We’ve posted several times on “carbon neutrality” — how it’s defined, how environmentalists are split between CO2 Puritans and Pragmatists, and further ramifications of their conflict centering on the nascent market carbon offsets (see here and here). Supporters say buying offsets is an effective and justifiable way to compensate for CO2 emissions. Opponents liken carbon offsets to the indulgences sold by the pre-Reformation Roman Catholic Church.
Los Angeles Times staff writer Alan Zarembo examines two specific aspects of the controversy:
- Do offsets purchase new reductions in greenhouse gas emissions, or do they merely transfer wealth from buyer to seller>
- Do sellers claim credit for more than the amount of greenhouse gas reductions they actually achieve?
In the market for carbon offsets, buyers and sellers share the responsibility to make sure that the transactions in which they engage match appropriate expectations. But not all buyers want the same thing — some care only about the warm glow they obtain from doing good, whereas others want to be sure they actually reduce their “carbon footprints.” Consequently, the supply side of the market is rich with variation in the quality of offsets sold. A market failure only arises if buyers receive a product whose quality is below their reasonable expectations. That could happen if sellers commit fraud (for which both civil and criminal penalties already apply), or if buyers fail to exercise due diligence (by performing a reason able amount of product quality research). If Congress were to ever enact an emissions permit program, then these problems would have to be addressed on a much larger scale, probably by an Executive branch agency through a complex series of regulatory actions.
Zarembo illustrates both problems anecdotally, to explain that the reductions in greenhouse gas emissions promised by sellers may not actually materialize:
The Oscar-winning film “An Inconvenient Truth” touted itself as the world’s first carbon-neutral documentary.
The producers said that every ounce of carbon emitted during production — from jet travel, electricity for filming and gasoline for cars and trucks — was counterbalanced by reducing emissions somewhere else in the world. It only made sense that a film about the perils of global warming wouldn’t contribute to the problem.
Co-producer Lesley Chilcott used an online calculator to estimate that shooting the film used 41.4 tons of carbon dioxide and paid a middleman, a company called Native Energy, $12 a ton, or $496.80, to broker a deal to cut greenhouse gases elsewhere. The film’s distributors later made a similar payment to neutralize carbon dioxide from the marketing of the movie.
It was a ridiculously good deal with one problem: So far, it has not led to any additional emissions reductions.
According to Zarembo, what Chilcott purchased through Native Energy wasa small sliver of a Pennsylvania methane digester that cost $750,000 ($631,000 of which came from state and federal grants)and a smaller slice ofthree Alaskan windmills thatcost $3.1 million ($2.8 million from federal grants). Combined, these projects were said to reduce 37,000 tons of CO2 equivalent.But Native Energy, which contributed 9% of the cost of the methane digester and 1% of the cost of the windmills, claimed (and presumably sold offsets for) 100% of the carbon reductions. Assuming proportionality, the proper amounts were 2,707 tons from the methane digester and 90 tons from the windmills.
Economists who perform benefit-cost analysis call this “double-counting.” It’s an elementary error. In a properly conducted benefit-cost analysis, every cost and every benefit are counted exactly once. Advocates are susceptible to the temptation tocountsome of the costs less than once and count some of the benefits more often. Conversely, opponents are prone to make the opposite errors. That’s why independent analysis of benefits and costs is generally more reliable than work performed b y advocates or opponents. In the case of carbon offsets, reputable sellers seek independent measurements and estimates– not just audits of their own calculations, and certainly not audits performed by like-minded souls.
Zarembo also notes another problem with the carbon offsets Native Energy sold to Lesley Chilcott: none of the projects she “helped fund” were actually new. Each was an investment that proceeded independent of Native Energy’s contribution.That means Chilcott’s purchase of carbon offsets from Native Energy actually yieldednothing at all, except for a $496.80 wealth transfer to Native Energy. The company paid about $2.50 per ton to the Pennsylvania farmers who built the methane digester, and $4 per ton to the Alaskans. That’sa weighted average of $2.55 per ton, or 21% of the amountChilcott paid. Native Energy retained the remaining 79%.
Zarembo says Native Energy approached both the Pennsylvania and Alaska projects knowing that they would be undertaken without their involvement. That means Native Energy knew that the actual reduction in greenhouse gas emissions achieved bytheir investment was zero.
The Federal Trade Commission’s guidelines on environmental claims says, in part:
[A]ny party making an express or implied claim that presents an objective assertion about the environmental attribute of a product, package or service must, at the time the claim is made, possess and rely upon a reasonable basis substantiating the claim. A reasonable basis consists of competent and reliable evidence. In the context of environmental marketing claims, such substantiation will often require competent and reliable scientific evidence, defined as tests, analyses, research, studies or other evidence based on the expertise of professionals in the relevant area, conducted and evaluated in an objective manner by persons qualified to do so, using procedures generally accepted in the profession to yield accurate and reliable results[section 260.5].
Further, it is a violation of the FTC guidelines to overstate the environmental benefits of a product or service:
An environmental marketing claim should not be presented in a manner that overstates the environmental attribute or benefit, expressly or by implication. Marketers should avoid implications of significant environmental benefits if the benefit is in fact negligible [sec 260.6(c)].
Native Energy’s carbon offsets appear to violate both of these provisions.