Monday, March 12, 2007

On Carbon Credits

Part of the Al Gore utility bill furore focuses on his excuse that he invests in "carbon credits" (though the investment turns out to be in a company of which he is an owner/officer). Many people wonder what exactly a carbon credit might be. Cynical heretical deniers have suggested that a carbon credit is not unlike the old Catholic indulgence whereby a sinner pays off God with a bribe to clear a list of sins and thereby start off with a clean sheet until the next time an indulgence is required.

So what is a carbon credit? Here are some examples.

Tom and Jane go on vacation. The airplane they fly in will burn fossil fuels and create an exhaust of carbon dioxide which will (so it is said) do untold damage to the Earth's temperature. Tom and Jane feel guilty about this but find out that they can easily assuage their feelings by investing in the planting of a tree in a wilderness area. This tree will absorb their carbon dioxide and so save the planet.

Smoggy Air Foundry (SAF) Inc. has a large factory which desperately needs upgrading to give off less pollution. But the upgrade would likely render the foundry unprofitable, forcing closure and the loss of jobs. Rather than allowing for a tax incentive to make the upgrade economically feasible, the government initiative suggests that SAF inc. would do better to continue to run the foundry as it is. However, an ongoing penalty for running an inefficient factory would be to buy a carbon credit for each tonne of carbon dioxide, etc. lost to the atmosphere. The carbon credit would be traded from a company that has invested in efficiency via a carbon credit exchange.

Carbon credits could also become a feature of national economies - Country A (say Euroland) might pay Country B (say Africania) to allow it to be more profligate with its CO2 emissions. Note that this concept makes the most of the difference between the developed world and the undeveloped world. The unfortunate side effect is that the undeveloped world would get cash subsidies but no means to use that cash to become industrialized.

So, three examples on personal, institutional and national levels. They've thought of everything!

But let's look a little closer.

That tree, for example. Tom and Jane sent off the $50 to buy the tree. They receive a certificate in return. They feel good about what they've done, but do they actually know there is a tree planted in their name? Worse, if there is one, who is looking after it, watering it, making sure it grows? Hmm.

SAF Inc. is continuing to pollute the skies and provide poor working conditions for its employees. The carbon credits don't come cheap and soon it is apparent that the much needed improvements will always be financially out of reach. Then a government policy change demands the closure of such factories with little compensation. The site is closed down and sold off for building land and the workers lose their jobs.

Euroland continues to operate its carbon-rich economy, turning out goods that it in turn sells in Africania. Goods the people in Africania cannot make themselves because they have sold the right to build factories, make electricity or generally improve their standard of living.

Now, I do recognize that these outcomes might seem a little extreme. But they are possible and in all probability they will happen in a real world of smoke and mirror politics.

There is another angle to this subject that should not be allowed to pass without mention. That is, the trading of carbon credits (on whichever scale) requires a huge bureaucracy. Moreover, entrepreneurs can see ways to get in on the action. And public relations officers also see ways to make a lot of mileage out of a little investment in the right green strategy (if you want an example of this, look no further than a company that likes to call itself "Beyond Petroleum"). Carbon trading is becoming an industry, a big business opportunity, an element of bloated government bureaucracy.

Yet in the end, the best it could ever be is the equivalent of a zero sum game. Doesn't sound like a winner to me!

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