While the supply-side of carbon markets is relatively well documented, understanding of demand is more elusive. This report aims to shed light on the demand for carbon offsets in the United States, both among companies purchasing offsets voluntarily and California entities purchasing offsets as part of their compliance obligations under the new greenhouse gas regulation in the state. Our research focuses on three key areas of inquiry:
(1) Motivations: Why are firms choosing to purchase carbon offsets?
(2) Processes: How are firms navigating the carbon markets? What decision-making processes are firms using when purchasing offsets? What barriers and challenges are firms facing?
(3) Preferences: What preferences do buyers exhibit when purchasing offsets? What factors do firms consider when investing in an offset project or portfolio of projects?
To answer these questions, we surveyed compliance companies in California, did case studies of five major companies purchasing offsets on the voluntary market, and interviewed dozens of buyers and other market participants.
On the voluntary side, we found that companies were motivated largely by corporate social responsibility and public relations. Although each company had different goals for their offsetting program, they all reaped benefits in terms of both environmental sustainability and improved branding. The case studies of Ford, Macmillan, Interface, General Motors, and British Petroleum illustrate several different approaches toward offsetting. In terms of process, we found that most voluntary buyers purchase offsets as part of larger sustainability efforts and spend considerable time and effort quantifying their emissions and defining program goals. They then work with NGOs, consultants, and other advisors to build their offset strategies accordingly. Lastly, in terms of preferences, we found that companies in the voluntary market prefer offsets that are highly visible, have an immediate impact, and pose a low public relations risk. They tend to buy a diverse portfolio of offsets, some of which are “charismatic” and others that are cheaper and/or available in bulk.
In the California compliance market, companies are motivated entirely by the AB32 regulation, which requires them to meet an emissions cap. To do so, they have the option to reduce their emissions, purchase allowances, purchase offsets, or do a combination of the three to comply with the law. Since offsets are cheaper than allowances, many compliant entities plan to purchase offsets as a way to reduce costs; however, there may be hidden transaction costs in figuring out how to navigate the offset marketplace. We found that overall, compliance entities are very price-sensitive, with recommendations from partners being a secondary consideration. The projected supply of offsets and differentiated risk across project types may also influence demand for offsets on the California market.Master of ScienceNatural Resources and EnvironmentUniversity of Michiganhttp://deepblue.lib.umich.edu/bitstream/2027.42/97426/1/Carbon Offset Demand in the US_Final_April 2013.pd
