Before Congress attacks global warming with a cap on greenhouse gases – and then allows firms to pollute if they buy "carbon offsets" elsewhere – lawmakers should consult the UN's abysmal record in this slippery type of trading.
The UN set up its Clean Development Mechanism (CDM) to help companies in industrialized countries invest in projects in poorer nations that cut greenhouse-gas emissions as part of their countries' commitment under the Kyoto Protocol or the European Union's emissions plan.
The concept: Cutting emissions anywhere is equally effective in fighting global warming. So why not keep polluting at home and simply pay, under this so-called cap-and-trade system, to close a polluting plant in China or to save a forest in Brazil? The cost of financing wind turbines in Bangladesh, for instance, is much less than scrubbing carbon dioxide from smokestacks in Germany.
But Stanford University researchers who've studied the CDM say the emissions cuts are largely illusory: As many as two-thirds of the programs funded contribute nothing new to reducing emissions.
How can that be?
One problem is that many offset payments are meant to prevent something from happening that might worsen climate change. The CDM must somehow prove a project has "additionality," that it would not have occurred anyway without a payment. But that isn't working out in practice, the researchers say. One simple clue: Most projects are already completed at the time they are approved for CDM offsets.
As a British investigative journalist put it: "Offsets are an imaginary commodity created by deducting what you hope happens from what you guess would have happened."
The CDM also creates perverse incentives, says Patrick McCully, executive director of International Rivers Network, another critic of the program. A chemical company in China, for example, may actually produce more of one potent greenhouse gas – HFC-23, a byproduct of making refrigerant gases – in order to sell an offset credit. The money earned through CDM is greater than the cost of making HFC-23.
CDM asks that a project not be something that's already "common practice." But that logic only dissuades a poor country from promoting energy-efficiency or, say, curbing methane from landfills. Why take such actions if they will disqualify a company from CDM credits?
Next week, the US Senate takes up a bill that would impose a cap-and-trade system that includes the buying and selling of licenses to emit carbon. Yesterday, a similar bill was unveiled in the House. As in Europe, a final bill from Congress will likely allow US companies to buy carbon offsets through CDM or similar groups that claim an expertise in identifying projects that reduce greenhouse gases. Even if a US plan only links up with Europe's scheme, it would be part of a system that includes bogus CDM credits, which are embedded there.
No doubt some CDM projects do make real cuts in emissions. But as a whole, the CDM is clearly flawed and needs, at the very least, significant reform. It's one more sign that a cap-and-trade system is a complex and highly suspect way to make emissions cuts. A more honest, reliable course is a simple tax on carbon emissions. The dodges are easier to spot.