Carbon Offsets--Posner

A number of firms, such as TerraPass, sell "carbon offsets" to consumers worried about global warming. You give TerraPass information about your driving, flying, and the size of your house, and TerraPass computes your annual carbon dioxide emissions and offers for a price to offset some or all of them by investing the proceeds from your purchase in projects (for example, wind farms) for reducing carbon emissions. In principle, if you purchase offsets for your entire carbon emissions, your net contribution to global warming is zero. The carbon-offset movement is an echo of the "cap and trade" approach to pollution control, which is used for example to limit emissions of sulfur dioxide. (The Kyoto Protocol creates such a system for carbon emissions, but the United States is not a signatory to the Protocol and has no cap and trade program for carbon.) In cap and trade, each polluter is given a permit to emit a certain quantity of a pollutant. The total amount permitted to all polluters will be less than the total pollution, because the aim is to reduce pollution. The key point is that the cost of compliance varies across polluters. Consider two polluters. One can eliminate a ton of emissions at a cost of $10, the other at a cost of $50. At any price between $10 and $50, both polluters are better off if number one sells the right to emit a ton of emissions to number two; society too is better off, because the trade frees up $40 to invest in other goods. The problem with carbon offsets is that they are purely voluntary. You do not obtain a monetary benefit by reducing carbon emissions, as you would if you had an emissions permit that you could sell to big emitters, or if you would be punished for exceeding a permitted level of emissions. When you buy a carbon offset, you are making a charitable contribution to fighting global warming. Since charitable motivation is weak compared to self-interested motivation, carbon offsets are a poor substitute for a cap and trade system, quite apart from the doubts that have been raised about the efficacy of the projects in which the firms offering carbon offsets invest. At best, moreover, carbon-offset programs are severely limited because consumers are not the only emitters of carbon dioxide. A further problem is that the investments by the carbon-offset firms in reducing carbon emissions may to a great extent simply replace existing investments. (An estimate of the replacement effect should be reflected in the price that TerraPass charges for offsets.) There is commercial and governmental investment in wind and nuclear energy, reforestation, climate research, fossil-fuel efficiency, and so forth, and if now consumers through carbon-offset programs invest in such projects, the commercial and governmental investors may scale back. But the most serious drawback of the carbon-offsets movement lies elsewhere--though not, as environmental radicals would have it, because it makes emitting carbon dioxide into the atmosphere respectable, whereas it ought to be thought sinful, like littering, or driving without a catalytic converter. Although carbon emissions pose a much greater danger to the environment than other pollutants, they differ because they confer benefits as well as impose costs, and indeed reducing them to zero would be a disaster because atmospheric carbon dioxide is essential to maintaining a temperate climate. There is nothing wrong with emitting carbon dioxide. The wrong lies in the quantity being emitted, which is excessive. The most serious drawback of the carbon-offsets movement is that it is likely to make the problem of excessive carbon emissions more rather than less serious, and this for three reasons. The first is that it creates the impression that modest reductions in the rate of annual increases in carbon emissions make a meaningful contribution to the fight against global warming. They do not. Given the limitations of the carbon-offsets movement that I have noted (its purely voluntary nature and the fact that only consumer emissions are affected), plus the fact that any reductions attributable to the movement are more than offset by continuing rapid increases in emissions by China, India, and other rapidly developing economies, the movement can at best limit only very slightly the rate of annual increase in carbon emissions, whereas the need is to reduce the level of those emissions. The reason is that, because atmospheric carbon dioxide is absorbed by the oceans only very gradually (and the ability of the ocean to act as a "carbon sink" apparently is declining), a high annual level of carbon emissions tends to have a cumulative effect, so that even if that level were steady (rather than increasing, as it is), the atmospheric concentration would rise. Second, the movement encourages the belief that anyone who reduces his carbon "footprint" (that is, the emissions of carbon dioxide that he causes) to zero has done his bit to combat global warming. My wife and I have two cars, two houses, and fly a certain amount, but according to TerraPass's calculation, we can reduce our carbon footprint (roughly 32 tons of carbon dioxide a year) to zero at a cost of $282 a year. Then I will feel good about myself. But if a million American families having similar carbon footprints eliminate them at this rather modest price, the result--a reduction of 32 million tons of carbon dioxide emitted per year--will be microscopic, as the worldwide hourly emission of carbon dioxide is 16 million tons. A million American families would be roughly 1 percent of the U.S. population. Suppose the carbon-offsets movement, which is recent, and is getting a boost from the increasingly ominous evidence of global warming, grows beyond my expectations, to a point at which 10 percent of the U.S. population is paying TerraPass or other carbon-offset providers to offset an average of 32 tons per family. The effect would be to reduce annual worldwide carbon emissions by 20 hours' worth, or about one-quarter of 1 percent, and the reduction would be greatly offset by the worldwide growth of emissions, currently running at about 3 percent a year. Third, and most serious, the carbon-offset movement, combined with well-publicized projects by Google and other companies to reduce carbon emissions, creates the false impression that global warming can be tamed by voluntary efforts, just as cleaning up after dogs has been achieved by voluntary efforts, without need for legal compulsion. Global warming cannot be tamed by voluntary efforts, because the costs of significantly reducing carbon emissions in order to reduce the atmospheric concentration of carbon dioxide (or at least stop it from increasing) are enormous. If people believe that voluntary efforts will suffice, there will be no political pressure to incur the heavy costs that will be necessary to avert the risk of catastrophic climate change. Against this it can be argued that the carbon-offset movement is increasing the public awareness of the global warming problem, which may lead to other voluntary efforts to reduce carbon emissions, such as switching from SUVs to more fuel-efficient vehicles, or may exert pressure on politicians to support the regulation of carbon emissions. I am skeptical. I think very few Americans are prepared to incur substantial costs to deal with a problem that is so afflicted by uncertainty about its imminence and magnitude as global warming. They will avoid cognitive dissonance by exaggerating the practical efficacy of largely symbolic gestures, such as purchasing carbon offsets.

