Presentation by Ben Groom, University-of Exeter. OECD-INSPIRE workshop: Assessing biodiversity-related risks, impacts and dependencies in the financial sector.

1. Pr. Ben Groom
Dragon Capital Chair of Biodiversity Economics
LEEP Institute
University of Exeter Business School
@ben_d_groom
Some Economics of
Carbon Offsets and
Biodiversity Credits

2. The Market for
Lemons

3. Asymmetric information in the 2nd-
hand car market
Quality = Price
Proportion in
the market
Lowest:
‘Lemons’
Highest:
‘Peaches’
% of each
quality in
market
Ave.
quality
(1) =
Price 1
Ave.
quality
(2) =
Price 2
Ave.
quality
(3) =
Price 3
Only ‘lemons’ remain High quality cars purged
Buyers have no
information so take
the average to find the
price they are willing to
pay
Akerlof, George A. (1970). "The Market
for Lemons: Quality Uncertainty and the
Market Mechanism". Quarterly Journal of
Economics. 84 (3): 488–500.
doi:10.2307/1879431

4. The Market
for Carbon
Offsets and
Credits

5. Nature-Based Carbon
Offsets
• “Impermanent”, “risky”, “non-additional” etc….
• “Greenwash”, Science Based Targets: No
offsets!
But:
• “Perfect should not be the enemy of the good”,
TSVCM
• Flows of finance, and co-benefits of biodiversity

6. What is the
Social Value of
Carbon Offsets?

7. The Social Value of Offsets (SVO)
(Joos et al, 2013; Geoffroy et al 2013, CMIP5 ensemble)
Project
Characteristics
Macro
Characteristics
Groom and Venmans
(2023). Forthcoming,
Nature

8. So what? Equivalence
Correction
Factor
Groom and Venmans
(2023) Forthcoming,
Nature

9. • 2nd hand cars: warranties, liabilities. For offsets?
• Counterfactual methods to evaluate additionality
(quality)
• Contract design:
• Short contracts for offsets, not perpetual ones
• E.g.: 3 x 50 year offsets equivalent to permanent
emission
• Additionality assessed at the end of the contract
Implications for the VCM

10. Biodiversity,
Carbon and
Nature Based
Solutions

11. •Measurement
•Pricing (not valuation)
•Fungibility
Pricing biodiversity
in bio- and carbon-credits
Balmford et al (2023)
NERC/UKRI Synthesis
BIOADD Project (NERC/UKRI)

12. Professor Ben Groom
Dragon Capital Chair in Biodiversity Economics
b.d.groom@Exeter.ac.uk @ben_d_groom