Shades of green in carbon offsets?

[southsider2k5]

http://www.ft.com/cms/s/48e334ce-f355-11db...0b5df10621.html

 

Industry caught in carbon ‘smokescreen’

By Fiona Harvey and Stephen Fidler in London

 

Published: April 25 2007 22:07 | Last updated: April 25 2007 22:07

 

Companies and individuals rushing to go green have been spending millions on “carbon credit” projects that yield few if any environmental benefits.

 

A Financial Times investigation has uncovered widespread failings in the new markets for greenhouse gases, suggesting some organisations are paying for emissions reductions that do not take place.

 

Others are meanwhile making big profits from carbon trading for very small expenditure and in some cases for clean-ups that they would have made anyway.

 

The growing political salience of environmental politics has sparked a “green gold rush”, which has seen a dramatic expansion in the number of businesses offering both companies and individuals the chance to go “carbon neutral”, offsetting their own energy use by buying carbon credits that cancel out their contribution to global warming.

 

The burgeoning regulated market for carbon credits is expected to more than double in size to about $68.2bn by 2010, with the unregulated voluntary sector rising to $4bn in the same period.

 

The FT investigation found:

 

■ Widespread instances of people and organisations buying worthless credits that do not yield any reductions in carbon emissions.

 

■ Industrial companies profiting from doing very little – or from gaining carbon credits on the basis of efficiency gains from which they have already benefited substantially.

 

■ Brokers providing services of questionable or no value.

 

■ A shortage of verification, making it difficult for buyers to assess the true value of carbon credits.

 

■ Companies and individuals being charged over the odds for the private purchase of European Union carbon permits that have plummeted in value because they do not result in emissions cuts.

 

Francis Sullivan, environment adviser at HSBC, the UK’s biggest bank that went carbon-neutral in 2005, said he found “serious credibility concerns” in the offsetting market after evaluating it for several months.

 

“The police, the fraud squad and trading standards need to be looking into this. Otherwise people will lose faith in it,” he said.

 

These concerns led the bank to ignore the market and fund its own carbon reduction projects directly.

 

Some companies are benefiting by asking “green” consumers to pay them for cleaning up their own pollution. For instance, DuPont, the chemicals company, invites consumers to pay $4 to eliminate a tonne of carbon dioxide from its plant in Kentucky that produces a potent greenhouse gas called HFC-23. But the equipment required to reduce such gases is relatively cheap. DuPont refused to comment and declined to specify its earnings from the project, saying it was at too early a stage to discuss.

 

The FT has also found examples of companies setting up as carbon offsetters without appearing to have a clear idea of how the markets operate. In response to FT inquiries about its sourcing of carbon credits, one company, carbonvoucher.com, said it had not taken payments for offsets.

 

Blue Source, a US offsetting company, invites consumers to offset carbon emissions by investing in enhanced oil recovery, which pumps carbon dioxide into depleted oil wells to bring up the remaining oil. However, Blue Source said that because of the high price of oil, this process was often profitable in itself, meaning operators were making extra revenues from selling “carbon credits” for burying the carbon.

 

There is nothing illegal in these practices. However, some companies that are offsetting their emissions have avoided such projects because customers may find them controversial.

 

BP said it would not buy credits resulting from improvements in industrial efficiency or from most renewable energy projects in developed countries.

 

Additional reporting by Rebecca Bream

[kapkomet]

 

I'm so SHOCKED! Not.

[NorthSideSox72]

I'm glad to see this being exposed. Any new idea like this will have flaws aplenty, so the sooner we force people to fix them, the better.

 

Unfortunately, what is inevitable is that some people will point at this, and say "see - it does no good! Its all a farce!" which is of course not true at all. It works sometimes, and not others. And as time goes on, it will work better, especially when things like this see the light of day.

[southsider2k5]

I'm glad to see this being exposed. Any new idea like this will have flaws aplenty, so the sooner we force people to fix them, the better.

 

Unfortunately, what is inevitable is that some people will point at this, and say "see - it does no good! Its all a farce!" which is of course not true at all. It works sometimes, and not others. And as time goes on, it will work better, especially when things like this see the light of day.

 

So what you are saying is that we should be doing this, but it isn't working right now, and we should stick with it to see if it works in the future, dispite what the naysayers might say? hmmm....

[EvilMonkey]

So what you are saying is that we should be doing this, but it isn't working right now, and we should stick with it to see if it works in the future, dispite what the naysayers might say? hmmm....

Touche!

[Texsox]

So what you are saying is that we should be doing this, but it isn't working right now, and we should stick with it to see if it works in the future, dispite what the naysayers might say? hmmm....

