Friday, May 11, 2007

Environmental Hysteria: I've Got A Bridge to Sell You

I'm having some writer's block issues while doing my Ensigns' fitness reports. Therefore, I blog.

Happy belated Earth Day - seems like I'm getting in the habit of forgetting Earth Day, due to it being a particularly silly sort of a day. It reminds me, however, how annoyed I am by the cult of environmentalism and that I haven't done an Environmental Hysteria post in nearly a year.

The emergence of the "carbon offset" left me scratching my head for a bit while I was busy doing other things. I suppose the idea really began to gain momentum upon the release of An Inconvenient Truth and Al Gore's questionable claims of greenitude.

Anyway, it was nice to see some sanity with respect to the carbon credit scam in the Financial Times. Here's how it works (from Wikipedia, sorry):
Carbon credits create a market for reducing greenhouse emissions by giving a monetary value to the cost of polluting the air. This means that carbon becomes a cost of business and is seen like other inputs such as raw materials or labor.

By way of example, assume a factory produces 100,000 tonnes of greenhouse emissions in a year. The government then enacts a law that limits the maximum emissions a business can have. So the factory is given a quota of say 80,000 tonnes. The factory either reduces its emissions to 80,000 tonnes or is required to purchase carbon credits to offset the excess.

A business would buy the carbon credits on an open market from organisations that have been approved as being able to sell legitimate carbon credits. One seller might be a company that will plant so many trees for every carbon credit you buy from them. So, for this factory it might pollute a tonne, but is essentially now paying
another group to go out and plant trees which will, say, draw a tonne of carbon dioxide from the atmosphere.

As emission levels are predicted to keep rising over time, it is invisioned that the number of companies wanting/needing to buy more credits will increase hence pushing the market price up, and hence encouraging more groups to undertake environmentally friendly activities which create for them carbon credits to sell. Another model is that companies which use below their quota can sell their excess as 'carbon credits' also, the possibilities are endless hence making it an open market.

It is suggested that initially the quotas should be liberal, which would make the demand for carbon credits, and their resulting price, low so that business find it easy to transition towards paying for credits. Then over time, the quota of emissions a government sets (based on, say, international agreements) will gradually be reduced until the target level of emissions is reached.

Thank goodness this scam is completely voluntary for the time being. I remember while I was working on my MBA, there was a bit of rhetoric from one or two professors about businesses' social responsibility - which I called them on. Businesses are for-profit enterprises and not about making people feel good about themselves. If you want to imagine you are protecting the environment then go chain yourself to a tree or something on your own time.

Here's what the FT investigation found:

■ Widespread instances of people and organisations buying worthless credits that do not yield any reductions in carbon emissions.

■ Industrial companies profiting from doing very little – or from gaining carbon credits on the basis of efficiency gains from which they have already benefited substantially.

■ Brokers providing services of questionable or no value.

■ A shortage of verification, making it difficult for buyers to assess the true value of carbon credits.

■ Companies and individuals being charged over the odds for the private purchase of European Union carbon permits that have plummeted in value because they do not result in emissions cuts.

This is no way to run a business and those companies that waste their precious resources on this crap deserve to go out of business. What this amounts to is racketeering - pay this money or you will be punished. Maybe it could more accurately be called tithing. A voluntary contribution to the Church of Environmental Hysteria to allow socially concious businessmen to feel good about the evil Captialism that has made them so succsessful, therefore implying they ought to be ashamed of their success. A sin tax. Paying for absolution of the sin of success.

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Anonymous Joel Hafvenstein bloody well said...

The FT article does also link to a "Good offsetting guide: Ensuring your money makes a difference." What the FT has uncovered are growing pains, not signs that the whole thing is a scam.

Carbon offsetting really isn't about social responsibility -- it's a market failure, like most forms of pollution. If your business pumps out a gas in industrial quantities that has noxious effects on other people, it's reasonable for the government to step in and correct that market failure. Doing it through market mechanisms -- like we did with acid rain, and are now trying to do with CO2 -- is ideal.

What the CO2 market currently lacks (because of the aura of virtue that surrounds any climate change) are the anti-fraud watchdogs that make markets work better. The FT article is a call to get those watchdogs in, not an expose of the whole thing as happy-clappy enviro-mush.

14 May, 2007 04:31  
Anonymous joel hafvenstein bloody well said...

Sorry -- the second paragraph should say that unchecked CO2 emissions represent a market failure, not that carbon offsetting is a market failure.

14 May, 2007 04:33  

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