Monday, May 22, 2006

Why Offsets Matter

The trading of credits for greenhouse gas emissions has run into some rough patches, lately. Not only has the price of credits in Europe dropped significantly, but one of the few efforts to put this mechanism into the hands of consumers has come in for criticism from those who think it avoids dealing with the underlying problems of our inefficient use of energy. I've mentioned TerraPass several times. This start-up sells an annual sticker to drivers and uses the proceeds to offset the emissions from member's cars by investing in projects that reduce greenhouse gases. Their Greener Miles partnership with Ford, however, drew criticism in a snide and patently uninformed Newsweek article. Even the otherwise-savvy WorldChanging blog seems ambivalent about the practice. But like it or not, emissions trading--whether at the wholesale or retail level--is probably our best tool for combating climate change, while we wait for alternative energy to grow large enough to matter in the global energy balance.

The basic idea behind offsetting emissions is simple--and it is entirely contrary to the patterns laid down in three decades of fighting local pollution. Emissions trading for greenhouse gases works because, unlike for other emissions, the effect of these emissions is not dependent on location. Thus the CO2 output of an American car can be exactly offset by building a wind turbine in China (instead of a gas turbine) or burning the methane from a landfill and turning it into CO2 (at a 21:1 reduction in net global warming impact.)

There are two reasons this makes good economic sense, as well as environmental sense. First, there is a wide disparity in the cost of achieving CO2 reductions. Capturing and sequestering the emissions from a coal-fired power plant--something that has yet to be implemented outside the laboratory--will cost between $50-$100/ton of averted CO2 emissions to the atmosphere. I've seen estimates putting the cost of the greenhouse gas savings from subsidized corn ethanol in the same range. But "low-hanging fruit" reductions are being effected at costs ranging from 0-$5 or $10/ton, and agricultural emissions reductions and the emissions benefits of wind and solar power can be quite cheap, depending on the circumstances. We're all better off if someone gets their reductions from the cheapest source possible, rather than paying top dollar to reduce their own, and the impact on the planet is exactly the same.

Just as importantly, the kind of large-scale reductions that will be required to make a real dent in the problem depend on changes in technology that will take years to implement and more years for existing vehicle fleets and capital stock to turn over. Trading and offsets provide a way to achieve meaningful reductions before these larger changes can roll through.

So while I can see how some might regard Terra Pass and Greener Miles as merely a way to reduce the guilt associated with buying an SUV getting 14 miles per gallon, this mechanism makes cars greenhouse-gas neutral, but in no way shields consumers from the impact of $3.00 gasoline. That's a much more powerful incentive for buying more efficient vehicles, and driving more frugally.

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