Terrapass

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Now, here's something interesting. Terrapass lets you invest in greenhouse gas reduction by taking your money and subsidizing energy projects that reduce greenhouse emissions. They claim that for about $50 you can offset the carbon emissions of your average car.

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16 Comments

Interesting, but not new. The Catholic church sold indulgences from the 11th through the 16th centuries.

Less ascerbically: a number of (non-profit) environmental groups have been taking donations for the sole purpose of buying emissions credits to take them off the market for years now (which is what Terrapass will be doing for the short- to medium-term). Alternately, there's always been a do-it-yourseld approach: buy credits from some random broker (Natsource will sell arbitrarily small lots), optionally hold on to them and wait for them to appreciate, and then donate them to some random nonprofit environmental organization. You can take the cost of the credits -- plus any value increase -- as a tax deduction.

I guess the gimmick of handing out stickers that basically say, "I'm A Nicer Person Than You!" might help attract a certain market niche, but I'm a bit disturbed by a product that is marketed as doing nothing other than assuaging guilt. It only encourages an atmosphere of overconsumption, which doesn't really help anyone in the long run.

How do you define overconsumption?

By what metric do you compare how much I enjoy my consumption now to whatever my grandkids may not be able consume because of greenhouse emissions?

I was sloppy with my phrasing; overconsumption is clearly a subjective term.

The point that I was trying to make with my statement about overconsumption is that this marketing is speaking to the subset of the population who would otherwise take fuel efficiency into account when purchasing a vehicle. It is intended to effectively convince these people that, for $50 a year, they can completely ignore the efficiency of the vehicle they choose.

Once such a factor is removed from the buying decision, what little market pressure there is on automakers to produce more efficient vehicles is significantly diminished, if not eliminated. The target audience may well offset their own emissions, but the mechanism by which they do so has the net effect of increasing the emissions of everyone around them.

To Kevin's point: I didn't bring up grandchildren or greenhouse emissions; I consider neither key motivators. My primary concern with automobile efficiency is the immediate effects of particulate emissions; that is, what your car puts out, I have to breathe. Admittedly, we then need to discuss how we compare the value of the pleasure you get from driving a less efficient vehicle compares to the value I place on an increased quality and quantity of my own life. I have a hard time coming up with a consistent value system other than egoistic hedonism in which the comparison doesn't clearly tilt in my favor.

If it's cheaper to control greenhouse gases through remediation than fuel efficiency, why should there be any pressure on automakers at all?

Let's say that I want to drive X miles per year. I can purchase car A or B where miles per gallon MPG(A)>MPG(B), but also price P(A)>P(B). For sake of argument, let's say that the greenhouse emissions of A are zero and that the greenhouse emissions of B can be completely offset by $50/year.

So for any cost per gallon of gas G, the cost C(A)=P(A)+ G * X/MPG(A) and C(B)=P(B) + G * X/MPG(B) + 50. The cost of buying and using car A (the efficient one) will be greater than the cost of buying and using car B whenever:

0

Assume a typical scenario of the price of gas being $2/gal, driving 10K miles per year, MPG(A) being 40, and MPG(B) being 20. Then it's more cost effective to buy the fuel efficient car only if the price premium over the fuel inefficient care is less than $550 * the number of years you plan to drive it.

This ignores discounting and externalities of non-greenhouse emissions. But that just makes the arithmetic more complicated. The fundamental fact is that this problem is not about increasing gas mileage because it's right, but rather whether we can improve mileage cheaply enough to meet this cost constraint so that it's economically efficient for people to choose fuel efficiency.

Looks like one of my equations got cut off. A costs more than B whenever 0

P(A)- P(B) - 50 - G*X*(1/MPG(A)-1/MPG(B)) is gt 0

For the class of vehicles putting out the most gunk right now -- trucks and SUVs -- there is precedent to beleive that improving mileage can be done cheaply. Consider the mileage regulations applied to sedans in the US (CAFE); they went into effect in 1978, and continue through today. The increase in the cost of vehicles as a result was negligible. I'm not necessarily saying that government intervention is the proper way to do this; simply that it can be done for costs that are substantially less than $550/year, and probably less than $100 over the lifetime of the vehicle.

