Leakage or Benefit? Spillovers from a Forest Offset Program in China

Talk on the 29th Annual Conference of the European Association of Environmental and Resource Economists

Forest-based carbon offset programs have gained increasing attention, as has the evaluation of their impacts. However, the impacts beyond program borders have been less considered, particularly in subtropical and temperate regions. This study focuses on the local spillover effects of 36 forest offset projects in China’s voluntary carbon market. Using a unique dataset from 1998 to 2019, we compared the forest status of the buffer zones of project areas to those of reference areas. Employing a matching approach and a difference-in-difference model, we find that overall project sites show a positive forest gain spillover to neighboring areas of 0.44%, with individual projects demonstrating spillovers in multiple directions. Further analysis finds limited evidence of leakage, possibly due to China’s land policies and project features; instead, the positive spillovers are primarily facilitated through the learning channel of knowledge diffusion and information flow, supported by the reduction of wildfire activities and the patterns of project applications. This study provides insights into forest offset projects and their spillover effects, addressing the effectiveness of offset policies in China.