Question from WSJ blog: Are Bogus Carbon Offsets Really That Bad?

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"Question from WSJ blog: Are Bogus Carbon Offsets Really That Bad?"

Balloons_art_200v_20081020100753.jpgAnswer: Yes.

While the news division of the WSJ is trashing bogus offsets, the blog division is challenging my term for them (see “Selling Hot Air“):

Joe Romm at Climate Progress calls them “rip-offsets,” and bemoans the fact that people get paid extra for business as usual activities and that companies buying the offsets are wrapping themselves in a non-existent green cloak.

But are offsets really so bad? One of Mr. Romm’s readers says not to let the perfect be the enemy of the good. Some individual projects, like the New Jersey landfill profiled in the WSJ, might not provide “additional” emissions reductions. But if the carbon-offsets lucre encourages smaller, unregulated players to change their behavior, it’s not such a bad thing overall:

If the offset market for capturing landfill methane causes a lot of methane capture that would have not otherwise been captured, it is NOT a case of “lack of additionality.”

This isn’t a wonkish point. For climate-change legislation to pass Congress in the midst of an economic crisis, everybody from environmentalists to big business has to be on board, and businesses say they need access to cheap emissions reductions provided by the offset market.

It just goes to show you that a good comment on this blog can get you into the Wall Street Journal — congrats to Larry Coleman.

I definitely think the perfect should not be the enemy of the good. But the phony should be the enemy of the genuine [Note to self: With that attitude, you’re never going to get a job in Hollywood or in a GOP political consulting firm].

The problem with the WSJ/Coleman critique is that, as my lawyer friends might say, it assumes facts that are not in evidence. If the Chicago Climate Exchange or anybody else can find a landfill that was not capturing its methane but that needs the money from the offset market to make methane capture profitable, I say go for it. But where is the evidence that fraudulently charging Americans for projects that are supposed to be offsetting their emissions but in fact aren’t offsetting anything has caused methane capture that would not otherwise have occurred?

This isn’t a wonkish point. If climate legislation requires rip-offsets to be passed, and if the entire point of climate legislation is to reduce emissions and avert catastrophic climate outcomes, then offsets that are not real are merely enabling a system whereby coal companies can keep burning coal and then pay people to do stuff they were already doing. The net result — emissions keep rising.

I don’t keep repeating every single criticism of rip-offsets in every post — that is what hyperlinks are for. But let me repeat the central point from the major Stanford study this year done on the specific question of what happens if you allow rip-offsets to be used as a major cost-containment strategy in climate legislation (from my post “Q: What is the difference between carbon offsets and mortgage-backed securites?“)

At a policy level, offsets can destroy the environmental value of climate legislation (see “Boxer bill update: Probably no U.S. CO2 emissions cut until after 2025” and “McCain speech, Part 2: Relying on offsets = Rearranging deck chairs on the Titanic“). At a large scale, offsets are probably worse than mortgage-backed securities, because even if the mortgages are underwater, you know the houses aren’t valueless. But as a major 2008 analysis from Stanford found

“between a third and two thirds” of emission offsets under the Clean Development Mechanism (CDM) — set up under the Kyoto treaty to encourage emissions reductions in developing nations — do not represent actual emission cuts.

And this led to the study’s stark conclusion:

any offset market of sufficient scale to provide substantial cost-control for a cap-and-trade program will involve substantial issuance of credits that do not represent real emissions reductions.

Talk about your sub-sub-sub-prime loans.

This is NOT a case of the perfect being the enemy of the good. It is a case of phony emissions reductions being the enemy of geniune emissions reductions.

And let me repeat a point specifically about methane. Methane offset projects that genuinely meet an additionality test aren’t a bad idea, and their benefits are certainly easier to verify than many other offsets. But that is in some sense precisely their problem. Once there is a hard cap on carbon emissions and a trading system, all those cheap, easy to verify methane-saving projects will be the first projects funded. So paying good offset money to fund methane offsets now mainly just accelerates some inevitable projects a few years. Also, from my perspective, one of the few overarching benefits of funding offsets is jumpstarting the transition to an economy built around energy efficiency and renewable energy. Most methane projects don’t do that at all.

I’d also add that many other offsets the CCX sells are equally dubious, such as like low-tillage agriculture (see “No-till farming does NOT save carbon and is NOT a carbon offset“) and tree planting (which even offset seller Terrapass disses) and renewable energy certificates (see “Schendler Part II: Good RECs vs. Bad RECs“).

The WSJ blog ends by asking:

Will offsets–even those that don’t come from landfills–become a hold-your-nose issue for environmentalists, or will they be a deal-breaker?

I think that is the wrong question framed the wrong way. This isn’t about passing some political correctness test for environmentalists. And I for one am not an environmentalist. The right question is

Are there enough offsets that represent real emissions reductions to justify their inclusion as a major cost-reduction strategy in climate legislation?

The answer to that question should be the same whether or not you are an environmentalist — and right now it appears the answer is no.

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8 Responses to Question from WSJ blog: Are Bogus Carbon Offsets Really That Bad?

  1. Paul K says:

    What constitutes a real non-rip offset? I can think of only one, actual production of CO2 free energy.

  2. A fundamental problem with “cap and trade” is that environmentalists hear “CAP and trade” and businesses hear “cap and TRADE” and/or “cap and EVADE.” Trying to design a system that manipulates market forces to achieve indirectly what some are afraid to talk about directly will not achieve the environmental goals. For example, those who mine, transport, and burn coal are going to fight just as fiercely against a market manipulation system that eliminates coal as they would against an explicit regulation banning it. If we want the burning of coal to stop–and we should absent CCS–we need to confront the issue directly and pay the politically necessary compensation.

