Carbon offsets: gimmick or game-changer?

In defence of individual carbon offsets, in spite of problems.

Cap-and-trade is stalled in the US Congress and the Obama administration is backing off. China is not on board either – it´s unclear whether its opposition is on principle or a negotiating gambit to ensure US participation. The prospects for a true worldwide deal are slim for now. With conventional diplomacy blocked, what are the chances for unconventional, popular, guerrilla diplomacy? Can you and I, the many ordinary Invisibles Incredibles, defeat Senator Magneto and save the world?

Probably not, but it´s worth a shot anyway. Here´s my Plan B. Part 1 of this was to persuade developing countries that they should not wait for the US but join a coalition of the willing for cap-and-trade, on survivalist grounds. Neat, eh? But there´s no rush so far to take it up. Part 2 is individual initiative – you -, which I´ll take a look at here. I´ll get round to Part 3, corporate activism, later.

The question is not whether private inititiative can cover entirely for government inaction, especially in the USA: it surely cannot. But perhaps it can get things moving, change the political and corporate climate, isolate the opposition in their denialist garrisons, and make strong legislation inevitable to secure a level playing field. The practical aim is not really to save the world, but to make saving the world look the normal thing to do.
I won´t go here into the usual catalogue: home insulation, light bulbs, hybrid cars or public transport, denser habitats …. see the RBC archives. (Advert for an old post of yours truly on home electricity managers.) None of this is really controversial, though some changes are much more difficult and costly than others. But there´s an argument over voluntary carbon offsets that should interest the RBC community as obsessive wonkers. Are offsets worth doing, as Robert Frank said?

I finally paid up on my promise to offset my Korea flight and have an email Certificate to prove it (update: full pdf here):

(I´ve made it green for contrast. Surely they could have taken a leaf from the bogus PhD industry and gone to more design trouble over this useless piece of wallpaper?)
My Certificate was issued by a unit of JP Morgan, which shows just how mainstream the game has become: an icon of Wall Street and high finance and one of the banks that did well out of last autumn´s débâcle.

Green purists scorn offsets as cheating. Adam Ma’anit of New Internationalist magazine:

Carbon offsets are one of the most scientifically and environmentally dubious industries emerging today. They merely provide moral cover for western middle-class consumers, governments and corporations for their profligate use of fossil fuels. No amount of carbon chicanery is going to adequately deal with the problem and it only delays more effective action while muddying the debate. Stop this insanity now.

This purist critique applies equally to government cap-and-trade schemes and carbon taxes, so if you accept either of these as good policy, you should be comfortable with the ethics of voluntary offsets.  Under current technology, a carbon-neutral lifestyle just isn´t possible outside a green commune. We should all of course reduce our direct emissions anyway, but we do have a little time – perhaps two decades – to phase in the lifestyle changes, helped by bankable new technology. We are still going individually to be responsible for substantial carbon emissions for a while. The people I love are on three continents, so I for one am not ready to stop flying. Offsetting looks fine to me in principle as a second-best, complementary solution.

How about the practice? Critics have landed some hefty punches on the industry. It´s not transparent: different companies and NGOs use different calculators even for something as standardised as air travel, and it´s hard to compare overheads. The business needs stronger regulation, as with standards for calculating interest rates on loans: transparency and confidence are more important to consumers here than strict accuracy. A lot of the early projects were badly designed and ineffective – just planting trees without any maintenance and water does not work. But then, most business startups fail too.  The successes are likely to have knock-on effects. Green dogoodery should not be held to a double standard of perfection.

The market is imperfect in another way: there are high overheads. A report last year on the offset business by a hostile British lobby (for European emissions trading)  claimed that 30% of the money you donate to offsets is swallowed up by investment banks as market-makers and deal-brokers, the same amount as actually goes to the projects on the ground. Believe this or not, it´s certain that the administrative overheads under the Kyoto CDM are high. Stern (here, page 160) cites the cost of the 300-day paperwork to certify a single project as ¨easily reaching $500,000¨. (Update: sample CDM dossier here.)

