06/02/2010 05:12 am ET Updated May 25, 2011

Greed Puts Climate in Dire Straits: Offsets for Nothin' and Permits for Free

"I want my, I want my, I want my permits free..."
-Utility lobbyist at a recent California Air Resources Board hearing on carbon market design (paraphrased)

There's no free lunch. But greedy utilities and offsets providers have been trying to get one by lobbying for a carbon pricing system that is overly complicated. As Mark Knopfler would say, "That ain't workin.'" All you need to do is charge polluters for permits, and return the revenues back to households. That's the way you do it.

At last week's hearing on an advisory panel report, the California Air Resources Board discussed 13 recommendations for carbon market design under the state's climate law, AB32. The expert panelists said it was vital to sell permits to companies rather than give them away, and return 75 percent of revenues collected back to households, using the remaining 25 percent on renewable energy and related investments. In the worst recession in decades, in a State with 12% unemployment and a crushing budget deficit, polluters provide a revenue stream to relieve working families from the burden of increasing fuel and energy costs. The new price on carbon provides an incentive for businesses to implement energy efficiency, and for Silicon Valley to innovate and lead the green energy revolution.

But then the public comment portion of the hearing opened, and the line queued up with lobbyists from utilities and oil companies. They asked for free permits instead of auctioning, and encouraged the unlimited use of offsets. "It's too expensive," they said, "we need more time." Let me tell you them guys ain't dumb.

It wasn't just utilities and oil companies asking for free permits. Almost everyone in the room was asking for a portion of permit revenues for their cause. The problem is, if revenues are split 100 ways to appease each special interest, there will be none left to return to households to defuse the political backlash against a carbon price. Already, Texas-based oil company Valero is funding a California ballot measure in November to suspend AB32. To counter this, AB32's defenders speak of a future green economy, but an even better strategy in an economic downturn is telling people about how a climate dividend will reduce economic uncertainty for working families.

Some local government agencies have also been lobbying for an unlimited offsets market. In the rush to be early adopters, some agencies see their parks and watersheds as potential sources for carbon sequestration, and their transit systems as the holders of emission reduction "credits" that can be sold to polluters to fund future projects. Traders like Goldman Sachs tell them they are sitting on a goldmine, and the beleaguered public servants' eyes light up with dollar signs. Money for nothing?

On the surface, the idea of carbon offsets is appealing. To proponents, they relieve a guilty emitter's conscience, and provide revenues to help someone somewhere else reduce climate impacts that would otherwise add to global warming. In the idealized offsets world, enlightened citizens and businesses become "carbon neutral" by paying for enough offsets to negate your own impact. Too bad it is mostly greenwash.

At a recent green tech summit, an offsets verifier was peppered with questions. A city required a developer to donate a wetland to a land trust to mitigate impacts of a new subdivision. Could the developer claim carbon offsets? No, the verifier answered, there was no "additionality." The offset must not be something they were going to do anyway. Tree planting in plantations, while lumber companies continue to clear cut existing forestland, is problematic. Climate modelers expect an increase in forest fires. What happens when the trees burn down? Do you get your money back? The satirical website Cheat Neutral illustrates the limitations of the offsets mindset. A boyfriend who cheats on his girlfriend pays another couple to be faithful, so he can keep sleeping around. Cheat offsets allow him to be "cheat neutral."

This is not to say there is no place for offsets. Uncapped sectors like agriculture may have sequestration potential, perhaps through manure management at dairies or biochar.

But all of this talk of offsets needlessly complicates the basics of a carbon permit system. Polluters pay, and people get the money. That's the way you do it. This is the approach used in a bill introduced by Senators Maria Cantwell (D-WA) and Susan Collins (R-ME) in the U.S. Senate. The CLEAR Act prohibits the type of offsets associated with Goldman Sachs-type speculation. Instead, the government uses a portion of revenues from carbon permit sales to fund the purchase of "supplementary reductions." With the government as the only sanctioned purchaser of these reductions, additional oversight and public scrutiny of how our taxpayer dollars are invested would rein in the "wild west" mentality of the current offsets providers.

The CLEAR Act also returns 75 percent of permit revenues back to households, which according to a recent report would benefit 80% of Californians and create over 33,000 jobs in the state. If more people knew about this, instead of the lobbyists clamoring for offsets for nothing and permits for free, we might hear citizens demanding, "I want my, I want my, I want my dividend."