Carbon Offsets and Regulation: A Literature Review

Abstract

Carbon offset markets have become increasingly popular avenues for stakeholders, ranging from industries to governments, to invest in emissions reduction projects in developing nations rather than focusing solely on mitigating their own emissions. Originating from the Clean Development Mechanism (CDM) under the Kyoto Protocol, these markets aimed to supplement efforts to meet emission reduction targets. However, the emergence of voluntary carbon mechanisms (VCMs) alongside regulatory CDMs has sparked concerns regarding trust and legitimacy within the carbon offsetting landscape. Issues such as double accounting, economic prioritization over environmental impact, and lack of consistent regulation have raised doubts about the efficacy and fairness of carbon offset markets. This paper examines the causes and consequences of these challenges and proposes potential solutions to address them. It argues for the adoption of standardized regulations, certification processes, and governance structures across both CDM and VCM markets, emphasizing the need for transparency and accountability. Additionally, it explores alternative approaches such as implementing carbon taxes and prioritizing projects focused on conservation and newer technologies. By establishing clear guidelines and fostering collaboration between regulatory and voluntary markets, stakeholders can work towards restoring public trust and ensuring the effectiveness of carbon offset initiatives in combating climate change.