This is annoying but basically good news: immature, under-regulated, fast-growing markets look like this. The invisible hand, the alliance of private greed and public good, has started to work. Morgan are presumably lobbying behind the scenes for cap-and-trade in Congress. Sigh, but the profit motive is the way the thing will get done or not at all. It´s striking how cheap my Kyoto CDM offset (correction: actually Kyoto-style, using a different but similar project methodology and certification) was: £9 a tonne, let´s say half of that on the ground. We can reasonably trust the CDM bureaucracy (update: and its clones) to get the carbon reduction numbers about right. There really is a lot of low-hanging carbon-saving fruit out there once capitalists really start hunting for it as opposed to whingeing it can´t be done. The CDM will be streamlined some day soon.

There are two rather more serious objections than being ripped off by JPMorgan and friends (for a change). The administrative barriers mean that the projects are overwhelmingly in middle-income, not really poor countries: Brazil, India and China account for most. Nice interactive map here for the CDM. (update: JPMorgan´s map is similar, minus Brazil.) These are precisely the countries with deep and sophisticated domestic capital markets that need the help least. In China´s case, the absurdity is to ship my widows´ mite to an economy that exported $284 billion of capital last year.

Within the target countries, the funds go (because of the administrative barriers) to already large enterprises, not small village co-ops. Big biofuel projects may displace politically weak small farmers.  The schemes aren´t exactly progressive.

The other beef is that the projects are supposed to be uneconomic without the Kyoto etc top-ups. I just can´t believe that this can be done rigorously, the incentives to game are just too strong. How hard is it to pad a project cost using industry standards, keeping in your pocket the ways you actually plan to do it cheaper? It´s likely a priori that a lot of CDM money goes to finance wind farms and the like which would have happened anyway.

If you want to help the poor and secure clear additionality, you have to take greater risks and go outside the CDM.  For my next trip, I´ll do it differently: use a mainstream Kyoto-type website to estimate the offset, and send the equivalent money directly to an NGO that runs its own projects on reafforestation or solar stoves or something in a real dump like Guatemala or Niger. There´s no doubt a greater chance the money will disappear entirely, but overall I´d be buying a higher probability of real impact on both climate and poverty. With luck, I can get a Spanish tax deduction. Suggestions please in comments.

We should I suggest all do this. Consider an annoying T-shirt to go with it.

PS: an incomplete list of airlines that offer carbon offsets at the point of booking: Continental, Cathay Pacific, Delta, Easyjet, Cathay Pacific, Qatar, SAS, and Virgin.   Others will surely follow.

Author: James Wimberley

James Wimberley (b. 1946, an Englishman raised in the Channel Islands. three adult children) is a former career international bureaucrat with the Council of Europe in Strasbourg. His main achievements there were the Lisbon Convention on recognition of qualifications and the Kosovo law on school education. He retired in 2006 to a little white house in Andalucia, His first wife Patricia Morris died in 2009 after a long illness. He remarried in 2011. to the former Brazilian TV actress Lu Mendonça. The cat overlords are now three. I suppose I've been invited to join real scholars on the list because my skills, acquired in a decade of technical assistance work in eastern Europe, include being able to ask faux-naïf questions like the exotic Persians and Chinese of eighteenth-century philosophical fiction. So I'm quite comfortable in the role of country-cousin blogger with a European perspective. The other specialised skill I learnt was making toasts with a moral in the course of drunken Caucasian banquets. I'm open to expenses-paid offers to retell Noah the great Armenian and Columbus, the orange, and university reform in Georgia. James Wimberley's occasional publications on the web

5 thoughts on “Carbon offsets: gimmick or game-changer?”

