Behavioral Sources of the Demand for Carbon Offsets: An Experimental Study

Abstract

Voluntary carbon offset schemes have sprung up in the last decade offering individuals opportunities to neutralize their own carbon footprint. These schemes strongly appeal to the personal responsibility of individuals in reducing the carbon emissions they cause. In this paper we report on a controlled laboratory experiment to better understand the behavioral motivations driving the purchase of carbon offsets, i.e., payments towards the reduction of damages to the environment. We show that the opportunity to offset damages does not affect the total damages created by the individuals when individuals trade in competitive markets. At the same time, we find a stable demand for carbon offsets when the price is sufficiently low. Therefore, introduction of carbon offsets increases efficiency by eliminating some of the damages ex-post. Behavior, however, is very heterogeneous. Individuals with a high (low) personal-responsibility index increase their offset purchases as their own damage (total damages) increases, but do not condition their offsetting behavior on the total damages (own damages) created.