Carbon offsets can, in theory, reduce emissions efficiently, but in practice problems like non-additional projects, self-selection, and weak regulation mean they may fail to cut – and can even increase – global emissions unless embedded within properly capped compliance markets.

Carbon offset programmes aim to lower emissions by allowing high-income countries to meet part of their reduction targets by financing projects in low- and middle-income countries. Evidence from China—one of the world’s largest suppliers of these pro...