Can Carbon Offsets Be Confirmed?

Many celebrities have sought to burnish their environmental credentials by purchasing "carbon offsets" to compensate for their lavish lifestyles. Former vice president Al Gore, among others, claims the purchase of such offsets enables him to live a "carbon neutral" lifestyle, despite his conspicuous energy consumption. Think of these carbon offsets as environmental indulgences. Some corporations have also begun to purchase carbon offsets so as to reduce their net carbon dioxide emissions.

An investigation by the Financial Times suggests that many carbon offsets are illusory, and that there is little assurance that purchasing carbon offsets does much of anything to reduce carbon dioxide emissions. Specifically, the report found:

- Widespread instances of people and organisations buying worthless credits that do not yield any reductions in carbon emissions.

- Industrial companies profiting from doing very little – or from gaining carbon credits on the basis of efficiency gains from which they have already benefited substantially.

- Brokers providing services of questionable or no value.

- A shortage of verification, making it difficult for buyers to assess the true value of carbon credits.

- Companies and individuals being charged over the odds for the private purchase of European Union carbon permits that have plummeted in value because they do not result in emissions cuts.

The idea of markets for carbon emissions is a good one. If carbon dioxide emissions need to be reduced, it makes sense to achieve those reductions in the most cost-effective manner possible. Carbon credits can also enable those with stronger environmental preferences to take additional voluntary action, such as celebrity carbon offset purchasers have purported to do. The problem is that offset plans can often be more difficult and costly to verify than more traditional means of controlling emissions. When these costs are factored in, it is not always the case that such market-based approaches are more cost-effective than more clumsy alternatives.

The bottom line is that if Al Gore and Leo DiCaprio truly want to be sure they are reducing their carbon footprint, they are going to have to reduce their own energy consumption, rather than paying others to do it for them.