The Unintended Consequence of Offsets
Credit: Asplosh
Readers of this blog may recall that I would rather see a plain old tax on greenhouse gas emissions than a cap and trade system, because the former is predictable and easier to administer, while the latter is very unpredictable and subject to what we in the business call “cheating.”
Offsets, Cap, and Trade
You’ll remember that under a cap’n trade system (not to be confused with Cap’n Crunch), the government sets a limit on greenhouse gas emissions, which slowly ratchets down over a number of years. Companies are thus required to decrease their own consumption of fossil fuels and refrigerants to meet the targets. If Company A can’t find economical ways of reducing its own emissions, they can effectively pay Company B to do it for them by purchasing carbon offsets – verified and saleable “credits” that Company B generates by decreasing their emissions.
The idea is that the total amount of emissions goes down across the system, and capital is allocated to the most efficient uses. A similar system worked quite well in the ’80s and ’90s to reduce SOx and NOx emissions from power plants (when’s the last time you heard talk of acid rain?) , and there’s hope it could work again.
But there’s a twist!
SOx and NOx are pretty specifically reserved for the combustion of fossil fuels, and particularly from power plants. What’s more, there were catalytic control strategies that could reduce their formation or remove them from the exhaust gases, they just happened to be expensive. Carbon dioxide, methane, nitrous oxide, and refrigerants, on the other hand, are emitted by almost everything, natural and unnatural, so the “trade” portion of the equation gets a little sticky.
We’re no longer talking about apples and apples (or coal boilers and coal boilers) when we’re trading offsets – it’s more like apples and bullfrogs. Now, a ton of carbon from a coal boiler can be offset by a stand of trees, some landfill methane, or the destruction of refrigerants in an industrial process.
Behold: The Rip-Offset
A new study by the German NGO CDMWatch, a group that examines the Clean Development Mechanism offset standard, reveals that the law of unintended consequences is still in effect. It seems that paying chemical companies to destroy the refrigerant HFC-23 causes them to produce MORE of it just so they can receive the offset payments.
Yes, you read that right: they intentionally produce the HFC-23, destroy it, and receive $140,000 per ton for their effort.
In effect, the offset is meaningless – it does not represent a ton of greenhouse gas emissions removed from the atmosphere because if not for the payment, it never would have occurred in the first place. Thus, it does not represent a decrease in overall emissions, and should not be used as a “get out of jail free” card for the company that buys it.
Those of you who understand capitalism recognize that paying someone to do something often encourages them to do more of it, so this should come as no surprise. Unfortunately, it points to a critical flaw in carbon mitigation policy, and raises the ever looming “cockroach question:” “If there’s one problem I can see, how many more can’t I see?”
Indeed, the walls of the CDM may be teeming with filthy, diseased offset roaches attempting to bilk money out of the system. So, I’m left wondering: can the offset requirements of additionality, permanence, etc. be implemented and enforced with confidence and transparency, or is the entire system of carbon offsets untenable in the real world?
What do YOU think?
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