RE: Apples and oranges

Well, as I said before, I think there are still big obstacles to making a carbon offset system work. I've been more trying to explain it here, more than I've been trying to defend it.

In general, though, the fact that there's money involved in all of this isn't intrinsically a bad thing - it's what's supposed to make it work.

Viewed from a high level, the way it's all supposed to work is that the "cap-and-trade" system sets our national goal for emissions. Currently, we emit about 5 billion tons of CO2 each year. So if we want to set a goal of zero growth, the government would create a pool of 5 billion tons of offsets. If we want to reduce by 10%, we create a pool of 4.5 billion tons. This pool is auctioned off by the government.

Any organizations that actually remove CO2 from the atmosphere - carbon sequestration or whatever - is granted an equivalent number of offsets beyond the basic pool representing our goal. They own them and can sell them or keep them as they choose.

Now, these have to be linked to behavior, so every ton of actual emission has to be paired with an offset owned by the emitter. Any emissions not paired with an offset have to result in sufficient sanctions to make it not worthwhile - the obvious choice being fines that are substantially more than the price of an offset.

Now, looking at where all the money ends up going: there's a pretty huge chunk that goes to the government, becoming national revenue - reducing taxes or whatever, and there's money that goes to anyone who removes carbon and sells their offsets.

When you star looking at things like the Fox News article mentioned they're not intrinsic to the system. There's no inherent reason that these things should be traded on Wall Street. They're basically government instruments like T-bills. If the government wants Wall Street to actually manage the auction, then they presumably would make some money off of it. Plus there's some inherent uncertainty in the total number of offsets any entity needs in a given auction period - if they over- or under-buy, then presumably they'll need to make corrections by buying and selling in a secondary market, and those trades might end up being mediated like the current stock market.

"Credits" for reductions already taken don't make sense. They sound like a purely political move. The goal is to reduce future emissions - the reductions that companies like Dupont and Alcoa have already done are reflected in the fact that they don't need to buy as many offsets as they would have without the reductions. Solar and wind energy firms already benefit in the system because their competition - fossil fuel burning energy firms - will have to buy very many more offsets than the "clean" energy firms, and those costs will have to be passed on to the consumer, making fossil-fuel energy more expensive.

And I really don't get the issue about "crowding out the environmentalists". They get the big win by cleaning up the environment. The whole point of this system is to create incentives to reduce emissions. Incentives mean money - so the whole point is to make it cost real money to pollute. That money has to go somewhere. In the ideal scenario, that money goes to "the people" - all of us - because the offsets represent the right to damage something we all hold as a common interest, the atmosphere.

Again - none of this is intended to defend the idea, it's really just to explain it. There are some key issues that the general idea doesn't really address, and any particular implementation can easily screw them up.

As a really basic example, working out how we assess carbon output will be likely be an awful political mess. Polluters will lobby very hard to make the estimating rules underestimate their output as much as possible, while environmentalists lobby to make them overestimate.

As another, when you've got a business like a coal-burning power plant, virtually the entire block of carbon offsets the business needs to buy go to one thing. But for most businesses, and especially for individual consumers, their emissions are spread over a lot of different activities. In theory, we'd have some way to total them all up and just buy the necessary offsets, but in practice, it almost always gets pushed farther upstream - both to make it easier on the consumer and to ensure compliance.

So, to offset a car's emissions, the car owner needs a block of offsets. Presumably, they're purchased as part of registration fees or emissions testing or whatever. On the other hand, with something like a barbecue, there's no obvious recurring transaction to which they can be attached. Rather than having a "barbecue tax", maybe we estimate the expected average output of the barbecue over its normal life and require barbecue sellers to own the corresponding offsets before selling it. But once again, this introduces an area where lobbying efforts can screw with the system.

I think there are a whole bunch of little things like this that can confuse the issue and make it highly politicized - at the expense of the effectiveness of the system.

But I still think it's worth talking about and understanding systems like this, rather than just dismissing them out of hand.