The political economy of climate policy

Understanding offsets 6

As the struggle to pass the Waxman-Markey climate-energy bill showed, there is a certain price any political system is willing to bear for climate action. In China, that price is low. In the United States, it is medium. And in Europe, it is relatively high.

But in every system, there exist two primary ways to reduce the costs of climate legislation to align it with that politically-determined price. One is by weakening the pollution reduction targets – something which provides zero benefit to the climate. The other is by including offsets – making it possible for emitters to get credit for low-cost pollution reduction activities like tropical forest conservation and energy efficiency investments.

Offsets have come under fire from critics who wish all of our organizing and effort had produced a stronger bill. But those critics are aiming their fire in the wrong direction. The inclusion of offsets was critical to getting the cost of the bill to a level at which a majority of the members of the Energy and Commerce committee could support it – without excessively lowering the targets. If the offsets had been eliminated or diminished, the pollution reduction targets would have been weakened much further in order to get the cost of the legislation down to the price the majority would support.

Indeed, we can estimate about how much those all-important targets would have been lowered: according to the EPA analysis (pdf) of the original Waxman-Markey discussion draft, the international offsets alone lowered the cost of the bill by about half. Take out those offsets, and the targets would have been made drastically lower to get the majority support the bill needed. As a result, the bill would have fallen far, far short of what we need to do to avoid climate catastrophe.

For my fellow political science nerds lovers, I’ve written an equation to express this phenomenon below:

The Law of Offsets

C = T / P

Where C = the cost of climate legislation a given political system will bear

T = Strength of pollution reduction targets

P = Price of pollution reductions

Excluding offsets also would have meant excluding major sources of global warming pollution like deforestation (20 percent of climate pollution, more than all the world’s cars, trucks, and planes combined) and agriculture (which, with offsets and other changes, has the potential to sequester almost 40 percent of global emissions).

Of course, it’s essential that offsets, like other kinds of pollution reductions, be real – and the Waxman-Markey legislation did a good job of ensuring they are. In addition to establishing a rigorous scientific board to evaluate any proposed offsets, the bill also includes an essential requirement: in order for any offsets to receive credit, they must have already taken place. In other words, you can’t get credit for a plan to offset emissions, but only for verified emission reductions that have already occurred.

In addition, there are a variety of very strict requirements to ensure, for instance, that indigenous and forest-dependent people benefit from tropical forest conservation offsets (indeed, if a country doesn’t meet the bill’s standards for protection of indigenous people, they could be entirely shut out of the program) and that domestic reforestation activities use only native species and protect biodiversity. There are a number of other safeguards and protections you can read about in Part D of the bill.

Of course, there are not an infinite number of real offsets out there. Indeed, the EPA analysis of the Waxman-Markey draft suggested that there may only be several hundred million tons a year of legitimate domestic offsets. As valuable as offsets can be, it’s essential that we maintain their integrity by sticking to the high standards in the bill.

A final point: the use of offsets shouldn’t be conceived of as some kind of necessary concession.  They should be used in any climate legislation (or international agreement), no matter how strong, to make it even stronger. In essence, lowering the price of pollution reductions means more reductions are possible while staying within the politically achievable price.

Even if a political system will bear a relatively high cost for pollution reduction (as in Europe), you can still achieve even more pollution reductions through the use of low-cost measures like offsets. To sum up, in the words of climate economist Kenneth Chomitz, “cheapness is a virtue.”

Glenn Hurowitz is the Washington Director of Avoided Deforestation Partners (www.adpartners.org), an organization dedicated to protecting tropical forests as part of the solution to climate change. His writing has appeared in The New York Times, Politico, The Los Angeles Times, The American Prospect, and many other publications. He is the author of the critically acclaimed book Fear and Courage in the Democratic Party and has worked in a variety of senior positions in the environmental movement and on political campaigns. All his writing at Grist represents his own opinions and no organization should be held responsible for it!

