Faculty Sponsor: Shyam Gouri Suresh
This paper explores how the existence of a voluntary carbon market ¬¬– one of several carbon pricing mechanisms – influences a country’s carbon emissions. The paper conducts a panel study using data from 2015 and 2016 across 263 countries to estimate this effect controlling for several economic, environmental, and demographic factors. The key hypotheses tested are whether a dummy variable representing a voluntary carbon market reduces per capita emissions, and how the volume and price of carbon credits traded and the energy intensity of a country jointly affect carbon emissions. The chosen models expressed in this paper use a log normal function form for the dependent variable and varying linear and log forms for the independent variables. I express GDP as a quadratic functional form to capture the theoretically backed Kuznets Curve expectation. The results are mixed, showing strong statistical significance for GDP variables and renewable energy variables, but no statistical significance for the voluntary carbon market dummy variable. This is juxtaposed against the evident economic significance that exists and could be due to a number of factors, including sample selection bias. The volume and price of carbon credits traded do pose statistically significant estimates, which shows that the estimates for those countries that do have carbon markets are of quality. There are several limitations of this paper that are discussed as well.