06/23/2010 05:12 am ET | Updated May 25, 2011

KGL and the Shell Game Known as Carbon Offsets

As details emerge about the long-awaited climate bill from senators John Kerry, Lindsey Graham and Joe Lieberman, I find it increasingly easier to contain my enthusiasm for their proposal.

The latest disappointing news is that Kerry plans to drop the tax on transportation fuels. This leaves utilities as the only sector immediately covered in their emissions-reduction strategy, a sector that accounts for 40 percent of the carbon dioxide the U.S. emits each year.

Given that electricity producers burn most of the coal extracted from decapitated mountains, this might seem like a decent first step. But the other devil in the details emerging on KGL is that carbon offsets will figure prominently in the new legislation. Instead of actually reducing CO2 emissions or purchasing permits to keep coal fires burning, polluters will have the much cheaper option of helping to finance projects in developing countries that supposedly lead to an equivalent reduction in CO2.

Sounds good in theory, but in practice carbon offsets are an illusion. Or, as Friends of the Earth labeled them in an excellent report last fall, "A Dangerous Distraction."

As we weigh the pluses and minuses of the forthcoming KGL bill, the minuses pile up fast. This is a good time to revisit the FoE report, which dispels any notion that offsets are a viable strategy for reducing CO2. Be warned, when you finish reading their critique, you'll needed an ibuprofen to relieve the soreness in your eyebrow muscles.

In the final hours of negotiations for the Kyoto Protocol in 1997, developed nations worried they wouldn't be able to achieve their emissions reduction targets. They needed an escape hatch, something other than actually reducing CO2 emissions in their own countries. Thus was born carbon offsets and the creation of the United Nations Clean Development Mechanism (CDM).

Through the CDM, polluters purchase certified emission reductions (CERs) in poorer nations, investing in projects that would curb carbon in the future. To qualify for CDM funding, a project has to prove it is additional, that the project wouldn't have happened anyway. In other words, a project asserts that it couldn't be constructed without CDM assistance. As FoE reported, many projects qualify despite the inability to prove they are additional.

From "A Dangerous Distraction":

International Rivers cites the example of the Xiaogushan, Gansu, hydro project: A 2003 Asian Development Bank report on the project said it was the cheapest option for expanding generation in Gansu, regardless of CDM revenue, and a priority for the local and provincial government. Yet in 2006, two years after construction started, the developers claimed that without CDM support it was too risky "to reach financial closure and [...] commence the project construction." It was CDM-approved in August 2006.

In some instances, the Clean Development Mechanism should be renamed the Less Dirty Development Mechanism. In 2007, the CDM ruled that new electric plants that burn coal more efficiently - and therefore emit less CO2 than older plants - could receive funding and qualify as CERs. Regarding a 4 gigawatt coal-fired complex in India, the FoE report quotes David Wheeler, Senior Fellow at the Center for Global Development:

"Instead of supporting critical zero-emissions energy investments, scarce international resources are sweetening a private sector project that will emit over 700 million tons of CO2 during its operating life."

By their very nature, offsets provide no real reductions in global carbon emissions because they're based on what might happen in the future, not what's happening now. English journalist Dan Welch, quoted by International Rivers, sums it up succinctly by saying, "Offsets are an imaginary commodity created by deducting what you hope happens from what you guess would have happened."

By giving utilities the option of purchasing cheap offsets, we would delay, by precious decades, America's conversion to clean energy. Polluters would simply keep burning coal as long as offsets are available for a fraction of the cost of low-carbon power.

Looking over the details of the Kerry-Graham-Lieberman proposal, as reported by Reuters, there are many more reasons for concern - stripping EPA authority on greenhouse gases, more offshore oil and gas drilling, for example. But carbon offsets are truly the fatal flaw in this scheme, and if the KGL climate bill is the only train that's leaving the station right now, we're better off waiting for the next train.