Carbon offsets and waste, fraud, and corruption

On Maverecon, Willem Buiter writes a sensible post, Carbon Offsets: Open House for Waste, Fraud and Corruption,

Offsets, the creation of credits that can be added to the (national, regional or global) CO2E [carbon dioxide equivalent greenhouse gas emissions] quota under cap and trade schemes, require not only the (difficult) verification of how much CO2E is actually emitted in the real world, but also the impossible verification of how much CO2E would have been emitted in some counterfactual alternative universe. The quantity of offset credits earned by some activity is the net quantity of CO2E that has been saved as a result of this activity.

Just stating it makes one shout out: impossible! Fraud! Bribery! Corruption! Wasteful diversion of resources into pointless attempts at verification! And indeed this is what is happening before our eyes. Enterprises get paid for not cutting down trees and for installing filters and scrubbers they would have installed in any case. The new Verification of the Carbon Counterfactual industry is growing in leaps and bounds. The amounts of money involved are vast and the opportunities for graft, bribery and corruption limitless. The offset proposal has birthed a monster.

Who came up with this demented offset concept? It’s an attempt to placate the developing world for not having enough CO2E emitting activities historically to benefit from a significant free initial allocation of credits in proportion to a country’s historical track record of CO2E emissions[…]

– but read the post.

Terraforming Terra

What should scare us most, climate change or hubristic schemes to mitigate climate change?

The unintended negative consequences of e.g. biofuel production from food crops are large, and include tortilla riots in Mexico because of rising food prices, destruction of rainforests in Indonesia to make way for palm oil plantations, and a general expansion of land under cultivation.

Here is a harbinger of things to come. A company plans to dump iron particles into the ocean in a 100 by 100 kilometer area near the Galapagos Islands in order to stimulate the growth of plankton.

In this case it is not the action of some mad scientist, it is business. The company is peddling “carbon offsets”.

What will be next? Why not seed the stratosphere with sulphur particles and claim carbon credits for that?

The biofuel fiasco and other well-meaning attempts to improve nature – think of the introduction of rabbits in Australia – should make us vary of climate change interventions.

How should we experiment with our poorly understood, nonlinear planetary systems? Very, very carefully.

Climate change is not as scary as climate change mitigation schemes that are driven by the combination of a powerful rent-seeking lobby, investors’ feeding frenzy, opportunistic politicians, and political correctness. Biofuel from food crops is one such scheme. There will no doubt be other even more ambitious schemes in the future. The danger is that they will do more harm than good, and that they will be almost impossible to stop because of the groups that benefit from them.

Update: BBC: Galapagos experiment sparks alarm.

Let me add that I don’t think that dumping 100 tons of iron filings in a 10,000 square kilometer area in the ocean is a cause for alarm. It is not going to trigger a new ice age, destroy the Galapagos ecosystem, or end intelligent life on Planet Earth. The main effect will be to relieve some rather naive people of some of their cash when they pay for carbon offsets.

The Clean Development Mechanism under fire

The Clean Development Mechanism isn’t working. From The Guardian,

Truth about Kyoto: huge profits, little carbon saved
Abuse and incompetence in fight against global warming

If a significant number of the 1,900m CDM credits [Clean Development Mechanism; it is supposed to offset greenhouse gases emitted in the developed world by selling carbon credits from elsewhere] waiting in the pipeline also prove to be bogus, the whole Kyoto project would start to backfire.

The Kyoto project is not credible. And as Charles de Gaulle said about treaties,

Treaties are like girls and roses. They last while they last.

The $40 billion handout

This week’s survey in The Economist of business and climate change explains why the US is likely to get a cap-and-trade system (as in the EU), rather than a carbon tax.

If the American governments adopts a cap-and-trade system […], it will hand out permits to pollute. They are, in effect, cash. According to Paul Bledsoe of the National Commission on Energy Policy, those allowances are likely to be worth in the region of $40 billion. Companies therefore want to be involved in designing those regulations. As Mr Rogers explains: “There is a saying in Washington: if you’re not at the table, you’re on the menu.” […]

A tax would be a better option. Unlike a cap-and-trade system, which stipulated the amount of CO2 that may be emitted and allows the price to vary, a tax sets a price and lets it determine the quantity emitted. […] But the prospects for a tax are not good. Business – particularly in America – is allergic to the very word; and the allowances which companies tend to be handed in the early stages of a cap-and-trade system have an obvious appeal to companies concerned about rising costs.

There is an academic discussion (e.g. here and here) about which is better, a carbon tax or cap-and-trade. But the discussion will remain academic. The $40 billion cap-and-trade allowance giveaway offers so many opportunities for patronage, lobbying, and campaign contributions from firms that stand to benefit that it is hard to see how a carbon tax could stand a chance. And on top of that, it is called a “tax”.