Region Focus (a magazine put out by the Fed in Richmond) has an article on carbon offsets by Vanessa Sumo. It discusses economists’ analyses of carbon offset markets and their effect.
If people voluntarily purchase carbon offsets, that must mean the offsets are “cheaper” than the guilt they feel over their carbon footprint, notes University of Melbourne economist Joshua Gans. The lower the price of the offset, the more easily they assuage their guilt. If a consumer’s electricity use is no longer constrained by guilt, then he might end up consuming more electricity.
Moreover, if the money that comes from offsetting “dirty” electricity goes to investing in wind or solar energy, then increased competition from “green” electricity may also provoke incumbent power companies to drop their prices and produce more “dirty energy.” The lower prices that result could increase overall electricity consumption by all households. Hence, trying to do something good for the environment might inadvertently encourage the sort of behavior that is anathema to someone worried about carbon emissions in the first place.
In a recent paper, however, Gans finds that it’s unlikely that carbon offset programs would do more harm than good. He argues that the ability of green power to pressure utilities into lowering prices depends on the volume of offsets for building that green power capacity. The price effect would be small if only a few people subsidize a wind farm. But if a large number of people purchase offsets, then a huge amount of green power would be available. This is more likely to displace dirty electricity than to provoke more of it.
Net emissions of carbon dioxide will likely fall as a result of carbon offsets, but Gans suggests that the reduction is probably not as large as offset purchasers think. “They’re not wiping them out entirely,” Gans says.
It mentions other research too but you’ll need to read the article for that.
Also, of interest is this New Yorker article by Michael Specter that discusses the attempts by corporations to measure and deal with their carbon footprint. Bottom line: it is really hard to do.