The American Mind

Buying carbon credits to offset one’s carbon output employs Adam Smith’s invisible hand to reduce pollution. The idea behind it is a company has a monetary incentive to reduce their carbon emissions. They can then sell those pollution reductions to other firms or individuals who find it too costly to reduce their own emissions.

Businesses should spring up to connect suppliers of carbon credits with buyers. TerraPass is one such firm. However, Businessweek has looked into the business of TerraPass and found some of its sources of credits wanting. A landfill in Arkansas had to install a methane-collecting system by state regulators. TerraPass buying credits didn’t encourage the pollution reduction.

Regardless of who deserves credit for taking the initiative, one thing is clear: The methane system was launched long before any promise of carbon-offset sales. In other words, it appears that the main effects of the TerraPass offsets in this instance are to salve guilty celebrity consciences and provide Waste Management, a $13 billion company based in Houston, with some extra revenue.

All six other project developers selling offsets to TerraPass that BusinessWeek was able to contact said they were pleased with the extra cash. But five of the six said the offsets hadn’t played a significant role in their decision to cut emissions. “It’s just icing on the cake,” says Barry Edwards, director of utilities and engineering at Catawba County, N.C., which installed a system in 1998 to turn landfill gas into electricity to power 944 homes. “We would have done this project anyway.”

Right now, all TerraPass is doing is transferring money from celebrities to companies already reducing carbon emissions while assuaging guilt of “checkbook environmentalists.”

But carbon credits is a new market still in development. Trial and error is the name of the game. Rules need to be established that define a carbon credit. Once that’s in effect we should see the establishment of carbon credit exchanges like those for stocks, bonds, and commodities. Developing such carbon credit markets engages the powerful force of self-interest and capitalizes on dispersed knowledge which may reduce more carbon dioxide emissions at a lower cost than top-down government-mandated regulations.

“Another Inconvenient Truth” [via memorandum]