Carbon Offsets that Couldn't Be Less Green
From the April 15, 2007, Sunday Times (London)
April 16, 2007
by Irwin Stelzer
Food-price inflation so severe that central banks are forced to raise interest rates to growth-stifling levels; corn prices so high that poor Mexicans can’t afford their tortillas; massive deforestation to make way for more corn and palm oil; poor farmers pushed off their land to make room for carbon-offsetting plantings paid for by rich jet-setters; and Al Gore for president.
These are some of the unintended consequences of hastily conceived environmental policies. In America, President George Bush has decided that we can plant our way out of dependence on foreign oil. He envisages a future in which America’s fuel will come from planting above ground rather than drilling below it. In Europe, Angela Merkel and Tony Blair have hit upon carbon trading as the solution to global warming, and the man whose mirror assures him that he is the greenest of them all, David Cameron, has a wind turbine on his roof to generate enough electricity to power his hairdryer.
With the possible exception of Gordon Brown, none of these hitch-hikers on the environmental band-wagon worries much about the cost of these policies, or has given the slightest consideration to the only consequences that are certain — the unintended consequences, some of which I have listed above. And Gore, the former vice-president turned Academy-Award-winning movie producer (and waiting in the wings to enter the race for the Democratic nomination for president), says our choices are action today, or desertification and flooding will be upon us very soon. Speaking of the Academy Awards, the stars, starlets and wannabes participating in this exercise in self-adulation poured into the hall from their limousines and private jets, but assured us that the entire flood-lit affair was carbon neutral. They had purchased what are known as “carbon offsets”, a system by which they pay others to curtail carbon emissions, or fund renew-able-energy sources. These deals, which are running at an annual rate of about $100m and rising, according to Business Week, “have become one of the most widely promoted products marketed to cheque-book environmentalists”.
Small problem. The offsets were purchased from TerraPass, holder of a portfolio of offset projects, which include a garbage dump in Arkansas managed by Waste Management. TerraPass has purchased thousands of tons of gas reductions resulting from Waste Management’s decision to burn off the methane produced by decomposing trash. But the company’s managers and state regulators told Business Week that the decision to burn off the methane had “nothing to do with TerraPass’s efforts”. Or with the offsets purchased by the Hollywood greens.
There are more such stories, but you get the idea: the reductions in greenhouse-gas emissions claimed by those intent on being green without changing their lifestyles are often bogus — they would have happened without the purchase of offsets.
That is the least of the problems created by the new environmental panic. The rainforests of Indonesia and Malaysia are being destroyed to clear acreage for the production of palm oil, used as a biofuel. And in many countries poor farmers are having their land confiscated so that rich consumers can plant trees to lighten their carbon footprints.
Rich American agribusinesses are also cashing in on the huge subsidies made available by the government’s decision to subsidise ethanol and biodiesel production from corn, sugar and other crops. Ethanol from corn is a particular favourite of all the presidential candidates vying for votes in corn-growing Iowa, with the honourable exception of John McCain, who knows a boondoggle when he sees one. Crop prices are up, and so are land values.
The result is a problem for central banks. In the past, spikes in food prices have been seen as temporary, usually weather-related, and requiring no reaction from the inflation-controllers. But this rise might be a plateau rather than a spike: chickens and cattle are more expensive to feed, so farmers are keeping fewer of them, driving up the price of eggs, beef and dairy products. This food inflation is felt most keenly in poorer countries, where food accounts for a larger part of the average budget than in the developed world. But even in the richest countries, central bankers are wondering whether to raise interest rates to cool growth sufficiently to offset the effects of rising food prices.
None of this means policymakers should avoid confronting the possibility that the planet is warming, and the further possibility that the cause is human consumption of fossil fuels. We can’t be certain, despite Gore’s movie and the heated press releases that accompany more balanced scientific reports. But there is enough evidence to warrant sensible steps to cut carbon emissions.
But think before you legislate. The EU introduced an emissions trading scheme that California intends to copy — and watched greenhouse-gas emissions rise by 30m tons, or about 1.5%, because too many permits were issued.
Europe’s four biggest power producers pocketed €8 billion (£5.4 billion) from the sale of their excess permits, and UK generators an estimated £1 billion. That doesn’t mean all such trading schemes are flawed, but it does suggest that haste makes more than a little waste. Cap-and-trade, properly done, and carbon taxes, properly levied, should be explored as ways of getting the costs of pollution reflected in the prices consumers pay. That would provide an incentive to entrepreneurs to come up with efficient alternatives to fossil-fuel consumption, and relieve governments of attempting to pick winners. There are efficient ways to cut emissions, but it will take patient thought rather than headline-grabbing to discover them.
Irwin Stelzer is a Senior Fellow and Director of Economic Policy Studies for the Hudson Institute. He is also the U.S. economist and political columnist for The Sunday Times (London) and The Courier Mail (Australia), a columnist for The New York Post, and an honorary fellow of the Centre for Socio-Legal Studies for Wolfson College at Oxford University. He is the founder and former president of National Economic Research Associates and a consultant to several U.S. and United Kingdom industries on a variety of commercial and policy issues. He has a doctorate in economics from Cornell University and has taught at institutions such as Cornell, the University of Connecticut, New York University, and Nuffield College, Oxford.