Cap & trade systems outperform offsets in cutting carbon emissions

The idea of a carbon offset is that you can emit lots of carbon but pay for it by the planting of trees, buying into wind energy or other schemes that reduce emissions. It is an echo of the ‘cap and trade’ approach to pollution control except that participation is voluntary.

Posner and Becker make insightful remarks about carbon offsets.

Offsets are voluntary - a purchaser makes a charitable contribution to fight global warming. But because we are not a very charitable society, offsets are a poor substitute for cap and trade. Moreover, offset programs are limited because consumers are not the only carbon emitters and investments by carbon-offset firms may simply replace existing investments. There is commercial and governmental investment in wind and nuclear energy, reforestation, climate research, fossil-fuel efficiency, and so forth, and if now consumers through carbon-offset programs invest in such projects, commercial and governmental investors may scale back.

The most serious drawback of the offsets movement is that it is likely to make the problem of excessive carbon emissions more rather than less serious. It creates the impression that modest reductions in carbon emissions due to offsets meaningfully reduce global warming when their effectiveness is negligible. Ineffective voluntary efforts may make people believe there is no need to incur the heavy costs necessary to avert the risk of catastrophic climate change.

Clearly the offset movement does increase public awareness of global warming which may lead to other voluntary efforts to reduce emissions. This again will not be a strong effect – the greedy will ‘avoid cognitive dissonance by exaggerating the practical efficacy of largely symbolic gestures, such as purchasing carbon offsets’.

Alleged "offsets" would have greater effectiveness if they became compulsory rather than voluntary. But then the offset system would be no different from cap and trade.

‘The natural link between an offset system, whether compulsory or voluntary, and an emission trading system does dispose of the criticism that offsets are not desirable because they are like the indulgence system of the Middle Ages, In that system, sinners could purchase forgiveness for some of their sins without either having to repent, or having to agree not to sin anymore. Yes, an offset system does essentially involve buying the rights to pollute, but buying such rights helps get polluting into the hands of those businesses and consumers who get the most value from these rights. That is why the world has gravitated toward a cap and trade system rather than merely a cap system’.