Who cares if carbon offsets are verifiable?

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The recent vogue for carbon offsets has inevitably created a backlash. The basic claim is that the offsets don't really lead to reduced emissions. Here's a prototypical such comment from Jonathan Adler at Volokh:
An investigation by the Financial Times suggests that many carbon offsets are illusory, and that there is little assurance that purchasing carbon offsets does much of anything to reduce carbon dioxide emissions. Specifically, the report found:
- Widespread instances of people and organisations buying worthless credits that do not yield any reductions in carbon emissions.

- Industrial companies profiting from doing very little - or from gaining carbon credits on the basis of efficiency gains from which they have already benefited substantially.

- Brokers providing services of questionable or no value.

- A shortage of verification, making it difficult for buyers to assess the true value of carbon credits.

- Companies and individuals being charged over the odds for the private purchase of European Union carbon permits that have plummeted in value because they do not result in emissions cuts.


The bottom line is that if Al Gore and Leo DiCaprio truly want to be sure they are reducing their carbon footprint, they are going to have to reduce their own energy consumption, rather than paying others to do it for them.

First, let me say that I have no idea whether carbon offsets actually reflect real reductions by others or not.1 However, it seems to me the standard of "truly want[ing] to be sure" is an unreasonably high bar. An enormous number of the things that you do have carbon footprints that are hard to verify. One obvious way of reducing your carbon emissions is to buy a fuel efficient car, like a hybrid. But what's the additional energy cost of manufacturing a hybrid? I don't know and you probably don't either. Maybe it's zero and maybe it's huge (remember the Dust to Dust flap back in 2006). It seems to me that the best one can reasonably expect a consumer to do is act according to the best knowledge they currently have.

Second, any carbon reduction measure that people follow will almost inevitably involve a lot of paying others to reduce their footprint for you, unless you expect that someone is going to give you all that energy efficient tech for free. People (mostly conservatives) often bring up nuclear power as an example of a non carbon-emitting energy technology but surely everyone expects that if Gore is in favor of nuclear power he's going to lobby for his local utility to build a nuclear plant rather than setting up a pebble bed reactor in his back yard. That sure sounds like paying someone else to reduce your footprint for you.

Even if we assume that carbon offsets totally don't work, e.g., that the people selling them take your money and use it to gas up their Gulfstream Vs, that doesn't necessarily make them a bad idea. Think of them rather as a tax on carbon consumption (an idea that Adler appears to favor). Remember that the purpose of a Pigouvian tax is to align people's incentives with the externality costs of their behavior. In order to serve that purpose it doesn't much matter where the money goes as long as its collected (and in fact distributing the proceeds of a real carbon tax would turn out to be a somewhat tricky issue). From that perspective, the key point is that those who buy offsets are demonstrating that they have internalized the externality costs (or at least are trying to) and if it happens that the money actually somehow decreases emissions by others that's a nice bonus.

This of course raises the question of whether the price of the offsets actually is right to be a Pigouvian tax. The answer turns out to be sort-of. Wikipedia claims that the social cost of CO2 emissions is around $12 ton of CO2 (.3 tons of carbon). The cost of credits varies widely. Terappass's credits (which is what the Oscars used) sell for about $8/ton. Carbonfund's sell for $5.50/ton, which seems a bit low. But remember that that price is based on the externality cost alone. If you factor in that there's some probability that your money actually is going to reduce carbon emissions somewhere, than these numbers don't seem that far off.

1. I'm not unaware of the rhetorical context in which Adler and others make this argument, namely that Gore, etc. are supposed to be hypocrites for wanting others to reduce their emissions while not reducing their own. I'm simply ignoring it for the purposes of analysis.


"In environmental religion, global warming is a sin against God, not to be assessed in terms
of economic calculations of possible costs and benefits."

If this stuff gets into place now, perhaps it can be better regulated over time. And it seems of a piece with socially responsible investment, fair-trade coffee, etc.

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