  1. The problem is you just have no idea what you're buying when you buy a carbon credit. You're paying someone for a certificate saying someone did something sometime, and there's no way to verify that even that much is true. You suggest we could solve the problem with regulation, but what do we regulate? It's just all really abstract. With a carbon tax or cap and trade there's something quantifiable you're looking at– the amount of emissions, at the point of emission. You can measure that, you can do things with that number. Cap and trade does have a lot of problems similar to the carbon credit system, in that it's possible for the design of the system to hide bad behavior, but the carbon tax is much simpler and doesn't. And cap and trade most versions of the system at least someone went through at some point and did an accounting of where carbon comes from, when those finite number of emissions vouchers were printed. With carbon offsets you're often "offsetting" entirely hypothetical and you can print as many vouchers as you want. One example I heard of a carbon offset– this was given as an example of the system working correctly, mind you– was that they were paying farmers in third world countries to use hand pumps for water instead of gasoline pumps. Who's to say they were even going to use those gasoline pumps in the first place? Or that they won't use the money they saved by not running their gasoline pump to buy gas and use it in some other carbon-emitting way, like buy gas to drive to town? Carbon offsets allow you to basically print money by coming up with new and ingenious ways to make it look on paper like you've reduced usage or somehow removed carbon from the atmosphere. You're creating a market with all kinds of incredibly perverse incentives.

    And I don't think, again, that regulation or market "maturity" can fix that. How to best calculate the carbon footprint of a product or process is a major source of academic debate, even in the absence of substantial economic incentives for someone to skew the numbers. How is this the government's job to mediate? What is there to think the government could do a remotely adequate job of it? How is the government even going to verify that claim that there are 20,000 farmers in Burma using hand pumps now, or whatever? And what happens when a Republican becomes President and cuts the budget to the Office of Carbon Offset Oversight by 80%? This is even before you get into the problem that cap and trade or carbon tax systems are mandatory, whereas the carbon offset market is opt-in. And the sources of greenhouse emissions aren't uniform. You could get (I'm making these numbers up) 80% of the market carbon offsetting everything they do, if the 20% of the market that doesn't have an economic incentive to buy offsets turns out to have been doing 80% of the emissions to begin with then all you've done is greenwash your nation's behavior.

    I think the jury is still sort of out on whether carbon offsets should be discouraged outright, we're nowhere near close enough to have a debate on whether they can actually solve problems.

  2. mcc: I´m not exactly a fan of the CDM either but the idea that they are simply making things up is new to me. Why should JPMorgan or the officials at the CDM and its clones lie to me, when it´s clearly in their personal and organizational interests to expand the schemes? My full certificate (link to a pdf from an update in the post) lists two projects: the Mulan wind farm in Manchuria and the Uganda Stoves Project. JPMorgan documents here and here. Where do you think these projects are going wrong?

    Neither the CDM database nor JPMorgan list any projects in Burma. Please cite your sources for the hand-pumps story, or I´ll dismiss it as an urban legend or ancient history.

    And please forget about carbon taxes, the climate change equivalent of single-payer health care or the Betamax. Politicians who want things to happen are all cap-and-traders.

  3. Hi James,

    I am sorry, I think my post must have been sloppy– I was not trying to suggest that CDM itself or actually any particular current carbon offset provider is literally making things up. But the point I was trying to would to make is that there is very little in place to prevent CDM from making things up; they are essentially self-policing, or rely on policing by the people buying the credits.

    The problem as I see it comes down to whether or not the carbon-offsets concept scales. Right now carbon offsets are a slightly unusual thing, being bought mostly for sort of specialty purposes; anyone buying one would tend to be a discriminating sort of consumer. For example, you bought a carbon offset for your plane ride, and you've made it quite clear in this article that you researched the group and the exact basis for them saying the carbon was offset. With this sort of consumer the carbon-offsets provider is going to have to be very careful about their paper trail and the claims they make. As you point out it is against their economic interests to cheat, if they falsified anything at all they would disgrace themselves and damage their own ability to sell a product. Anyone buying carbon offsets would immediately switch to some other provider.