 

Stay the course. Americans don't have the courage to continue when things don't work exactly to plan. Oops, that's Iraq.

[southsider2k5]

Stay the course. Americans don't have the courage to continue when things don't work exactly to plan. Oops, that's Iraq.

 

Hey you got the joke

[NorthSideSox72]

Hey you got the joke

Ha ha, touche. But that's not what I'm saying....

 

I'm saying do like you would with anything else you invest in: research first. Check with your utility, see what it really is doing with the offsets, check around and see what *insert your power company here* is doing. Check the news, internet, whatever. Look into not just carbon offsets, but alt-power buys and other methods of reducing your use of fossil fuels. If they are on the up-and-up, do it. If not, don't, until they fix it. That will reward the companies doing it right, and force the others to get up to speed.

 

So, really, I'm saying we should be willing to admit (and even search for) our mistakes, adjust our tactics, and have a realistic view of things. Much better than staying the course, no?

[southsider2k5]

Ha ha, touche. But that's not what I'm saying....

 

I'm saying do like you would with anything else you invest in: research first. Check with your utility, see what it really is doing with the offsets, check around and see what *insert your power company here* is doing. Check the news, internet, whatever. Look into not just carbon offsets, but alt-power buys and other methods of reducing your use of fossil fuels. If they are on the up-and-up, do it. If not, don't, until they fix it. That will reward the companies doing it right, and force the others to get up to speed.

 

So, really, I'm saying we should be willing to admit (and even search for) our mistakes, adjust our tactics, and have a realistic view of things. Much better than staying the course, no?

 

I fully believe until we have a carbon offset system that has everyone involved in setting market prices, and involved disincentive to not follow the offset system, that it is pretty much worthless. I do also believe that all it does it discriminate against people who do not have the financial ability to offset their carbon emissions, and it is just an excuse for those with the financial means to sleep guilt free at night. If you do believe that emissions are the problem, reduce them. Don't tell me that *you* are too important to reduce your emissions, and instead are just buying your way out of actually making sacrifices. You can't tell me that someone like Cheryl Crow buying carbon offsets from an unregulated market is the same as her reducing her traveling party to save the enviornment. The system is inherantly flawed, and probably isn't a realistic solution as I see things.

 

I bolded your three suggestions, and I fully believe that only the last two are realistic solutions.

[NorthSideSox72]

I fully believe until we have a carbon offset system that has everyone involved in setting market prices, and involved disincentive to not follow the offset system, that it is pretty much worthless. I do also believe that all it does it discriminate against people who do not have the financial ability to offset their carbon emissions, and it is just an excuse for those with the financial means to sleep guilt free at night. If you do believe that emissions are the problem, reduce them. Don't tell me that *you* are too important to reduce your emissions, and instead are just buying your way out of actually making sacrifices. You can't tell me that someone like Cheryl Crow buying carbon offsets from an unregulated market is the same as her reducing her traveling party to save the enviornment. The system is inherantly flawed, and probably isn't a realistic solution as I see things.

 

I bolded your three suggestions, and I fully believe that only the last two are realistic solutions.

I think the last two are best for now, but even the offsets will be better as time goes on. As you point out, there needs to be regulation, though. That is not to say they are all worthless, however.

 

And I guess I have no problem with the financial end. If I have a little extra cash to pay more to buy carbon emissions off the market (assuming a working market, here), then why is that bad? Am I missing something?

[southsider2k5]

I think the last two are best for now, but even the offsets will be better as time goes on. As you point out, there needs to be regulation, though. That is not to say they are all worthless, however.

 

And I guess I have no problem with the financial end. If I have a little extra cash to pay more to buy carbon emissions off the market (assuming a working market, here), then why is that bad? Am I missing something?

 

Because it forces the actual reductions onto the people who can least afford it.

[Balta1701]

I think the biggest problem we're learning about with the latest data is that Europe did things the wrong way.

 

The Europeans set up their system by going to the companies that were already using energy and saying "Here you go, here are all your carbon offsets" for the stuff they were already using. Thus, all of the power over the system was in the hands of the people who were already emmitting. Some of them did things the right way and actually invested in green technology to free up carbon offsets for sale...and it appears quite a few did not.

 

It looks like this is giving us an important lesson in how to set up a better system if the rest of the world (aka the U.S. and China) ever get involved. Specifically, we can't put all of the power over the system in the hands of people who are looking to make a profit at any cost. It appears that it would be much better, rather than issuing carbon credits, to set up a carbon tax system, where an entity charges businesses that don't comply and rewards those that do comply rather than giving away carbon credits that businesses can sell.