  3. David B. Benson says:

    What is needed is ‘contract-or-tax’. Either someone wanting to emit fossil-based CO2 contracts with some organization to permanently sequester the same amount of carbon or else pay a tax and have the government do the contracting.

    I can think of two methods to sequester carbon dioxide which will cost about $30–40 per tonne of CO2. One of these, mineralization via olivine, offers the propect that the price might be brought down to around $15 per tonne, eventually.

  4. Larry Coleman says:

    Well, this is a heck of a note: being twinned with the WSJ! Not in my worst nightmare. Oh well.

    Joe, what is wrong if the methane capture off-set “mainly just accelerates some inevitable projects a few years”? Those few years matter a lot if we are going to avoid runaway GW. Following your argument, they ought to be phased out. Fine. Of course, methane capture is not likely to be a big player, but if not, coal companies cannot hide behind it.

    Regarding the Stanford estimate that “between 1/3 and 2/3 of emission off-sets under CDM do not represent actual emission cuts,” there is a big difference between 1/3 and 2/3. At 1/3, it might be worth keeping the off-sets while working to tighten them. At 2/3, it’s probably hopeless. Without a more precise figure, there is the danger of confirmation bias, focusing on the 1/3 or the 2/3, depending on one’s bias.

    I deny “assuming facts that are not in evidence.” By using an “if” statement, I was saying “suppose we assume that….” This is very different from “assuming facts,” which implies believing the facts are, well, “facts.” I’m sorry if you read it differently.

    The larger issue is whether off-sets in general should be part of a federal program. You have presented a powerful case that they should not, given the possibility of industry’s using them to avoid real reductions. Is there any objection to a market for individuals to buy off-sets? (Caveat emptor, of course.)

  5. Phil Adams says:

    Let’s not Throw the Baby out with the Bathwater
    October 30th, 2008

    Jeffery Ball’s WSJ article highlights an issue that has surrounded carbon offsets for a while now. The article echoes the concerns brought about when the House tried to green itself last winter. Now the term rip-offsets has been coined to describe offsets where the underlying project does not provide additionality.

    But in this recent hubbub, let’s not lose sight of the fact that well-designed programs that marry public policy and market forces can be very powerful in solving ecological problems. The shining success is clearly the EPA’s Acid Rain program that has virtually solved the acid rain problem at a fraction of the projected cost and has been the model for Kyoto’s cap and trade design. So rather than dismiss offsets entirely, let’s understand their role in the fight against global warming and improve on today’s market-based approaches.

    Transparency, Choice and Value

    It’s challenging to birth a voluntary carbon market where there has been, by and large, no regulatory framework. In the absence of federal leadership on Kyoto and due to an evolving variety of certification standards, there have been several models that have evolved to develop a voluntary carbon market in the US, both exchange and broker-based. To mitigate the challenges highlighted in the recent articles and improve the pace of market development, we need new approaches that bring three key elements to the equation – transparency, choice and value.

    The problem highlighted in Mr. Ball’s article is a lack of additionality – namely people are getting paid for something they’re already doing, or, as the landfill owner in the article put it: “It seemed a little suspicious that we could get money for doing nothing.”

    While additionality is the symptom, the lack of transparency is the root cause. A buyer cannot determine the quality of the credit without understanding the project that generated it and the standards and protocols certifying the offset. If the offset is co-mingled with offsets from a variety of projects, the task gets even harder.

    A second challenge is a lack of choice: any given broker or exchange may only have a handful of projects or project types for a buyer to evaluate. With less choice, there will be less market activity.

    Finally, the value of the offset tends to be opaque. There really isn’t a published market price for offsets because they have differing value based on the project generating them (type, certification standard, credit risk, delivery risk, etc). The lack of a pricing mechanism where a buyer can be confident that they’re getting a transparent, market price for a specific credit is also a drag on the pace of market development.

    Offsets are fulfilling an important role in bringing market approaches to increase the velocity of capital from greenhouse gas mitigator to project operator.

    Let’s not let flaws in some of the early business models cause us to abandon our efforts to solve the most challenging environmental problem of our generation. Rather, let’s improve on these early models to create more efficient and effective market mechanisms.

    Phil Adams, President

    World Energy Solutions, Inc. (www.worldenergy.com)

  6. Tom Anderson says:

    You claim that the conclusion is stark: “… any offset market of sufficient scale to provide substantial cost-control for a cap-and-trade program will involve substantial issuance of credits that do not represent real emissions reductions.”

    Yet you fail to mention that weakness also underlies your strategy: “deploy existing and near-term low-carbon technologies as fast as is humanly possible.”

    The conclusions of studies would clearly show that by insistency on emissions reducing technologies (let’s just call them ripoff technologies for the spite of it) any deployment of sufficient scale will involve substantial deployment of technologies that do not represent real emissions reductions. Isn’t it STARK????

    At least these so-called ripoffsets put into practical numerical terms the carbon savings that are achieved through certain practices. It’s clear that the claims can be evaluated and false reporting practices can be mitigated. It’s clear to the American taxpayers that spending billions of taxpayer dollars on new unproven technologies at high rates is not going to happen. Furthermore, it is not an easy feat to measure improvements on a global scale of the effect of technologies that are deployed in manageable sized projects.

    And the worst thing is, if you add a large number to a small number, the result is larger than the large number. So your solution ends up with more of a problem, not less. On the other hand, the goal of offsets, though it may be more difficult to accomplish, is to make less of a problem. Instead of laughing at google for not being as carbon neutral as they claim, we could instead start to urge companies like google to become carbon negative. Only through negativity can gains be made on a global scale.

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