I flitted around this topic briefly in my post on McCain's big climate speech the other day, but Dave Roberts has a fuller explanation of why his plan to allow companies to purchase an unlimited number of carbon offsets under a cap-and-trade regime could end in disaster. The unlimited-offset idea may well appease coal interests, who want to keep the price of carbon cheap for as long as humanly possible until carbon capture and storage becomes viable. The problem, though... well, let's turn the mic over:
What could be wrong with a measure that a) holds prices down while b) reducing emissions and c) funding sustainable development in developing countries?
The problem is that there's good reason to believe the use of offsets would do none of the above. A new report out of the Program on Energy and Sustainable Development at Stanford, by long-time carbon market analysts David G. Victor and Michael Wara, argues that "the theoretical benefits of lower costs and broader engagement of developing countries through the extensive use of offsets are an illusion. They are based on the assumption that it is possible to administer an offsets system so that it rewards only bona fide reductions. This assumption is valid for only a fraction of the real offsets market."
The basic tension Victor and Wara identify is between quality and quantity. Of the emission reductions that have been secured thus far under the CDM [i.e., the Clean Development Mechanism under the Kyoto Protocol] -- which vastly outweigh direct domestic reductions undertaken in Europe -- Victor and Wara argue "that many of these reductions could have been accomplished at a far lower price; that many credits are probably not backed by real reductions; and that the promise of such a massive supply of credits is extremely unlikely if even the current (poor) level of environmental quality of the program is to be maintained." McCain's plan would allow offsets to come from international sources like the CDM, so the U.S. would be buying into a program that's already overtaxed and of dubious utility in reducing emissions.
I've talked to officials in the EPA and elsewhere who think that it's nigh impossible to verify most any offsets, period. Take, for instance, an offset that pays a developer to avoid cutting down a forest in such-and-such a place? How do you know you're not just shifting development to another location? How do you know that an offset credited as a "new" reduction wouldn't have happened anyway? It's impossible, these critics say, to prevent people from gaming the system. Now, for what it's worth, I don't think offsets are totally unworkable, and they probably do need to be included at some level. Some form of offset system may well be the only viable means of slowing down the pace of deforestation in countries like Brazil and Indonesia, for instance.
But these programs need an incredibly thorough level of scrutiny. McCain, however, wants to allow an unlimited number of offsets, and he plans to link up to the already overburdened and oft-dubious CDM, which will make close monitoring much, much harder. And, under McCain's plan, a "private-public partnership" would oversee the approval of all offset schemes, which means the odds are high that the process will be dominated by rent-seeking corporations who want as many bargain-rate offsets as possible, no matter how dubious. So I agree with Dave, this has all the makings of a poorly thought-out disaster.