How Does Carbon Offsetting Affect Firms' Emitting Behaviour? Global Evidence

ABSTRACT In light of the growing emphasis on corporate carbon reduction efforts, this study investigates the effectiveness of carbon offsetting in curbing corporate pollution levels using a global sample of firms. The analysis indicates that carbon offsetting is positively associated with corporate carbon emissions. I document that carbon offsetting could hinder corporate efforts to reduce carbon emissions. Furthermore, the continental location of firms is also an important consideration when evaluating the dynamics of this relationship. For firms in Asia, the positive impact of carbon offsets on carbon emissions is even greater. However, being in North America mitigates the relationship between carbon offsets and firm greenhouse gas emissions. Lastly, in evaluating whether country‐level institutional quality can be harnessed to enhance the potential deliverables of carbon offsetting schemes, I find limited evidence that countries can leverage regulatory quality to improve their outcomes. Perception of corruption, the rule of law and government effectiveness do not appear to matter. The results are robust to alternative econometric specifications.