Buying a stairway to heaven?

Just in the last year or so, a new type of scheme for reducing personal carbon emissions has appeared, the remarkably painless purchasing of “carbon offsets”. Carbonfund.org claims to neutralize a person’s CO₂ footprint on the Earth for the low, low price of $99 per year, plus if you act now they will throw in an extra 5 tons for free! And you get a pen! Prices listed here range from $5-30 per ton of CO₂ from a variety of similar organizations around the world. The average U.S. citizen is responsible for about 20 tons of CO₂ release per year.

Compliance with Kyoto, a mere 5% reduction in carbon emissions, was forecast by Nordhaus [2001] to cost a few percent of GDP globally. The cost to stop emission completely and immediately may not even be calculable. Carbonfund.org promises zero net emissions, for a fraction of 1% of the average U.S. income. Can this possibly be real, or are we talking indulgences and snake oil?

The idea behind carbon offsets is built upon the foundation of carbon emissions trading established by the Kyoto Protocol, a scheme called cap and trade. Carbon emissions for industries are capped at some level by regulatory permits to emit CO₂. If a company is able to cut its emissions below that level, it can sell its emission permits to another company. The cuts in emissions are thereby steered, by the invisible hand of the market, to the cheapest and most efficient means. Cap-and-trade has worked well for reduction of sulfur emissions in the U.S., that are responsible for acid rain. CO₂ emission is intrinsically even better suited for cap-and-trade, because it is a truly global pollutant, so it matters not where the CO₂ is emitted.

The carbon emissions market requires a certification process to verify any reduction in carbon emissions. Carbonfund.org and the other similar operations take donations from people like me and use the money to pay for renewable energy sources like solar cells or wind farms, that would not have been built otherwise. For these efforts, they receive credits for reduction in carbon emissions that are certified as valid, and therefore eligible for trade in the emissions market. Instead of trading that emission credit, carbonfund.org “retires” it, so that it isn’t used to balance higher carbon emission from another source. The certification process from the emissions market has an unintended benefit of providing an independent way to verify the carbon impact from sending money to organizations like carbonfund.org. It’s a nifty idea.

The only piece of this picture that I don’t personally believe is carbon credits for land-use changes, reforestation. This was a U.S. idea in the Kyoto negotiations, back in the day when we were still pissing in the tent from the inside. It is true that forests hold more carbon per square meter than bare land does. However, estimating the exact amount of carbon in a forest is not so easy, because most of the carbon is in the soil, where its concentration is variable and laborious to measure. Could a forest that was cut and burned last year be claimed to be a carbon sink this year, as the forest grows back? What if the forest is cut again next year, will the carbon credits issued this year be chased down and revoked? To its credit, Carbonfund.org is quite up front about these sorts of concerns, and gives donors the option to invest their money in ways that are more transparent.

What I don’t understand is why entrepreneurs don’t invest in carbon reduction certificates, like carbonfund.org does, but rather than retire the certificates, sell them in the carbon emissions market. The going rate for emissions permits in the market is on the order of $20-30 per ton, while carbonfund.org claims to reduce carbon emissions for about $5 per ton. Seems like one could make a killing. I guess that’s the whole point of emissions trading. But the discrepancy in prices makes me a bit suspicious.

What about the discrepancy between the huge projected costs for nation-scale carbon cuts versus these cheap fixes for the emissions of an individual? I believe what we are looking at is a situation known as “low-hanging fruit”. If everyone in the U.S. decided to become carbon neutral, the price for doing it would rise, because the easy fixes would be used up. So the CO₂ emission reductions achievable by purchasing of carbon offsets, at the low, low price of $99 per year, are almost by definition small relative to the overall scale of the problem. It would take more than $99 per American to prevent global warming; for that we will have to actually reduce our CO₂ emissions. Carbon offsets cannot do it alone.

Carbon offsets are beneficial in the meantime, however, because they do cut carbon emissions, and the money stimulates development of alternative energy technologies. The bottom line is, despite my deep initial skepticism, I now see how carbon offsets could actually work as advertised, enabling an individual to live a carbon-neutral life, even in the United States. This is a terrific idea. Sign me up!

Nordhaus, W.D., Climate change – Global warming economics, Science, 294 (5545), 1283-1284, 2001.