative analysis. I then use econometric methods and measure its efficacy using regression methods like Beta, Tobit, and OLS regression models. The study results imply that small-scale and developed projects typically show greater effectiveness. Although the results are consistent across several model specifications, they highlight how complexly economic, technological, and environmental policy interact to determine how successful carbon offset projects are.

The results should not be interpreted as definitive evidence of causal relationships due to potential issues such as endogeneity and omitted variable. Instead, the findings offer a framework for understanding how various factors influence the effectiveness of carbon offset projects in the VCM. This thesis contributes to the broader field of environmental economics and policymaking for the VCM, especially as empirical investigations into the nuanced dynamics of carbon markets continue to evolve.