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  1. kandimba's avatar

    kandimba Posted 8:36 am
    01 Jun 2009

    The "political feasibility" argument is amazing because it says that, in order to get an environmental bill approved, we need polluter's support. So, we will end up having a completely ineffective policy, like the Waxman-Markey bill. We will destroy the planet, but at least we have polluter's support. Nice.Ricardo Coelhohttp://cooltheearth.wordpress.com/

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  2. Gar Lipow's avatar

    Gar Lipow Posted 9:17 am
    01 Jun 2009

    To amplify what Ricardo Coelho said, yeah you lower prices by printing counterfeit carbon credits. But that is just a backdoor way of raising the cap. It is not a tradeoff for a genuinely lower cap - just a way to hide that you have raised the cap, and reduced the need for emissions cuts.As to the argument that offsets are a good thing because they are the only way to include forestry and agriculture: if we could measure emissions changes in forestry and agriculture precisely and accurately enough to generate nice package carbon offests that are real, additional and permanent, we could include them in cap-and-trade, or charge a carbon tax against them. Why don't we? Because you can't measure carbon changes in biological systems that precisely or exactly. Given that they are dynamic systems that absorb and release carbon constantlty, both the establishing of baselines and the assurance of permanence are close to impossible. In addition there is just the precision and accuracy of day to day measurment. A lot of carbon is in the soil and in roots.  In very small scale tests, where esssentially cost is no object we can get day to day measure plus or minus five percent by combining sattelite pictures with on-the-ground metering. On the scale needed to measure carbon in real world scale forestry and agriculture we have to depend mostly on sattelites, with scatter ground probles used to refine and tweak estimates. That means plus or minus 25%. Given that actual carbon gain or loss can be a lot less than that, and that what is in an ecosystem varies a lot depending on when the measurement is taken, this means any particular year to year number can be off by close to 100%.  In short, offsets, or carbon charges or permits are not the right way to deal with agriculture and forestry. You need  qualitative meansurements, the kind of thing that mostly can't be included in an emission based cap-and-trade system. What you can measure is the long term trend in terms of whether carbon is being stored or released and by a little or a lot. There are ways to regulate and/or subsdize changes in the right direction, but not by the type of division into neat little precise emission packet

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  3. Glenn Hurowitz's avatar

    Glenn Hurowitz Posted 2:04 pm
    01 Jun 2009

    A close reading of the Waxman-Markey legislation should address most or all these concerns. You can't just get credit for conservation willy-nilly and the accreditation process doesn't just rely on satellites. Even the existing standards like VCS and CCBA require serious involvement from on-the-ground scientists and others monitoring each site to meet even the existing high-quality voluntary standards like the VCS and CCBA. That will continue. Although we are talking about large areas in this bill, we are also talking about the kinds of resources that will be able to support that on-the-ground monitoring (creating lots of jobs along the way). Perhaps most importantly, in order to get credit under the bill, international forest projects will, within a few years, only get credit if the country as a whole reduces deforestation from a fixed baseline. Based on the strict protections in the bill, other kinds of offsets will have to meet similarly strict requirements.   Finally, if something goes wrong, the bill makes provision for reversals by reserving allowances to compensate for them. This bill represents huge advances in offset integrity and it's essential to understand the multiple protections that exist before evaluating them. 

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  4. F James Handley Posted 10:17 am
    02 Jun 2009

    Cheapness of fossil fuel is no virtue.  It's the root cause of the climate crisis. As Yale economist William Nordhaus explained in Copenhagen:"Economic participants-thousands of governments, millions of firms, billions of people, all making trillions of decisions each year - need to face realistic prices for the use of carbon if their decisions about consumption, investment, and innovation are to be appropriate... without a strong price signal, there is simply no hope for making the vast number of decisions in a remotely efficient manner...  Raising the price of carbon is [thus] a necessary condition for implementing carbon policies in a way that will reach the multitude of decisions and decision makers over space, time, nations, and sectors."  [Emphasis added.]Cap and trade is a way to hide the price, and carbon offsets are a way to fake the cap.A carbon tax with revenue recycled to households would do a lot more for the climate by gradually and predictably raising carbon prices giving conservation, efficiency and renewables a foothold, while explicitly making consumers who use less than average amounts of fossil fuels better off.  Don't hide the price, recycle the revenue. I hope Waxman-Markey is heading for the same graveyard as Lieberman-Warner.  RIP.  Let's start over with a simple, fair, carbon tax.  And of course, no offsets.More on revenue-neutral carbon taxes at the Carbon Tax Center and the Price Carbon Campaign. 

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  5. Glenn Hurowitz's avatar

    Glenn Hurowitz Posted 11:24 am
    02 Jun 2009

    I agree (duh!) that we need a strong carbon price to achieve the transformations we need across the economy. That's why we need to work towards the strongest possible targets we can get. But that doesn't mean we should leave low-cost ways to reduce climate pollution on the table just because they're low-cost.

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  6. sveinson Posted 11:21 am
    03 Jun 2009

    The Law of Offsets is good - just a small nerdy comment. It should be C=T*P  (e.g. C=tonnes*($/tonne)) . Offsets lower the Price and therefore the Cost if the Target is constant.

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