# Corpsia--A Feasible Second Best Solution?
## 3 CORSIA's Carbon Offset Market
### Price as a Signal For Climate Integrity  
Section 2.3 has shown the difficulties that arise when selecting offsets. Furthermore, Section 3.1 indicates the heterogeneous compositions of offset portfolios by program standard. In the following, we analyze how well prices can be used as a signal to identify offsets with high climate integrity. Offset prices can reflect differences in offsets' integrity [53] and influence their trade volume [54]. Carbon offset prices vary substantially by certification program standard and project type. According to Figure 5, there was sizable variation in the amount and price of traded offsets eligible under CORSIA in 2019. Figure 5 shows a negative relation between the program standards trade volume and the average traded prices of the program standards' offset portfolios. VERRA accounted for almost two thirds of traded carbon offsets in 2019 and offered the lowest prices of relevant program standards by far, stemming from renewable energy (see Figure 5, which is the cheapest offset type (see Figure 5). Figure 5 shows that the relationship between price and trade volume is not as strict as Figure 5 suggests, because forestry and land use was the second most traded type in 2019 and the most expensive offset type on average. This is in line with other findings showing that carbon offset markets are not only determined by prices. Bu  
Figure 4: Distribution of carbon offset supply by project size. Notes: Panel (**a**) shows the distribution of the normalizes project size measured in ktCO\({}_{2}\) for CDM, Gold Standard and VERRA. Panel (**b**) shows the share of different project sizes for the total total supply for for CDM, Gold Standard and VERRA. Source: Own calculation. Figure 5: Variation in market share and price of offset verification programs and project types in 2019. Notes: Panel (**a**) shows 2019 traded offset volume in mtCO\({}_{2}\)e and price (in USD) per offset program, while Panel (**b**) shows the same for offset types. RE: Renewable Energy; HH: Household energy efficiency, Forestry: Forestry and land use; Waste: Waste handling; Industrial: Industrial processes; CDM: Clean Development Mechanism; GS: Gold Standard; ACR: American Carbon Registry; CAR: Climate Action Reserve; GHG: China Greenhouse Gas Voluntary Emission Reduction Program. Source: Marketplace 2020, own illustration. credits which match their firm's characteristics, and 'co-benefits', project type, and location seem to become increasingly important [9; 55]. If buyers are not only interested in profit maximization, it would be interesting to know whether higher prices indicate higher offset integrity for them. On the contrary, if buyers are profit maximizers and favor the cheapest offsets, it would be important to know whether this would support offsets with minor climate impact. In the following, we analyze whether offset prices can be used as a signal for climate integrity using the CDM registry data. This dataset is publicly available and includes detailed information such as the internal rate of return (IRR), IRR benchmarks, project types, amount of generated offsets, and prices of 3496 registered offset project under the CDM. Unfortunately, VERRA and GS do not provide registry data with such a high level of detail; therefore, we focus on the CDM-registry data. We regress prices of offset projects using the difference between their internal rate of return, \(IRR_{i}\), and its benchmark, \(IRR_{benchmark}\). The internal rate of return of an investment is used to estimate the profitability of potential investments. It is the discount rate that makes the net present value of an investment zero. The net present value is the current value of an investment based on discounted future cash flows. Generally speaking, the higher an internal rate of return, the more desirable an investment is to undertake, as it allows very high discount rates. IRR benchmarks are available for each project type, typically based on local capital costs.