Abstract
This paper examines whether companies’ use of carbon credits is associated with a lack of real action to address climate change. Using U.S. firms' responses to the Carbon Disclosure Project (CDP) survey, I find a growing trend in voluntary carbon credit purchases, with the proportion among respondents rising from 13.1% in 2014 to 22.7% in 2021. Companies with climate-related incentives and net-zero targets are more likely to buy credits. Lower polluters and those with less controllable Scope 3 emissions are more inclined to purchase them. Contrary to general concerns, credit purchasers demonstrate greater internal efforts than non-purchasers, with no evidence of reduced efforts within firms following credit purchases. These firms also show lower future emissions and more transparent climate disclosures. Overall, my findings suggest that companies use carbon credits in addition to, rather than instead of, their direct emissions reduction efforts. Consistent with this, holding net emissions constant, climate-conscious investors do not invest less in companies using carbon credits.