Comments

[neilehat]

Ok, I'm going to solve the CO2 Emissions Crisis here and now. What needs to be done instead of the wringing of hands, knashing of teeth and wasting of time, effort, money and the like on international meetings, market system ploys, governmental taxation schemes. This can be done by converting a wortless waste product of combustion into something stable and valuable.

This is possible by developing a process by which CO2 is separated into its component molecules, C and O2. The O2 is recycled back into the combustion process where it originated. Thereby, increasing the overall combustion efficiency of the unit. The carbon is separated out and fed into another process by which it is converted into high value diamonds by high pressure. The technology is available now and I will leave the working out of the details to you all.

Just one question. What eever happened to that native American genius, which could solve problems up front instead of resorting to forums which waste time, effort and money to no avail? Is it because we have all become so intellectually and ideologically moribund by a system that is bankrupt? Remember, "Necessity is the Mother of Invention". Or as Edison would put it, "Genius is ninety-nine percent perspiration and 1% inspiration." Wouldn't it be a whole lot better to invest those resources into a good Research and Development Program? Instead of frittering them away on meetings, taxes, and market systems?

[Jack]

Neil, Just to keep you from committing any crimes in violation of the Laws of Thermodynamics; CO2 is completely burned (oxidized) carbon with the little C's tightly bonded to the O's much as they are in H20 which is fully oxidized hydrogen. You can separate the H's from the O's but it requires putting back slightly more energy than you got from burning it, though there is some news of an algae or enzymatic process being developed at Penn State. Who knows? Perhaps there are modern day Edisons out there and surely venture capital for promising ideas.

I'm guessin Edison didn't need commissions to determine the need for light, phonographs and movies.

[neilehat]

Jack, H2O is easy to separate, all you need is a little electricity. One of Edison's brainchildren, that is, until he got Westinghoused. ;) As for CO2 separation, Mother Nature has been doing it for eons. The first rule of Engineering is if you want to find the best method, observe nature. Venture capital is only looking for the fast buck and quick returns the working out of the details will take some time. Unless we use molecular sieves.

[Jack]

Neil: Ha! and if we can split those pesky H's and O's apart using less heat/electricity than we got when we oxidized the hydrogen we should immediately patent it under the Perpetual Motion heading which has remained empty for so long out of fear of violating the laws of physics.

But! perhaps we can take some of them apart by electrolysis on windy days when our windfarms generate more electricity than our grid can transport.

Mom N, like myself, is a big fan of solar energy and has as you point out, created some fascinating solar powered engines. It's just amazing that a giant redwood can inhale CO2, exhaust oxygen, pump water to all its extremities, and create tons of beautiful termite resistant wood as a byproduct. But....... as one of our Presidents said "If you've seen one redwood you've seen them all."

Perhaps a first step will be taken in Congress this week if the "energy bill" passes and takes a number of subsidies away from oil companies that might be better invested elsewhere.

BTW this article explaining why oil stocks have not soared with the soaring prices, also tells us that the days of sub-fifty buck oil have gone the way of 25 cent coffee.

The Penn state project produces both hydrogen and electricity, directly. Here's a summary:

http://www.environment.psu.edu/research/project_details/74J4/

Then we can burn the H in very efficient fuel cells that produce only H2O. There's life beyond Exxon?

[Jack]

Whoops! the article:

Why Your Oil Stocks Aren't Making You Rich
By Matt Badiali
December 6, 2007

"Why didn't ConocoPhillips double this year?"

The question came from an exasperated subscriber at the Stansberry Research Alliance Conference in Playa del Carmen, Mexico, last week.

It's a good question. Some big government-backed oil companies – like Brazil's Petrobras and China's Petrochina – did double last year. However, your average supermajor oil stock (ExxonMobil, ConocoPhillips, British Petroleum, and Chevron) has only managed to gain 15%, while crude has soared 42% in the same time.

