August 1, 2009

Carbon Offsets: Scam, Not Salvation

H. Sterling Burnett, PhD

In the battle against climate change, most media attention has been paid to "cap-and-trade" schemes, under which countries set upper limits ("caps") on greenhouse gas (GHG) emissions and allow companies to sell ("trade") unused emissions rights to other firms. However, there is a second path to global warming salvation: Carbon offsets.

Carbon Reduction Goals

Under the carbon offset scheme, a country (or company) can meet its emissions targets by paying others to reduce their emissions. To facilitate this process, the United Nations created the Clean Development Mechanism (CDM), an international market where buyers who need to offset their emissions can purchase carbon credits from developing countries — effectively paying for emissions reductions by others.

Typical emissions reductions include replacing old plant and equipment, adopting new agricultural practices, or sequestering carbon dioxide (CO ₂) underground or in trees. The CDM converts proposed emissions reductions into tradable certified emission reductions credits. The main criterion the CDM uses to confirm emissions cuts is additionality. A project is additional when it makes emissions reductions that would not have happened without extra financing from carbon credits. In other words, credits are issued only for emissions reductions that would not have occurred otherwise.

Domestically, the U.S. has considered its own carbon reduction plans that included a proposed offset program. For instance, 2008’s cap-and-trade bill sponsored by Senators Joseph Lieberman (I-Conn.) and John Warner (R-Va.) would have allowed 85% of emissions reductions to be met through domestic carbon allowances and 15% through domestic carbon offsets.