Also, you seem to have missed what I thought was a fairly clearly phrased key point: I'm not necessarily concerned about greenhouse gasses -- which, assuming they're a major problem, have a global impact. For greenhouse gasses, arguments that a pound of NOx in Tokyo can be offset by not producing it in New York may be valid. I'm concerned about particulate emissions, which are inherently local in their effect. I don't give a damn if some factory in Chicago puts less soot out so that you can produce it here where I live. Particulate remediation would need to be local.

To help you not miss the point a second time, I'll make an illustrative, albeit admittedly imperfect analogy: somehow guaranteeing that less sewage will be produced worldwide doesn't give me any satisfaction if the result is you pumping your raw sewage into my living room.

Adam, I'll let Kevin argue with you on the economic points, but I'd note that the cost cited here is $50/year, not $550/year.

$550 is Kevin's number. It takes into account the cost of extra fuel.

I see. I was definitely confused about your point. Your twisted reasoning never occurred me. You think we should attempt to figure out the tradeoffs between the utility of reducing greenhouse emissions with Terrapass versus the disutility indirectly caused by a lower chance of automobile emissions controls reducing particulate emissions.

That's not a policy evaluation I think is at all tractable. If you're worried about particulate emissions, why don't you just tax them? Then maybe some bright guy will have an idea for eliminating them for $50.

Hi Adam and others:

I am one of the student members of Terrapass. Thanks for your comments -- all good points.

Adam: your idea of buying from Natsource does work, but only if you hold onto the credits. Donating them would defeat the point as when the non-profit sells them (for a gain) we would be back to the same level of pollution.

I hear your points on consumer choice and vehicle choice (do we eliminate the incentive for clean cars). I guess we looked at it a little differently. First, we wanted a way for an individual to be able to make an impact without changing their car. Second, we wanted to make an impact in a very efficient way. Reducing industrial GHG is much more efficient than swapping out cars (roughly 100 times more efficient). Finally one other good thing is that we are seeing way more demand for our economy and standard passes than our SUV passes.

That being said, I agree govt should enforce fleet mileage and other limits to attack the problem. We're just one peice of the puzzle.

Thanks for your interest

Tom

Tom: There are several environmental nonprofits who accept donations of clean air credits for the purposes of mothballing them indefinitely.

Kevin: my argument is that removing the incentive (to consumers) to buy cleaner cars results in the removal of the incentive (to car makers) to produce cleaner cars.
I don't think you disagree on this point.

To clarify that I was not interested in making cleaner cars for their own sake as an absolute good, I outlined two different predicted results.

One result is that, due to what is probably low adoption of Terrapass in the general population, this decreased demand for cleaner cars will result in higher overall emissions, including greenhouse emissions and others. Terrapass will remove the incentive for some (substantial?) subset of the people whose decisions currently result in what little pressure there is to make cleaner cars to actually buy such cars. This means that some substantial portion of the population who would have incidentally -- although not intentionally -- bought cleaner cars now fail to do so. You don't seem to be addressing this point, as your arguments talk exclusively about the class of individuals interested in buying the Terrapass, not the much larger group who will then fail to accidentally buy cleaner cars by riding their coat-tails.

A second result (largely unrelated to the first, but with a common root cause) is that by encouraging increased overall emissions, while offsetting only greenhouse emissions, the net effect is to increase non-greenhouse emissions. I'm not sure what's difficult about this second line of reasoning, which you don't even attempt to rebut, but merely deride as "twisted." Certainly there are non-quantifiable quality-of-life issues invovled (in addition to quantifiable medical costs) which make an economic analysis complicated (or intractible, depending on how you choose to incorporate ethical issues into your model), but that hardly seems reason to throw our hands up in the air and walk away from examining the problem altogether.

Finally, your counter-arguments (such as they are; they don't appear to directly rebut either of the consequences I was outlining) assume a populace in which an overwhelming majority of car buyers sit down and perform a detailed 10-year cost analysis before making buying decisions, and then decide on a vehicle based predominantly on those numbers. Multiple surveys have shown that an overwhelming majority of U.S. car buyers claim that they won't even consider the cost of fuel in their selection of car model until the price of gas exceeds $3 to $4/gallon; market trends support these surveys. While the arguments I have laid out may strike you as twisted, I fear that yours are naive about actual consumer behavior.

