Do Carbon Offset Programs Really Help Pollution Control?

Carbon offset programs, often used by large corporations to balance their emissions discharge, may prove less useful than hoped.

Carbon offset programs to balance emissions

In a carbon offset market, the reality is that greenhouse gas pollution control anywhere in the world can be just as effective or ineffective in battling climate change hazards as other similar reductions made elsewhere.

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The majority of climate change programs employed by developed nations rely heavily on greenhouse gas emissions-reduction. Rather than adopt ineffectual programs Climate Change Policy Failures (World Scientific, 2012) by Howard A. Latin suggests a shift to a “clean” technology replacement that could support current lifestyles and expanding development without further damage to our climate. The following excerpt, from Chapter 2, discusses the ineffectiveness of voluntary carbon offset programs.

Understanding Carbon Offset Programs

Carbon offset programs are a means to exchange a number of tons of GHG (greenhouse gas) pollution reduction for an equal amount of pollution continuation. Various offset programs allow program participants with relatively low pollution control costs to profit by cutting their GHG discharges and selling the resulting emissions reductions as offset credits that could be subtracted from the buyers’ pollution control requirements. The buyer will have to pay an offset credit price — usually set by trading in a carbon market — to avoid eliminating a selected amount of its own discharges, while the offset seller must cut its emissions by the corresponding volume of GHG emission reductions at a presumably lower per-ton pollution control cost.

In a carbon offset market, the emissions-reduction reality is that a given amount of GHG pollution control anywhere can be just as effective or ineffective in abating climate change impacts as a comparable reduction anywhere else. This is true because GHG emissions are fungible and are mixed in the atmosphere over time regardless of where they were initially discharged. Offset programs can assist GHG-polluting nations, corporations, or consumers to reduce net emissions-reduction costs by letting them purchase lower-cost offset credits. In addition to shifting some expenses of GHG emissions reduction to a lower-cost basis, offset programs may also assuage consumer guilt for unsustainable behavioral choices and may help improve the public relations images of businesses or countries that are trying to “declare themselves carbon neutral” by purchasing enough offset credits to equal their cumulative GHG emissions.

The critical problem with these schemes is that the offset credit buyer will be entitled to continue pumping substantial residual GHGs into the atmosphere on the rationale that these discharges would be counter-balanced (offset) by the permanent, reliable, verifiable GHG emissions reductions offered by offset sellers. In other words, the amount of GHG pollution authorized by offset credit purchases is the equivalent of persistent residual discharges or GHG allowances. Carbon offset programs appear to be mechanisms for maintaining an allowable level of GHG pollution discharged annually into the air, but the offsets are seldom, if ever, satisfactory means for reducing the atmospheric GHG concentration. Many implementation and enforcement problems with carbon offset programs present the same types of systemic weaknesses as cap-and-trade systems, but each kind of offset program has distinctive characteristics and vulnerable points.

Here is a brief summary of three kinds of offset programs: voluntary consumer-oriented offsets; carbon offsets intended to reduce the costs of national emissions-reduction requirements or to substitute for GHG allowances in national cap-and-trade systems; and international offset programs, such as the UN Clean Development Mechanism, in which the offsets are produced in developing countries and sold to polluters in more affluent nations. National and international carbon offset programs often provide “co-benefits,” such as community development assistance or biodiversity protection, which in practice may be equally or more important to the offset-originating countries than lower-cost emissions-reduction savings would be. As a generalization, under carbon offset programs the offset suppliers benefit by receiving money or development assistance in return for the emissions reductions they provide; the offset buyers benefit by obtaining pollution control reductions at a lower cost than would be required for them to cut their own discharges; and the atmospheric GHG conditions will benefit very little, if at all.

Voluntary Carbon Offset Programs

As examples of voluntary offset programs, Marriott Hotels has adopted a plan that enables altruistic customers to pay for offsets intended to compensate for, or neutralize, GHGs that may adversely affect the Brazilian Amazon region. A number of major airlines have created carbon offset programs that will allow environmentally-disposed customers to pay to some extent for the GHG pollution harms resulting from their air travel activities. Following a UN Environment Programme (UNEP) initiative to reduce the carbon impacts of the 2010 World Cup, the sportswear manufacturer, PUMA, promised to “offset the CO2 footprint of PUMA-sponsored national football teams taking part in the Football World Cup this summer in South Africa — a total of 336 players and officials.” The common theme with these offset credits is that they are completely voluntary and are not produced, purchased, or scrutinized by any kind of official regulatory regime.

