Offsetting carbon

Here's an article that talks about a new plan about how to deal with carbon offsets in England.

Carbon offsetting is where consumers can choose to pay money every time they perform a carbon emitting action (like taking a flight). The money goes to a carbon-generating activity, like planting a tree, or a carbon-saving activity.

This doesn't work, though, when the offsetting company fails to invest the consumers' money in actual offsets.

The article explains how this problem is being addressed in England by drawing up a form of an honor code.

I'd like to take a moment to share an insight I had from reading the introduction to a book called Emissions Trading: Principle and Practice by T. H. Tietenberg:

Many people feel uncomfortable with the idea of offsetting carbon. I pollute and pay someone else to clean up my mess? I pay another company to cut back emissions so that I don't have to? It just doesn't sound fair. Why can't we just tax everyone who emits carbon, and then EVERYONE will have to cut back their emissions?

Allow me to offer an overly simplified economic explanation (I am <> an economist!):

A pollution tax would be bad because it would make the economy unhappy. Why? Because for some polluters, it is easy to reduce emissions, but for others it is very difficult. Therefore, your pollution tax is a big cost for some people, and not others - not good.

Of course you might ask - then why doesn't the government simply demand a higher tax from people who can reduce their emissions more easily? It's a good idea. If we could come up with the right price for everyone, the system would be both fair and efficient.

Unfortunately, coming up with the right price is a big challenge for the government (or whoever would be enforcing the tax). There are so many factors to consider. And there are so many people who need to be taxed. Trying to come up with good standards would be a nightmare.

The marketplace, however, is great at setting the right price. Markets are happiest when the price is right. So how do we make a market for non-polluting?

Enters the world of emissions trading. Instead of taxing polluters every time they pollute, we give everyone an allotted amount of "pollution credits". For example, one company gets 10 credits per year, each of which allows the company to emit 10 tons of pollution.

"Hold on!" you might say. "That's still unfair. You just said yourself, not everyone is equal. So it isn't fair to give out the same number of credits. Some people will benefit more than others!"

True, but now there's a twist. Any credits that go unused can be traded to other companies; say, a company that needs extra credits to cover emissions beyond its limit. So while there might be a certain amount of unfairness at the beginning, that will level out as the companies begin trading credits. In this emissions market, the best price will naturally evolve over time.

And the overall level of pollution will go down, while still keeping the economy happy.