So what's holding the big guys back? It certainly isn't the price they receive for their oil... It's the simple fact that the cost of finding more oil is skyrocketing.

In fact, it now costs ExxonMobil $14.57 to add a single barrel of oil to its reserves. That's nearly double what it cost in 2003.
This week, the Financial Times ran an article that quoted research by Wood Mackenzie analysts. Due to the rising costs of skilled labor, licenses, and equipment, exploration companies need an oil price of $70 oil to earn the same amount of money that $30 oil generated just two years ago. Think about that... oil companies need 140% higher oil prices just to maintain their earnings.

You can see this cost inflation in the annual reports of the world's top oil service companies. Take the biggest, Schlumberger, for instance. Schlumberger's operating income rose 518% from 2003 to 2006. The world's biggest deepwater drillship operator, Transocean, has enjoyed an operating income increase of 428% over the same period.

[neilehat]

Jack, You can't compare the likes of Petrobas, PetroChina, Pmex, etc. and the likes of XOM, BP, Valero and the others, it's like comparing apples to oranges. And Yes, exploration and production is an expensive proposition. Remember, these aren't the days of Pennsylvania Crude and "Titusville Oil" when a barrel of oil cost $2.00 and eventually shut down the Whaling Industry in Nantucket.

Just remember, any significantly advanced technology is indistinguishable from MAGIC!

[Jake Ruston]

I really enjoyed your blog post.

I too agree with Craig R, the points he makes are very valid.

[Jake Ruston]

Interesting read on Carbon Offsets.

There is some very valid points in here.

Now I shall go read some more of your articles!

[jimbino]

Doesn't a woman who breeds and brings another person into the world effectively increase her carbon footprint by more than half?

As a non-breeder, can I expect a carbon-credit payment from TerraPass?

[matthew]

Zero Population Growth

[Jack]

Neil: Comparing nationalized oil cos to those who buy their franchises from Congress was the least of my point. Perhaps I'd reemphasize one point; that of the warning given by the increased distance, depth and other costs that go into acquiring that next replacement bbl of oil for each consumed today. The "well to wheel" "efficiency" of oil used in transportation is 15% with the rest wasted. And hey! it's one thing we do MUCH better and at higher volumes than any other nation!

jimbino Good point! But! if you're a "regular" educated American citizen you're among a group that is not quite reproducing themselves these days. Save your subsidy for education (esp. women) and SS, the two programs most likely to lower reproductive rates. But then, in regard to the US, ALL of our population growth comes from immigration of which the much discussed Mexican immigrants are only half.

So, perhaps our best "globalized" policy would that of helping Mexico (and perhaps others) achieve higher quality educations, a sustainable economy that would dramatically lower their rate of unemployment/grinding poverty, and implement a viable SS to care for elders. But! you can BET that NONE of the limp-spined, pandering pols of either party will address immigration or the related problems beyond their vague mutterings of the fantasy of "securing OUR borders" that has not been accomplished in 40 years of "the drug war".

And lastly! Ha! in terms of numbers it's only the increased numbers of youthful workers joining our economy that will shore up SS for those retiring over the next few decades.

[Jack]

Neil: Comparing nationalized oil cos to those who buy their franchises from Congress was the least of my point. Perhaps I'd reemphasize one point; that of the warning given by the increased distance, depth and other costs that go into acquiring that next replacement bbl of oil for each consumed today. The "well to wheel" "efficiency" of oil used in transportation is 15% with the rest wasted. And hey! it's one thing we do MUCH better and at higher volumes than any other nation!

jimbino Good point! But! if you're a "regular" educated American citizen you're among a group that is not quite reproducing themselves these days. Save your subsidy for education (esp. women) and SS, the two programs most likely to lower reproductive rates. But then, in regard to the US, ALL of our population growth comes from immigration of which the much discussed Mexican immigrants are only half.

So, perhaps our best "globalized" policy would that of helping Mexico (and perhaps others) achieve higher quality educations, a sustainable economy that would dramatically lower their rate of unemployment/grinding poverty, and implement a viable SS to care for elders. But! you can BET that NONE of the limp-spined, pandering pols of either party will address immigration or the related problems beyond their vague mutterings of the fantasy of "securing OUR borders" that has not been accomplished in 40 years of "the drug war".

And lastly! Ha! in terms of numbers it's only the increased numbers of youthful, immigrant, workers joining our economy that will shore up SS for those retiring over the next few decades.

[neilehat]

Jack, Well..., let's use up the rest of resource as long as the infrastructure is in place. Then we can move on to the next generation of energy technology. Perhaps then, they will let us take down those "quantuum leap energy pellets" off the shelf. Something we could be using now to drastically reduce CO2 emmisions. Instead of "wasting" coal, oil and natural gas to produce electricity.

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