Posted by: yannaungoak | July 26, 2009

$13.95 for a Clean Conscience?

I bought my tickets home today ($790 from Burlington VT to Singapore, Aug 16, Northwest Airlines, for those who want to know). At the checkout, they had a thing where I could pay $13.95 to buy 1700 tons worth of carbon credits:

carbon_offset

My first reaction was like, WTF? Are you kidding me?

And then I thought it deserved a more thorough discussion then my cynical dismissal of all things trendy and “green”.

After thinking about it. I still don’t buy it. So, I’m paying this company $13.95 so that they can stop cows from burping in Mexico and build wind turbines in China and India (link). I have several doubts.

First, pricing. $13.95 for 1700 tons. That’s about 0.8 cents per ton. Who determines that price? From what I know about carbon policy, it is near impossible to determine the economic costs of carbon emission. 0.8 cents per ton might very well be too high or too low. I think if we are going to get this pricing issue right, having a blanket “pay XX amount per ton you emit” policy is not going to get us anywhere. Because the thing we have to consider is the opportunity cost of that $13.95 that I’m going to spend on carbon credits. Is it the most efficient thing to do for this carbon offset company to give money to third world farmers to plant trees or prevent cows from burping? Instead, why isn’t it better for me to spend that $13.95 say, donating money to build a school?

Second, its not something I can see for myself. I really like this policy they implemented in Ireland which actually worked wonderfully to eliminate plastic shopping bags there. The thing that’s very appealing about substituting reusable bags for plastic bags is that the effects are immediately visible. You, as a customer, see a real actual physical difference when you make the switch. And you would want to pay for that kind of thing, it feels personal.

Third, externalities. There are various positive and negative externalities to carbon offsetting. Positive ones include things like the new trees being planted creating a habitat for different species. Negative ones include monoculture and the introduction of invasive species and things of the like. Like all externalities, they are prone to lead to market failure. The problem is that the price for the good will not reflect these external costs and benefits, simply because the companies in the business of selling carbon offsets do not have an interest in gaining these external benefits (e.g. they don’t get paid for saving animals, only for planting trees) or avoiding these external costs (e.g. they don’t really care about the long term fertility of the land that they’re planting trees on).

Fourth, as long as its voluntary and unregulated, the focus is going to be on the marketing side of things. Its a classic case of information asymmetry (it’s related to the second point). Since customers have little information about the actual product they’re buying, they will have to operate on faith in whatever marketing program that the companies have devised. So companies will naturally put much more emphasis on marketing than on actually offsetting carbon.

Having said all that, my conclusion is that this carbon offsetting thing is basically a luxury good. Rich people can pay some trendy company to offset their carbon, and in exchange they get a clean conscience and a sticker on their suitcase that says they are green and trendy. I mean there’s nothing wrong with creating a new market in luxury goods. I’d much rather have people spending money on carbon offsets than on say, luxury watches.

But its not something that I would buy.

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Responses

  1. fyi… the getting rid of plastic bags thing is everywhere. It’s not “policy” but in Europe they usually make you pay for the bag, so most people invest once in a cloth bag that’s sturdier anyways.

    The same thing is happening here now, but we believe in “Free Plastic” 🙂

    It would be interesting to see if we would have an opinion on this stuff at all if we didn’t go to Midd…. 😛


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