The Costs and Uncertainties of Carbon Reduction Schemes

The Costs and Uncertainties of Carbon Reduction Schemes

Earlier this month, a bill to implement a cap-and-trade system for carbon emissions passed the Senate Committee on Environment and Public Works. The Boxer-Kerry bill now moves on to the full Senate for consideration, where it will likely be combined with other climate bills. The House narrowly passed a similar cap-and-trade bill in July. These proposals, unfortunately, include significant sources of uncertainty in the net decreases in carbon we could expect. The certainty part comes in other key areas.

Cap-and-trade legislation will spike energy and fuel costs at a time when many Americans cannot easily afford it. An analysis by the Heritage Foundation estimates that Boxer-Kerry would cost American households an average of $900 per year in energy expenditures. This is because there are currently no inexpensive approaches for decreasing carbon emissions in most industries. In fact, most options for limiting carbon emissions are not cheap.

Thus, in order to provide more flexibility in credits trading, the current cap-and-trade proposals allow carbon emitters to buy excess credits from other emitters who are under their allocation, and also from entities that are offsetting carbon emissions by sequestering carbon in some way. In the short term, carbon offsets are anticipated to play a major role in cap-and-trade schemes. These carbon offset programs are troubling because their impact is difficult to assess. Two lawyers with the EPA recently spoke out against the programs because of the significant and usually unquantifiable variability in their effectiveness.

Carbon offset projects include land-use change (reforestation or other land conversion), as well as methane, biomass, and renewable energy projects. Voluntary carbon offsets are currently increasing in popularity as corporations and industries seek to demonstrate their social conscience – the Chicago Climate Exchange reported a 100 percent increase in the size of the carbon market in 2008. In July, Pacific Gas and Electric purchased almost $6 million of carbon offsets from a fund that manages forests on California’s Mendocino Coast. It is difficult to know how much carbon is truly being offset in these programs, for several reasons. Current voluntary programs, to cite just one example, offer no consistency in accounting for biospheric carbon sequestration.

The Boxer-Kerry bill provides extensive regulation and certification of offset programs. Voluntary carbon offset programs typically make use of basically similar certification programs designed to provide some assurance that the offset projects are actually doing what they are claiming to do, and are doing it only because of the offset payments (that is, not providing offset payments for things that were already happening).

But even the most rigorous certification program can’t necessarily ensure that any particular amount of carbon was actually offset. This is particularly true for popular offset programs like reforestation and land-use change strategies. These biospheric carbon offset projects operate in ecological systems where rates of sequestration vary by weather, soil, vegetation, and other local conditions. No systems currently exist for monitoring carbon sequestration from biospheric offset projects, and realistic monitoring systems are probably a decade or more away.

Politicians of course tout their carbon schemes as a boon to the environment and a model of prudent regulation. Ordinary citizens, for their part, have a right to expect more certainties than higher costs. Cap-and-trade legislation will raise energy prices, which might be acceptable if it were clear that there were commensurate benefits. That remains far less clear than the cost issue.

Any proposal that raises already high energy costs ought to ensure that consumers are actually getting something for the money. While carbon sequestration schemes can play a role in net carbon emissions, we shouldn’t be paying for their claims before their sponsors can reliably account for their actual performance.

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Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.