I am now really confused. If you think adoption for Terapass will be low, how does this affect the pressure on auto makers? Because they have an excuse? They seem to be doing quite a good job of finding excuses and affecting policy now. I think it's hard to believe low adoption of Terrapass would affect them in any significant way.

So the only case in which I think your arguments merit any analysis is if adoption is high. Now we know this is good because it reduces greenhouse gases. You say it may also be bad because it increases overall emissions.

First, I would say that you should provide some real evidence for this before we spend any effort analyzing it. But let's assume you can do that. Then our choices are either (a) to do a complicated interpersonal utility analysis on the greenhouse decrease versus overall increase so we can decide whether to allow Terrapass or (b) provide a direct incentive to achieve the actual goal(a tax on emissions). I'm not saying we should throw up our hands because the analysis is too hard. I'm saying that doing the analysis is moot. We know that option (b) will actually yield better results because we would get both the greenhouse emissions decrease and a decrease in other emissions. Seems like a really obvious choice to me.

The "twistedness" of your argument against Terapass is so transparent to me that I think you don't really care about emissions. You want cars to be more efficient because you think it's "right". Your original "overconsumption" remark gives you away. When someone like Terapass comes up with a partial solution to emissions, you say we shouldn't have it because of all these secondary effects. Efficiency requirements would be better. But you ignore the simple solution of an emissions tax. Probably because then people could still choose to have big SUVs. My guess is that for any non-fuel-efficiency solution, you will produce a similarly twisted reasoning for why it's insufficient. You're not really interested in economic efficiency, you just want people to suffer for moral reasons.

Kevin, you've confused me with an ecological activist. My arguments come largely from selfish reasons (I have to breathe this stuff; please don't make it worse), not some sick desire to make you do things you don't want to do. To make this conversation symmetrical, I could start attacking imagined sentiments that you're not actually expressing instead of discussing your logic, but I don't see the point of such an exercise.

Even if you were correct about my underlying sentiments, motivation doesn't undermine the validity of arguments. So far, you haven't attempted to show that the problems I point out aren't actually problems (aside from a handwaving, "but it's transparently obvious to me! I shouldn't have to explain it!"); you've just offered solutions that mitigate the problems I'm citing.

I will attempt to clarify one thing that you missed in your skimming of my previous text, since it is the crux of one of my arguments: it is predictable that the purchasers of a Terrapass will be only that (small but not insignificant) subset who currently take mileage into account as a key factor in their purchasing decisions. I assume a high penetration of Terrapass in this subset, and near-zero penetration in the remainder of the population. The consequence? High penetration in the population who drives any fuel economy improvements (from a market forces perspective), low penetration overall.

The reason I'm discounting your option (b) is that I generally don't support government-imposed taxes as incentives when free-market forces can be brought to bear on a problem instead. I see the market as it currently exists effectively working to solve the problem of new car emissions, albeit slowly, by way of the small group of people who do consider efficiency a key factor in their buying decisions. Witness the slew of hybrids coming out in 2005 and 2006; witness the significant progress made on alternative fuel vehicles at such major players as Ford and Toyota. There's even been an announcement of plans to produce a hybrid Hummer. Done this way, consumer choice remains open, with increased options on the more efficient end of the scale. This makes it more likely that the vehicle chosen by any given person will tend to be more efficient, regardless of whether it's one of their key criteria. I perceive Terrapass as having the potential to undermine those market forces by significantly reducing the existing pressure. That is, I don't see Terrapass as a partial solution in any way. I see it as interfering with a demonstrable and already-deployed solution.

In any case, I tend to bow out of conversations when they degenerate to ad hominem attacks (such as accusations of willful sadism), since that's usually a clear sign that the exchange has degenerated well beyond logic into emotional reaction.

I shall then bow out as well. But I shall part with saying that I don't think I'm being emotional. I honestly believe that your arguments are either flawed or I don't understand them. How can you be, on the one hand, for market forces, but on the other hand, against a solution like Terrapass that is a market-based solution? From the government interference perspective, how is interfering for the market for Terrapass any different than imposing a tax on emissions? In fact, most economist believe that this sort of Pigouvian tax is exactly the type of thing governments should be doing because it lets the market figure out efficient levels of consumption.

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