In my opinion, voluntary consumer-oriented offset programs are another manifestation of the “every little bit helps” fallacy. Very few airline and hotel customers are purchasing offset credits that would come close to equaling the GHGs their flights or stays generate. This means that a very large amount, almost certainly more than 95%, of the GHGs associated with these activities will constitute persistent residual discharges that increase the atmospheric GHG level and enable climate change risks to grow worse. The practical consequence of voluntary carbon offset programs is to cut worldwide GHG emissions by a miniscule amount, thereby only “reducing the increases” in atmospheric GHG concentrations without restraining the ongoing growth in GHG pollution. The only arguable value of voluntary carbon offsets is that they will reduce some of the costs of decreasing GHG emissions by a very small amount that is supposedly “better than nothing,” though they will ultimately achieve no appreciable climate change benefits.

In contrast to the cost-saving claims of offset proponents, the availability of voluntary offset programs may encourage offset credit buyers to engage in more frequent polluting activities than they otherwise would on the rationale that purchasing offsets will counter-balance the climate degradation from their activities. One well-publicized example is the large amount of energy consumed by former Vice-President Al Gore’s farm in Tennessee, estimated at about 20 times the energy consumption of typical households. Gore excused his high energy usage on the grounds that he purchased enough offset credits to make his farm’s energy consumption “carbon neutral.” Yet, without the carbon offset program availability, he would have had more incentive to reduce his cumulative energy usage, rather than shifting the pollution control offset locus to other parties in other places.

Voluntary offset programs normally entail difficult “free rider” problems. On a general plane, the non-payers (people and businesses that neither buy offsets nor reduce their GHG discharges) cannot be prevented from enjoying whatever climate benefits may accrue from the efforts of the payers who are trying to improve social or environmental conditions. In effect, the non-payers or free-riders can use their wealth to satisfy their personal preferences or business needs while they nonetheless cannot be excluded from any decreased harms or risks that would accrue if voluntary payers are able to achieve some form of climate improvement. Under these circumstances, many people will choose not to pay for mitigation or remedial costs because they cannot be excluded from enjoying the resulting climate benefits, if there are any.

Rather than imposing mandatory regulatory initiatives that require the costs of climate change damages to be incorporated or “internalized” into the prices of the enterprises that generate harmful GHGs, the voluntary offset programs allow the great majority of people and businesses to avoid paying for the climate damages caused by their individual or shared activities. Some altruistic people will contribute some amount of money to voluntary mitigation efforts because they want to feel they are “part of the solution,” but this funding will doubtless be limited by the obvious unfairness of free-riding behaviors and will remain far below the amount necessary to achieve meaningful climate improvements.

Nearly all environmental experts agree that voluntary efforts, including purchases of voluntary carbon offsets, cannot effectively overcome the collective-action problems associated with climate change risks. Yet, the advocates of voluntary offset programs continue to proselytize consumers and businesses to purchase carbon offsets that supposedly will somehow help combat climate change hazards. Instead, these ineffectual, often expensive voluntary efforts are no more likely to improve climate conditions than to degrade them, and the case for reliance on voluntary carbon offsets certainly has not been demonstrated persuasively.

In a report on the condition of voluntary carbon markets in 2011, the authors found that: “In 2010, the volume-weighted average price of credits transacted on the voluntary OTC [over-the-counter] market fell slightly to $6/tCO2e from $6.5/tCO2e in 2009.” The report multiplied this $6 average offset price by their estimate that a total of 98 million offset credits were traded in 2010, leading to their calculation of an aggregate carbon offset market value of about $415 million. This substantial annual sum only indicates how much money changed hands and how much profit might have been reaped, not how much mitigation progress was achieved by these transactions. The buyers will use the voluntary carbon offsets to justify putting out a comparable amount of discharges that will be exactly the same as persistent residual discharges and will similarly increase the atmospheric GHG concentration. The $6 per ton offset price will likely create only a negligible mitigation incentive, if any, though it may occasionally inspire a limited amount of pollution control innovation and emissions reductions by potential offset sellers. I am not contending that the voluntary offset market is completely useless, but its diversions of time, money, and other resources from more effective mitigation approaches will almost certainly outweigh any minimal climate benefits this type of program could attain.

The key point is that every ton of GHG discharges the offset producers are able to eliminate will enable a comparable emissions increase by the offset buyers. For example, shifting 98 million tons of allowable GHG discharges from the offset sellers to the offset buyers certainly will not contribute materially to reducing the greenhouse effect and related climate change harms. Moreover, people who normally would not engage in a specific polluting activity may choose to undertake that activity because they ostensibly can absolve their harmful actions by purchasing a comparable number of carbon offsets. It is thus very possible that voluntary carbon offsets may have the negative effect of increasing carbon discharges rather than reducing them.

Want to learn more about economic incentive programs? Discover possible solutions to greenhouse gas pollution in Carbon Taxes for Clean Technology Innovation.

Excerpted from Climate Change Policy Failures: Why Conventional Mitigation Approaches Cannot Succeed by Howard A. Latin. Copyright © 2012 by World Scientific Publishing Co. Reprinted with permission.