[Texsox]

Because it forces the actual reductions onto the people who can least afford it.

 

Great point.

 

But isn't money a factor in any problem?

[southsider2k5]

Great point.

 

But isn't money a factor in any problem?

 

Does that mean we shift more burden to them?

[Balta1701]

Does that mean we shift more burden to them?

Isn't that exactly what you guys have been trying to do with the tax code?

[Texsox]

Does that mean we shift more burden to them?

 

No, that doesn't work. But I'm not certain that removing the money from the top is the answer. Perhaps we need to work towards a program where the Gore's and Crowe's money heads to the places with the least financial resources to fund pollution reduction programs?

 

 

Isn't that exactly what you guys have been trying to do with the tax code?

 

Ziiiiiiiiiiiiiiiing

 

nice.

[NorthSideSox72]

Because it forces the actual reductions onto the people who can least afford it.

I'd guess the reductions would happen to businesses who are dealing in much larger numbers, and always by choice (in a properly equated market). What makes you think that those who can't afford it would somehow be forced to reduce? I am still missing your line of logic here.

[southsider2k5]

I'd guess the reductions would happen to businesses who are dealing in much larger numbers, and always by choice (in a properly equated market). What makes you think that those who can't afford it would somehow be forced to reduce? I am still missing your line of logic here.

 

Its just like anything. The people with the means buy out of their obligations instead of making real change. They pass on the problem to the people who can least afford to change their life styles to adapt to reducing carbon output. Look no further than healthy eating for an example. The poorest people can't afford the higher prices to eat healthy, so they eat crap, and die younger. Healthcare falls under the same idea, as does the flat tax.

[NorthSideSox72]

Its just like anything. The people with the means buy out of their obligations instead of making real change. They pass on the problem to the people who can least afford to change their life styles to adapt to reducing carbon output. Look no further than healthy eating for an example. The poorest people can't afford the higher prices to eat healthy, so they eat crap, and die younger. Healthcare falls under the same idea, as does the flat tax.

OK, I see what you are getting at. But as I understand it, in an open exchange market for emissions to be traded (assuming, again, it is properly regulated), no one is ever forced to reduce. They reduce by choice, and get paid for it. I fail to see how that negatively impacts poor people. They too can reduce their energy use, if they want to. If not, they still lose nothing. If they don't participate, their lives don't change, except that maybe their energy costs are actually cheaper than those who buy offsets. So how again do they lose out?

 

If anything, I see this as a luxury tax sort of scenario. People with more money, very likely with more cars and bigger houses and more travel, use more energy. They pay more to offset the overage, while businesses who choose to reduce energy get the money. Money moves from rich consumers to cost reductions for companies that make products, and thereby pass savings on to consumers. Now, if it goes another step, and individual consumers start wanting to SELL offsets to other individual consumers, you still don't have a negative effect on poorer people. Why would you? Are you assuming that at some point, people with lower income would somehow be forced to buy offsets? Because I'm assuming that nothing like that would happen. If you are saying they would, please explain why, since I must not be getting it.

[Texsox]

I understand your point SS, but how wouldtaking their money out of the system help?

[southsider2k5]

OK, I see what you are getting at. But as I understand it, in an open exchange market for emissions to be traded (assuming, again, it is properly regulated), no one is ever forced to reduce. They reduce by choice, and get paid for it. I fail to see how that negatively impacts poor people. They too can reduce their energy use, if they want to. If not, they still lose nothing. If they don't participate, their lives don't change, except that maybe their energy costs are actually cheaper than those who buy offsets. So how again do they lose out?

 

If anything, I see this as a luxury tax sort of scenario. People with more money, very likely with more cars and bigger houses and more travel, use more energy. They pay more to offset the overage, while businesses who choose to reduce energy get the money. Money moves from rich consumers to cost reductions for companies that make products, and thereby pass savings on to consumers. Now, if it goes another step, and individual consumers start wanting to SELL offsets to other individual consumers, you still don't have a negative effect on poorer people. Why would you? Are you assuming that at some point, people with lower income would somehow be forced to buy offsets? Because I'm assuming that nothing like that would happen. If you are saying they would, please explain why, since I must not be getting it.

 

That is based on the assumption that a real carbon offset program is instituted where people actually have to make choices, instead of only if they want to. Anything other than a system that makes people comply is a waste of time, because all but the most concerned, and the most image concerned will leave it up to their neighbors to comply, which won't happen, and the system will fail.

