Thursday, June 12, 2008

Carbon Offsets

Whether you believe in global or warming or not, money is being made selling what are known as carbon offsets. According to TerraPass,

A carbon offset is a certificate representing the reduction of one metric ton (2,205 lbs) of carbon dioxide emissions, the principal cause of global warming. Although complex in practice, carbon offsets are fairly simple in theory. If you develop a project that reduces carbon dioxide emissions, every ton of emissions reduced results in the creation of one carbon offset. Project developers can then sell these offsets to finance their projects.

Of course, TerraPass doesn't do this out the kindness of its heart, one has to be a member, which is either pay as you go, or business programs.

What will not be discussed is whether carbon offsets is a moral good or not, rather this is a discussion of whether it is or isn't economically efficient.

In one respect, TerraPass follows the existing model of the market for pollution credits in the US. Power plants and major industrial entities receive pollution credits and are able to sell them to more polluting entities. The incentive to become a lesser polluter is there. However, the incentive must be greater than or equal what that capital could earn versus other projects. It has proven to be a successful program, to one degree or another.

While this program may work for businesses, as there may also be government subsidies, whether it makes economic sense for individuals is another matter entirely. Consumers must be willing to part with $9-$26 to "reduce their carbon footprint." Does that purchase make economic sense?

Arguably, the answer is "no." That money could be used to finance home conservation projects, like installing weather stripping or building a cistern. What TerraPass is making money on is a sense of moral guilt. Those who are most concerned with global warming are buying feel-good credits to tell their friends they live a "carbon neutral" lifestyle.

As stated above, if you are really concerned about reducing your carbon footprint, consider conservation and home energy efficiency projects. I maintain another blog that discusses green roofs, which I think is economically efficient at reducing air pollution and storm water runoff (

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