You Got to Be Kidding Me!

Carbon Offsets?

Posted in Economics, Environment by Stacy McMahon on March 4, 2007

Donald Sensing argues that Al Gore’s now-infamous electricity hogging isn’t that big a deal, considering things like his secret service detail, running his business out of his home, the guest accommodations that a man in his position makes extensive use of, and so forth (link via Instapundit.) He’s probably right, as far as it goes, though it still makes it hard to take Gore seriously when he tells me to live …as I currently do, while he uses 20 times the electricity of the average American home. Anyway, the more interesting point is Sensing’s discussion of carbon offsets:

Okay, the carbon offset thing seems a shell-game scam to me, and even the vaunted Economist magazine seems to agree. Gerard Van Der Leun appropriately compared offsetting to the pre-Reformation practice of the Catholic Church of selling indulgences. It worked like this: you, a sinner, could pay money to the Church, which would draw from its (claimed) bank of religious virtue and apply it to you personally.

As I argued in the comments to that Economist post, if we assume that a carbon offset actually offsets carbon emissions as advertised, then it will in fact alter the supply-and-demand equation to where the person buying the offsets has incentive to consume less energy. But I was ignoring another aspect that I’m now starting to think is more important. How is the purchase of an offset related to the purchase of energy?

I was assuming that you buy one offset per unit of energy purchased, thus raising the price of a unit of energy to reflect the cost of disposing the emissions. That’s a market-based solution because it internalizes the externality of harmful emissions. The resulting total energy consumption reflects people’s willingness to pay for both producing and using energy, and cleaning up after it.

But as currently available, carbon offsets don’t seem to follow that model. In most cases, they are notionally related to the purchaser’s energy consumption, but are purchased separately and at a different time than the energy. So, you commit the ‘sin’ of consuming carbon-emitting energy, and then ‘cleanse your soul’ later by buying carbon offsets to (theoretically) make up for the emissions. That does indeed resemble the old papal indulgences, in that it gives the buyer only a hazy pricing signal on their energy consumption, while allowing them to feel that they’re on the side of righteousness in the climate change debate.

Yes, in theory the buyer knows when they’re paying at the pump that they’re also going to have to pay more later for offsets, but if you think about, say, people’s attitude toward tax refunds, it’s doubtful there’d be much connection in most minds. The more likely result is that, feeling yourself in a ‘state of grace’ with regard to carbon emissions, you’ll use the same or more energy instead of becoming more efficient.

So to be effective, carbon offsets have to be attached to each unit of energy purchased. That sounds like …a carbon tax. While I’m not a fan of taxes in general, if the voting public chooses to do try to marketize the emissions externality, that seems like the only workable way to do it. And again, none of this addresses the issue of whether emissions are actually being offset. Unless that’s happening, then no money should go to taxes or offsets.

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