[NorthSideSox72]

That is based on the assumption that a real carbon offset program is instituted where people actually have to make choices, instead of only if they want to. Anything other than a system that makes people comply is a waste of time, because all but the most concerned, and the most image concerned will leave it up to their neighbors to comply, which won't happen, and the system will fail.

I don't agree. I was envisioning an open market, treating carbon emissions like a commodity (well, a reverse value commodity as it happens). Business A produced 500 units of emissions last year, and that is their limit per the EPA. This year, they use only 400. They sell the 100 to another business who thinks they are going to go over theirs. Thusly, companies are incentivized to reduce emissions. In that scenario, the US government can buy emissions off the table as well, if they choose to reduce overall emissions dynamically.

 

Now, as I am sure you can see, there are potential pitfalls in such a market. The rules need to be specific in some key areas. But as a voluntary market, inclusive of the US government as a buy-side player, I think there can be a lot of liquidity there, along with the opportunity to reduce overall emissions without over-regulating.

[southsider2k5]

I don't agree. I was envisioning an open market, treating carbon emissions like a commodity (well, a reverse value commodity as it happens). Business A produced 500 units of emissions last year, and that is their limit per the EPA. This year, they use only 400. They sell the 100 to another business who thinks they are going to go over theirs. Thusly, companies are incentivized to reduce emissions. In that scenario, the US government can buy emissions off the table as well, if they choose to reduce overall emissions dynamically.

 

Now, as I am sure you can see, there are potential pitfalls in such a market. The rules need to be specific in some key areas. But as a voluntary market, inclusive of the US government as a buy-side player, I think there can be a lot of liquidity there, along with the opportunity to reduce overall emissions without over-regulating.

 

There is one gigantic inherant flaw in this. Carbon is not a commodity. You can't create a market force when you are trading a non-exsistant product.

 

Let me explain it this way. Corn is a commodity. It is traded at the Chicago Board of Trade and the price that it trades at affects the price of corn in every corner of the USA and the world. Because of the exsisting marketplace, the only way around the price of corn, is to plant your own. For emissions there is no such physical presence. If I want to say f*** the enviornmentalists and use up 10 times as much carbon as anyone else, I don't have to pay a price to get that carbon. I just have to do whatever it is that I want do, and keep on emitting. There is no disincentive for me to change my behavior. If I want to eat 10 times as much corn as anyone, I would literally have to plant, grow, harvest etc, the stuff myself, or I would have to walk down to the store and pay for it. There is a disincentive for me to be a corn-feind.

 

To make a carbon emissions program effective, there has to be a disincentive for non-participation. Until their is, the program will fail.

[NorthSideSox72]

There is one gigantic inherant flaw in this. Carbon is not a commodity. You can't create a market force when you are trading a non-exsistant product.

 

Let me explain it this way. Corn is a commodity. It is traded at the Chicago Board of Trade and the price that it trades at affects the price of corn in every corner of the USA and the world. Because of the exsisting marketplace, the only way around the price of corn, is to plant your own. For emissions there is no such physical presence. If I want to say f*** the enviornmentalists and use up 10 times as much carbon as anyone else, I don't have to pay a price to get that carbon. I just have to do whatever it is that I want do, and keep on emitting. There is no disincentive for me to change my behavior. If I want to eat 10 times as much corn as anyone, I would literally have to plant, grow, harvest etc, the stuff myself, or I would have to walk down to the store and pay for it. There is a disincentive for me to be a corn-feind.

 

To make a carbon emissions program effective, there has to be a disincentive for non-participation. Until their is, the program will fail.

Maybe I should have better emphasized the EPA's role I was referring to. ALL companies would have limits for emissions. ALL companies, if they stay within those, can choose to participate or not. If they don't, they are fined at whatever the set price per unit is, and the credits are purchased for them on the market.

 

Perhaps that is what you meant by required participation?

 

 

If you think about it, EPA is already supposed to fine for various emissions violations anyway, so the fines/market creation is already sort of in place.

[southsider2k5]

Maybe I should have better emphasized the EPA's role I was referring to. ALL companies would have limits for emissions. ALL companies, if they stay within those, can choose to participate or not. If they don't, they are fined at whatever the set price per unit is, and the credits are purchased for them on the market.

 

Perhaps that is what you meant by required participation?

If you think about it, EPA is already supposed to fine for various emissions violations anyway, so the fines/market creation is already sort of in place.

 

And they are a complete joke. They aren't nearly disincentive to stop behavior. I know for a fact that one of the main steel mills pays over $1 million A DAY in fines to the EPA, because it is cheaper than actually changing and fixing the problem.