Carbon Offsets

A number of firms, such as TerraPass, sell "carbon offsets" to consumers worried about global warming. You give TerraPass information about your driving, flying, and the size of your house, and TerraPass computes your annual carbon dioxide emissions and offers for a price to offset some or all of them by investing the proceeds from your purchase in projects (for example, wind farms) for reducing carbon emissions. In principle, if you purchase offsets for your entire carbon emissions, your net contribution to global warming is zero.

The carbon-offset movement is an echo of the "cap and trade" approach to pollution control, which is used for example to limit emissions of sulfur dioxide. (The Kyoto Protocol creates such a system for carbon emissions, but the United States is not a signatory to the Protocol and has no cap and trade program for carbon.) In cap and trade, each polluter is given a permit to emit a certain quantity of a pollutant. The total amount permitted to all polluters will be less than the total pollution, because the aim is to reduce pollution. The key point is that the cost of compliance varies across polluters. Consider two polluters. One can eliminate a ton of emissions at a cost of $10, the other at a cost of $50. At any price between $10 and $50, both polluters are better off if number one sells the right to emit a ton of emissions to number two; society too is better off, because the trade frees up $40 to invest in other goods.

The problem with carbon offsets is that they are purely voluntary. You do not obtain a monetary benefit by reducing carbon emissions, as you would if you had an emissions permit that you could sell to big emitters, or if you would be punished for exceeding a permitted level of emissions. When you buy a carbon offset, you are making a charitable contribution to fighting global warming. Since charitable motivation is weak compared to self-interested motivation, carbon offsets are a poor substitute for a cap and trade system, quite apart from the doubts that have been raised about the efficacy of the projects in which the firms offering carbon offsets invest. At best, moreover, carbon-offset programs are severely limited because consumers are not the only emitters of carbon dioxide. A further problem is that the investments by the carbon-offset firms in reducing carbon emissions may to a great extent simply replace existing investments. (An estimate of the replacement effect should be reflected in the price that TerraPass charges for offsets.) There is commercial and governmental investment in wind and nuclear energy, reforestation, climate research, fossil-fuel efficiency, and so forth, and if now consumers through carbon-offset programs invest in such projects, the commercial and governmental investors may scale back.

But the most serious drawback of the carbon-offsets movement lies elsewhere--though not, as environmental radicals would have it, because it makes emitting carbon dioxide into the atmosphere respectable, whereas it ought to be thought sinful, like littering, or driving without a catalytic converter. Although carbon emissions pose a much greater danger to the environment than other pollutants, they differ because they confer benefits as well as impose costs, and indeed reducing them to zero would be a disaster because atmospheric carbon dioxide is essential to maintaining a temperate climate. There is nothing wrong with emitting carbon dioxide. The wrong lies in the quantity being emitted, which is excessive.

The most serious drawback of the carbon-offsets movement is that it is likely to make the problem of excessive carbon emissions more rather than less serious, and this for three reasons. The first is that it creates the impression that modest reductions in the rate of annual increases in carbon emissions make a meaningful contribution to the fight against global warming. They do not. Given the limitations of the carbon-offsets movement that I have noted (its purely voluntary nature and the fact that only consumer emissions are affected), plus the fact that any reductions attributable to the movement are more than offset by continuing rapid increases in emissions by China, India, and other rapidly developing economies, the movement can at best limit only very slightly the rate of annual increase in carbon emissions, whereas the need is to reduce the level of those emissions. The reason is that, because atmospheric carbon dioxide is absorbed by the oceans only very gradually (and the ability of the ocean to act as a "carbon sink" apparently is declining), a high annual level of carbon emissions tends to have a cumulative effect, so that even if that level were steady (rather than increasing, as it is), the atmospheric concentration would rise.

Second, the movement encourages the belief that anyone who reduces his carbon "footprint" (that is, the emissions of carbon dioxide that he causes) to zero has done his bit to combat global warming. My wife and I have two cars, two houses, and fly a certain amount, but according to TerraPass's calculation, we can reduce our carbon footprint (roughly 32 tons of carbon dioxide a year) to zero at a cost of $282 a year. Then I will feel good about myself. But if a million American families having similar carbon footprints eliminate them at this rather modest price, the result--a reduction of 32 million tons of carbon dioxide emitted per year--will be microscopic, as the worldwide hourly emission of carbon dioxide is 16 million tons. A million American families would be roughly 1 percent of the U.S. population. Suppose the carbon-offsets movement, which is recent, and is getting a boost from the increasingly ominous evidence of global warming, grows beyond my expectations, to a point at which 10 percent of the U.S. population is paying TerraPass or other carbon-offset providers to offset an average of 32 tons per family. The effect would be to reduce annual worldwide carbon emissions by 20 hours' worth, or about one-quarter of 1 percent, and the reduction would be greatly offset by the worldwide growth of emissions, currently running at about 3 percent a year.

Third, and most serious, the carbon-offset movement, combined with well-publicized projects by Google and other companies to reduce carbon emissions, creates the false impression that global warming can be tamed by voluntary efforts, just as cleaning up after dogs has been achieved by voluntary efforts, without need for legal compulsion. Global warming cannot be tamed by voluntary efforts, because the costs of significantly reducing carbon emissions in order to reduce the atmospheric concentration of carbon dioxide (or at least stop it from increasing) are enormous. If people believe that voluntary efforts will suffice, there will be no political pressure to incur the heavy costs that will be necessary to avert the risk of catastrophic climate change.

Against this it can be argued that the carbon-offset movement is increasing the public awareness of the global warming problem, which may lead to other voluntary efforts to reduce carbon emissions, such as switching from SUVs to more fuel-efficient vehicles, or may exert pressure on politicians to support the regulation of carbon emissions. I am skeptical. I think very few Americans are prepared to incur substantial costs to deal with a problem that is so afflicted by uncertainty about its imminence and magnitude as global warming. They will avoid cognitive dissonance by exaggerating the practical efficacy of largely symbolic gestures, such as purchasing carbon offsets.