A carbon protection racket

One of the offset schemes that Europe might ban involves a type of chemical plant found, among other places, in China. While dumping a notorious greenhouse gas into the atmosphere, the plant's owners suggest to the UN that the plant could incinerate the gas instead – if the owners were allowed to sell offsets. The particular gas emitted is 11,700 times worse than carbon dioxide, so naturally the UN agrees that the owners can sell 11,700 tons of emission offsets for every ton of gas incinerated. With offsets worth about $15 a ton, the profits have been enormous.

By purchasing such offsets, Europe pays poor countries not to harm the climate, and the House bill would do the same. Most markets, however, pay for "goods," not for stopping "bads." In the private sector, we call a market for not doing harm a "protection racket." By offering to pay protection money – by buying offset credits – we invite the protection-racket way of thinking into the realm of international negotiations.

For example, if China had committed to even a weak cap or carbon tax, it would have curbed its horrendous chemical-plant emissions. But instead, the Chinese and others have allowed these emissions to continue and have offered to protect the world from them – for a price.

There's nothing wrong with contributing funds to fight climate change in poor countries. They have done little to harm the climate. But our contributions should reward those who commit to join us in the fight. Although China and India are not likely to reconsider caps, there is still hope for a policy that rewards cooperation. Top economists, from N. Gregory Mankiw on the right to Joseph E. Stiglitz on the left, have long recommended a carbon tax as far better than a cap.

Poor countries reject effective caps because they limit their per-person emissions to far less than our own. But carbon taxes lack this offensive inequality. So China, India, and others might well commit to taxing carbon, especially if given some assistance for doing so.

With half the world rejecting caps, we must change course. First, remove the foreign offsets from the Waxman-Markey bill. They cost us dearly and only work against us. Then, devise a policy to reward those who commit to join us. Offering to be the "mark" for a global protection racket is no way to lead the world toward climate stability.

Steven Stoft is an economist and author of "Carbonomics: How to Fix the Climate and Charge It to OPEC" and "Power System Economics." He has worked on energy policy for over 20 years. Daniel Kirshner was a senior economic analyst at the Environmental Defense Fund, where he worked on state and federal energy policies for 26 years.

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