Management Science Research Centre (MSRC) Seminar: Vishal Agrawal
Vishal Agrawal
McDonough School of Business
Georgetown University
Delivery Terms for Voluntary Carbon Offsets
Date: Friday, March 14, 2025
Time: 10:00 - 11:00 am
Location: Armstrong Building, Room 375
Abstract
In addition to abating their emissions, corporations purchase carbon offsets for voluntary decarbonization targets, such as reaching net-zero emissions. A carbon offset represents emissions reduction achieved by a developer through investments in projects, such as forestry and renewable energy. Corporations purchase offsets under two delivery terms. The first is forward delivery, where the buyer orders a certain quantity before the seller undertakes the investment and yield uncertainty realizes. The second is prompt delivery, where the seller invests and uncertainty realizes, before the buyer orders offsets. Motivated by the importance of choosing the right delivery term for buyers and sellers, in this paper, we investigate economic and environmental implications of these delivery terms. Our results offer several managerial insights: First, a seller should prefer forward delivery if investment cost is low, but prompt delivery otherwise. Although one would expect that the delivery term that enables the seller to make a higher investment results in a higher profit, we find that prompt delivery may lead to a higher profit despite lower investment. Second, a buyer should prefer forward delivery only for a project with either a low or high investment cost. Interestingly, the delivery term that leads to a lower cost for the buyer may actually require higher abatement. Finally, environmental groups should promote forward delivery only for a project with a low investment cost. Moreover, when the buyer and seller prefer different delivery terms, the one preferred by the seller leads to greater emissions reduction, and should be promoted by environmental groups. (Joint work with Safak Yucel and Gokce Esenduran).
