Infernal Ramblings
A Malaysian Perspective on Politics, Society and Economics

Carbon Offsetting Works

Written by johnleemk on 4:26:13 am Mar 27, 2007.
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The use of carbon offsetting is a controversial one when it comes to fighting pollution and global warming. The concept has been denounced as self-serving, only meant to make bleeding heart liberals feel better about themselves without doing anything substantial to deal with the problems of global warming.

Many objections I have heard stem from a basic uneasiness with the foundation of the idea. Should we earn the right to call ourselves "green" simply because we've paid someone else to either not pollute, or to clean up some pollution, while we ourselves don't have to change our activities beyond forking out a little bit of cash?

The immediate visceral reaction is to feel that this just isn't right. One might also suggest that the carbon offsetting system isn't practical since it can't go on forever if we really want to reduce our carbon emissions. All of us have to help in some way in fighting pollution, since nature doesn't run on pyramid schemes — at some point or another, we'll reach the limits of what can be accomplished with carbon offsetting. (Although in the first place skeptics doubt carbon offsetting can accomplish anything.)

I don't intend to deal with the moral or ethical issues of carbon offsetting. Certainly, quite a few bleeding hearts are being hypocritical about their own activities when they decide to pay others not to pollute rather than to reduce their contributions to global warming. (A commonly cited example is Al Gore, whose home reportedly consumes more than 20 times the amount of electricity used by the average American house.)

The important question is whether the concept of carbon offsetting is economically sound. In other words, is the idea of paying someone else who would otherwise have polluted to go green effective in reducing pollution? I think the answer is yes.

The economic concept of externalities holds that pollution is an external cost of production. It's a cost imposed on society, and paid for by higher medical bills and other costs associated with the consequences of polluting. These costs are not factored into the equation by either consumers or producers, and as a result, the goods and services associated with pollution are overproduced and overconsumed.

By voluntarily paying someone to reduce their carbon output by the same amount of carbon you produce, you are internalising the external costs of your activities. In other words, you must now pay for polluting, and this creates an incentive for you to find green alternatives once you find the price of internalising your external costs to be too high.

It may be morally dishonest, but it works at the abstract and conceptual level. It makes the world a better place and improves the operation of the market. It's basically the same as a carbon tax, except it's voluntary, and it's generally agreed that carbon taxes would reduce carbon output.

For the reasons given earlier, one might think that it would be difficult to scale up carbon offsetting. After all, there are limits to how much we can pay others to not pollute before the only dirty people left on Earth are those paying everyone else to be clean.

This is where the wonders of the market come in. As the number of resources available to not pollute dwindle (i.e. it becomes harder and harder to find people capable of offsetting carbon output), the price of offsetting carbon will go up. It's the simple law of supply.

The result? People will either have to pay more, or reduce their own carbon output. (Or being the hypocrites that they are, decide to ditch carbon offsetting and kill the planet.)

There are practical problems with carbon offsetting, of course. It's been noted that it's doubtful whether many carbon offsetting companies are actually effective in how they carry out their business, and there are disputes over how to calculate how much carbon is offset by, say, planting a tree.

Nevertheless, these issues aside, there is much to be praised when it comes to carbon offsetting. It's not everyday that people voluntarily tax themselves, and for the benefit of the environment. Hypocrites these carbon offsetters may be, but they are doing us all a favour nonetheless.


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Infernal Ramblings is a Malaysian website focusing on current events and sociopolitical issues. Its articles run the gamut from economics to society to education.

Infernal Ramblings is run by John Lee. For more, see the About section. If you have any questions or comments, do drop him a line.


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