Carbon Offsets: Better than Critics Think?

Although carbon offsets have been much maligned, they are a useful complement to policies that penalize carbon emissions.

“Humanity is sitting on a ticking time bomb.”

So begins the about-the-film section of the website for Al Gore’s 2006 Academy Award winning documentary, “An Inconvenient Truth.” The description continues with these ominous words: “If the vast majority of the world’s scientists are right, we have just ten years to avert a major catastrophe that could send our entire planet into a tail-spin of epic destruction involving extreme weather, floods, droughts, epidemics and killer heat waves beyond anything we have ever experienced.”

But as Mr. Gore explains in the film itself, there is hope. By taking prompt action to reduce greenhouse gas emissions, we can escape disaster.

Many have rebuked the former vice president for failing to heed his own message. For example, his 10,000-square-foot Nashville mansion used 221,000 kWh of electricity in 2006, more than 20 times the American household average.

In response, Mr. Gore’s spokesmen say he has recently installed solar panels and has purchased more than enough “carbon offsets” to make the house’s carbon footprint negative. That is, he has paid one of the dozens of companies around the world that specialize in helping people neutralize the environmental impact of their consumption by replanting forests, say, or by investing in renewable energy sources.

From the beginning, critics have lampooned carbon offsets, likening them to an obese person paying others to lose weight for him. Others complain that offsets allow rich consumers to pollute with impunity while posing as friends of the earth. To dramatize its claim that offsets are a moral travesty, one group has even created a web site that promotes the opportunity to enjoy guilt-free extramarital affairs by paying third parties not to commit infidelities they otherwise would have.

The fact that offsets have been such a ripe target suggests that Mr. Gore may have compromised his advocacy for greenhouse gas reduction by building such a large house. He could have built a smaller one, after all, and used the money he saved to buy even more carbon offsets.

Yet carbon offsets make more sense than critics think.

Among the myriad ways in which problems like obesity are different from global warming, one in particular is economically salient. Whereas the damage caused by obesity is specific to each overweight person, the damage caused by global warming depends only on the total emissions of greenhouse gases. Paying someone else to lose weight does nothing to improve an obese person’s health. In contrast, a reduction in total CO2 emissions, no matter where it comes from, helps reduce global warming.

The question of which appliance to choose is a case in point. Suppose you live in a northern city with normally mild summers and are considering buying a bedroom air conditioner to ease you through the occasional brutal heat wave. Your choices are between a highly efficient model that sells for $500 and a less efficient one that sells for only $300. Because you’re concerned about global warming, you feel obligated to buy the more efficient model. But because you use your air-conditioner so infrequently, buying that model won’t actually help much. You’d do much more to curb global warming if you bought the cheaper model and used the money you saved to buy carbon offsets.

By themselves, they cannot solve the problem of global warming. For that we need sterner measures, such as carbon taxes or cap and trade. But offsets can help. They should be part of the mix.

Author: Robert Frank

Robert H. Frank is the Henrietta Johnson Louis Professor of Management and Professor of Economics at Cornell's Johnson Graduate School of Management and the co-director of the Paduano Seminar in business ethics at NYU’s Stern School of Business. His “Economic View” column appears monthly in The New York Times. He is a Distinguished Senior Fellow at Demos. He received his B.S. in mathematics from Georgia Tech, then taught math and science for two years as a Peace Corps Volunteer in rural Nepal. He holds an M.A. in statistics and a Ph.D. in economics, both from the University of California at Berkeley. His papers have appeared in the American Economic Review, Econometrica, Journal of Political Economy, and other leading professional journals. His books, which include Choosing the Right Pond, Passions Within Reason, Microeconomics and Behavior, Principles of Economics (with Ben Bernanke), Luxury Fever, What Price the Moral High Ground?, Falling Behind, The Economic Naturalist, and The Darwin Economy, have been translated into 22 languages. The Winner-Take-All Society, co-authored with Philip Cook, received a Critic's Choice Award, was named a Notable Book of the Year by The New York Times, and was included in Business Week's list of the ten best books of 1995. He is a co-recipient of the 2004 Leontief Prize for Advancing the Frontiers of Economic Thought. He was awarded the Johnson School’s Stephen Russell Distinguished teaching award in 2004, 2010, and 2012, and its Apple Distinguished Teaching Award in 2005.