isramart : Carbon offsets in Waxman-Markey climate bill make economic sense

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One of the least understood and most widely criticized features of the Waxman-Markey climate bill is carbon offsets, or the “trade” part of cap-and-trade.

A carbon offset represents a reduction in greenhouse gas emissions somewhere else, such as a wind farm in California or a reforestation project in Scotland – to balance out emissions that can’t be reduced. By using carbon offsets, companies and individuals can reduce their carbon footprint to zero or even negative.

Carbon offsets are a cost-effective way to reduce carbon emissions quickly and efficiently, said Robert H. Frank, author of the just-published “The Economic Naturalist” and professor of economics and management at Cornell University.

“Because carbon dioxide is a global gas, it doesn’t matter where you’re reducing it. The Waxman-Markey climate bill starts us down a road to pay to put carbon in the air, which is an incentive to cut back,” said Frank, speaking today at the National Press Club in Washington.

It will be cheaper and easier, of course, for some companies to reduce their emissions below the required limit than others. The more efficient companies, who emit less than their allowance, can sell their extra permits to companies that are not able to make reductions as easily. This creates a system that guarantees a set level of overall reductions, while rewarding the most efficient companies and ensuring that the cap can be met at a low cost to the economy.

“The great thing about cap-and-trade is that the environment gets its piece upfront,” said Eric Carlson, president of Carbonfund.org, a Silver Spring, Md.-based nonprofit, climate organization that supports domestic and international projects that reduce carbon dioxide emissions. “The cap is set at the right level with slow reductions and the market has to figure out how to get there.”

Carlson said all the organization’s projects meet high standards and are third-party validated and certified to ensure that donations to the fund reduce emissions.

To reach the 80% reduction in 2050 set by Waxman-Markey would only require a 2% reduction annually, or adjusted, 3 ½ %, said Carlson, adding that this goal is “extremely doable.”

About the cap in Waxman-Markey (as explained by the Center for American Progress): Large-emitter companies will have a limit on the amount of greenhouse gas it can emit. The firm must have an emissions permit for every ton of carbon dioxide it releases into the atmosphere. These permits set an enforceable limit, or cap, on the amount of greenhouse gas pollution the company is allowed to emit. Over time the limits become stricter, allowing less and less pollution until the ultimate reduction goal is met. This is similar to the cap and trade program enacted by the Clean Air Act of 1990, which reduced sulfur emissions that caused acid rain. It met the goals at a much lower cost than industry or government predicted.

Carbon offsets are often viewed negatively as indulgences to buy companies or individuals out of excessive use situations, said Carlson. Offsets also jokingly have been compared to hiring someone else to go on a diet if you’re obese, or asking someone not to have an affair if you’re trying to reduce the heartache in society (See www.cheatneutral.com).

The carbon offset market effectively started in 2001; carbon offsets have been used by companies, governments, organizations and indivisuals to balance out emissions. By and large, carbon offsets are used when a company or individual cannot find another way to reduce emissions to meet its goal.

A notable exception, ironically, is Al Gore himself, who lives in a 10,000-square-foot house, requiring 10 times the heating and cooling than the average American home. On a voluntary basis, Gore purchased enough offsets to make his house negative, said Frank. “But if you’re Al Gore and urging other people to cut back, you’re not setting a very good example.”