Gore, Carbon Offsets, and Misguided Thinking

Gregg Easterbrook, a fellow at the Brookings Institution, wrote an op ed piece in the New York Times, “Al Gore’s Outsourcing Solution” that makes a few valid observations. But his central recommendation, “America needs legislation capping carbon emissions here, but Congress should allow American companies and consumers to use investments in carbon offsets in China and India against those caps, where the bang for the buck is much higher,” is patently wrong-headed.

The three big problems with this idea are how the offsets are counted, cheating (which is related to the first problem) and administrative costs. Now while Al Gore might be able to find groups that engage in carbon offsetting that is actually effective, the math for most programs is pretty dubious. Essentially, it’s “sin now, repent at leisure.” As the Center for Media and Democracy observed,

Carbon Trade Watch, a project of the Amsterdam-based Transnational Institute, recently released a report (pdf) critiquing offsets. “Offset companies give the idea that emissions are instantly ‘neutralised’ when in fact the supposed ‘neutralisation’ can take place over periods of up to a hundred years. Regular offsetting worsens the problem because the rate at which carbon emissions are ‘neutralised’ is far slower than the rate at which they are generated,” warns Kevin Smith, the report’s author.

Similarly, the Economist’s Free Exchange, citing Anthony King, notes,

The public policy goal of those who worry about carbon emissions is for people to consume less bad energy. Whether people consume more good energy is beside the point. Trying to get other people to consume more good energy so that you can consume more bad energy is feeble-minded.

A personal “carbon offset” can be thought of as a self-imposed tax on the use of bad energy, accompanied by a subsidy of something else. The self-imposed tax is only constructive to the extent that it discourages the person from consuming bad energy. The subsidy is only constructive to the extent that it reduces carbon emissions somewhere else. Subsidizing good energy by no means ensures a reduction in the use of bad energy.

Even subsidizing the planting of a forest may not work. Although the trees will absorb carbon dioxide from the atmosphere, the planting itself may require the use of heavy earth-moving vehicles that emit pollution. Overall, adding forest in one spot may lead to a developer cutting down a forest in a nearby spot

The second problem is cheating. Even if an organization says it will grow trees (which per above we know is overrated), we have no idea if they are planting the same tree on behalf of five people.

The third problem, and this is particularly operative with the idea of carbon offsets for places like India and China, is administrative costs. The comparison to outsourcing is revealing. As we discussed in an earlier post, international outsourcing, aka offshoring, produces savings far lower than a simple comparison of labor cost savings would suggest. For example, when IBM looked at having some of its programming done in China, even thought the labor cost was 20% of that in the US, experts estimated the cost savings at only 15-20%. Why? The additional communication and coordination required. And that’s when it’s done with employees of the same company. It gets more complicated when using external vendors.

Now imagine what it would be like to have, say an official international program, with vendors of various sorts involved. A company would need to res each and choose which offset program to participate in. That takes time and money. The companies offering the offsets would have to package and market their programs (and perhaps have them qualified, if their was government involvement). That takes time and money.You’d need contracting, which means lawyers, as well as key people at the parties to a deal. More time and money. You’d need compliance and inspection (if not, you are inviting abuse)….. Easterbrook’s “greater bang for the buck” quickly vanishes.

Dean Baker at Beat the Press has a minor “gotcha,” namely that China isn’t as ineffient an energy user on an overall basis as the US is (their horrific coal palnts and generally poor industrial practices are offset by our use of cars and large single family homes) if you measure their GDP on a purchasing power basis.

While Gore’s personal carbon offsets might be effective, he’s legitimizing a bad idea. A carbon or energy tax is a far more effective mechanism, but somehow the left has been cowed into promoting free market gimmickry instead.

From Easterbrook:

Last month, to the delight of many global-warming skeptics, it was revealed that Al Gore uses 20 times as much electricity and natural gas at his Tennessee house than the national average. Out of curiosity, I put the former vice president’s power bills and ZIP code through the home-emissions calculator of TerraPass, a company that sells “carbon offsets” — the promise to reduce greenhouse gases by the same amount your behavior increases them.

TerraPass estimated that the power use of a house equivalent to Mr. Gore’s causes 377,000 pounds of greenhouse gases annually. That is roughly the annual carbon emission of 20 Hummers. Next time you see Mr. Gore wagging his finger about the energy sins of others, picture a caravan of 20 Hummers driving to the Academy Awards.

A Gore spokeswoman told the press that the former vice president pays extra for wind energy, and buys carbon offsets. He’s not the only one: companies that sell such offsets are rising in popularity, and certificates for them were included in the stars’ Oscar night goodie bags. Soon not just individuals, but the entire United States, may be purchasing carbon offsets on a grand scale.

TerraPass charges $1,247.50 for one year of carbon offsets for a home like Mr. Gore’s, the price including a refrigerator magnet proclaiming the home “carbon balanced.” Initially I found it hard to believe anyone could counteract Mr. Gore’s prodigious energy lust for just $1,247.50, since planting about 20,000 trees would be required to neutralize even half his house’s carbon footprint.

But it turns out that TerraPass does its good works in part by covering landfills to prevent methane from seeping out. Since methane is a far more potent greenhouse gas than carbon dioxide, covering landfills is a cost-effective way to wrestle with global warming. I may be annoyed by Mr. Gore’s hectoring, but I’m not going to accuse him of hypocrisy on this one.

This all seems a classic example of economies of scale. Individuals can’t do anything about landfill methane. But a company like TerraPass can combine the resources of many to accomplish this task, allowing the person of good intent to use energy with no net contribution to the greenhouse effect. Whether companies marketing offsets really do reduce greenhouse gases is something for consumer reporters or the Federal Trade Commission to determine. Assuming the sellers do as promised, buying carbon offsets isn’t an exercise in guilt. It’s smart economics….

Current bills in the Senate — one sponsored by John McCain and Joe Lieberman, another by John Kerry and Olympia Snowe — would cut domestic greenhouse emissions to about the level of 1990….

But even if successful, the McCain-Lieberman or Kerry-Snowe bills would only slightly lower future atmospheric levels of greenhouse gases. That’s because Chinese carbon emissions are skyrocketing.

Since 1990, according to the World Resources Institute, American greenhouse emissions rose 18 percent while Chinese emissions rose 77 percent. China may pass America as the No. 1 emitter of greenhouse gases as soon as 2010. If current trends hold, by 2050 emerging nations led by China and India will emit twice as much carbon as the United States and Western Europe combined.

China’s emissions are soaring because the Chinese economy is nearly three times as “carbon intensive” as America’s, burning far more fossil fuel per unit of gross domestic product. Chinese coal-fired power plants are notoriously inefficient, consuming twice as much coal per kilowatt produced as American generating stations. They also run without the elaborate anti-pollution “stack scrubbers” found in Western power plants. And China opens a new coal-fired generating station every week to 10 days.

Here’s where offset economics come into play. Dollar for dollar, capital invested in greenhouse gas reduction would accomplish more if used to improve the efficiency of Chinese power plants than if spent in the United States. America needs legislation capping carbon emissions here, but Congress should allow American companies and consumers to use investments in carbon offsets in China and India against those caps, where the bang for the buck is much higher….

If our goal in legislating against carbon releases is not simply punishing the West and its power companies but truly trying to reduce the accumulation of greenhouse gasses in the atmosphere, the main event will be in the developing world. We must use the smartest possible economics, and that means investing in China and India.

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