    However your article was talking about whether carbon offsets can be applied in a widespread way as an actual systematic means of reducing carbon output as a society– whether voluntary buy-in to carbon offset systems could be viewed as a third (if less preferable) alternative to proposals like cap and trade or a carbon tax. Right? Once we move to that scale an entirely different set of incentives start to apply. At that point the number of offset providers would potentially balloon, and a class of consumers would be coming in who isn't interested in or lacks the resources for fully researching the carbon credits provider before they buy. One also assumes if demand for carbon offsets rises at some point there might be a threshold where all the "obvious" carbon-offsetting projects get spoken for– everybody who wants a hand pump or a wood stove or whatever has one already, maybe– but a carbon offsets provider still has more unmet demand for carbon credits, and suddenly finds themselves having to make a choice between choosing a carbon offset which is somewhat expensive per unit of carbon offset, or a cheaper one which is shady or has questionable impact. When that day comes, which do you think they choose– raise the prices for their carbon offsets, or lower their standards?

    And of course once we get to that point there's maybe a problem in that there are two ways carbon credits could be consumed– by people buying them directly (as you did to offset your plane ride), or by corporations buying them to offset the carbon of something they're selling (like say "An Inconvenient Truth" did, billing themselves as a "carbon-neutral movie"). It seems likely that if we were going to try to do the carbon-offsets thing on a society-wide scale most carbon offsets will be consumed in the second way. So someday you'll buy a box of Nilla Wafers and it has a little sticker on it saying that this box of Nilla Wafers is carbon neutral, and some random consumer prefers to buy that snack product instead of another one because they're trying to live in a carbon-neutral way. At this point the person "consuming" the carbon credit, the person the carbon credit was bought for the benefit of, is basically abstracted from the carbon offset provider– they didn't shop around and settle on CDM (or whoever), they just saw a vague little * Carbon Neutral! bullet point on the box. And the person who picked the carbon offset provider, Nabisco or whoever, doesn't actually care whether the carbon was really offset, their interest is in putting the bullet point on the box. How many consumers do you think will actually scrutinize the box, and see the carbon offsets were provided by CDM, and go do the research you did when offsetting your plane ticket to ensure CDM's exact projects are legitimate? And if it's left up to them, do you think Nabisco will care as much as Al Gore does whether the carbon offsets provider they're choosing is legit? What do the incentive structures look like at this point?

    The hand pumps thing– I seem to remember I heard this on NPR, and again it was offered as an example of carbon offsets being used correctly (and I'm sure they didn't mention Burma, I was speaking hypothetically). If I google "carbon offsets hand pumps" I find both the Sierra Club and some UN report referring to an example of carbon offset groups purchasing (not paying people to use) hand pumps to replace diesel ones, but in both cases no details are offered. It is possible this is not something that actually ever happened but instead is just some hypothetical that's being kicked around? I don't know. Either way I notice that CDM's Uganda Stoves Project is fairly similar– you have some group of people who are going to be burning a low-efficiency stove in the future and you replace it with a high-efficiency stove, and you have some reasonable expectation that this will save X amount of carbon over the stove's lifetime. This actually sounds very cool. But it also kind of recaps some of the problems with the hypothetical hand pumps project. First off you're dealing with something that's difficult to track with absolute certainty what the effects were. I'm sure the existing structures for validation are quite good, but can they possibly predict, say, something happening that makes everyone in Uganda change to a different kind of stove in three years? It's absolutely not making things up, but it's also not *as* concrete as monitoring actual emissions in a cap and trade system. Second off let's imagine in a decade or so there's some hypothetical Carbon Offsets Consumer Protection Agency. How do they make sure the Uganda project works? Do they go to Uganda? Maybe JP Morgan will just continue validating the carbon-offset projects in perpetuity. Do you think, in the long run, they will do as good a job as they did with validating mortgages?

    As far as the carbon tax goes, I saw it advocated as recently as 2008 by Chris Dodd as part of his Presidential campaign; Dodd was never a frontrunner but he's well within the Democratic mainstream. It's seemed for some time that cap and trade is definitely preferable just because, but if the Democrats are now backing away from it (or at least trying to rebrand it) then this doesn't seem like an obvious advantage anymore. (My personal preferred option, though it does not seem to on the table right now, would be Barack Obama's proposed variant of cap & trade where the cap & trade permits are auctioned– as I see it this is basically a stealth carbon tax.)

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