Are Carbon Offsets Too Good to Be True?

Feeling a little guilty about that flight to London last month? No problem — you can offset that trip with credits from a reforestation project in Nicaragua, available at

The thriving carbon-offset market in the U.S. allows individuals and companies to voluntarily offset their carbon footprints relatively painlessly — just point, click, and pay. If the United States implements a cap-and-trade system to reduce carbon emissions, as it now seems likely to do, carbon offsets will likely play an increasingly large role in carbon-emissions reductions.

The offset credits are a popular component of most cap-and-trade proposals because they have the potential to lessen the economic costs of the programs. The cost of upgrading to environmentally friendly practices is very high for certain industries and carbon-offset credits can ease the transition in these situations. However there are doubts about whether the offset credits actually represent reduced emissions.

A large market for carbon-offset credits already exists in Europe under the Clean Development Mechanism (CDM) and offers a window into the drawbacks of carbon-offset programs. The CDM, established by the Kyoto Protocol, is a provision which allows companies in developed countries to buy carbon credits from emissions reduction projects in developing countries. For example, a company in Europe that exceeds its pollution allowance can purchase offset credits from a hydroelectric dam project in China.

Crucially, carbon-offset projects must meet an “additionality” rule, i.e. the project must create emissions savings which wouldn’t have occurred without the CDM incentive. This is where carbon-offset projects have the potential to make a mockery of cap-and-trade emissions reductions programs. Investigations have revealed that many of the offset projects receiving credits through the CDM would have occurred without the provision.

China, for example, has applied for carbon-offset credits for virtually all of its new investments in hydro, wind, and natural-gas energy, claiming that none of these investments would occur without the CDM. Yet China’s current five-year plan calls for major investments in these alternative energy sources.

There are also questions about the real cost control benefits of carbon-offset projects due to the bureaucratic hurdles inherent in responsibly certifying the projects. A recent Stanford study concludes:

… the actual issuance of emission credits through the CDM mechanism operates at a pace and with exposure to severe administrative bottlenecks that make it unlikely that CDM can supply the emission credits needed, and with sufficient reliability, to be a good cost control mechanism.

In other words, companies might be better off investing in the technology required to become environmentally friendly upfront.

The cap-and-trade systems the Obama administration and congressional Democrats are debating rely on carbon-offset projects to control compliance costs. The U.S. House of Representatives recently released a draft of The American Clean Energy and Security Act, which calls for emissions reductions of 20 percent below 2005 levels by 2020. The bill allows two billion tons of the required reductions to come from carbon-offset credits. That’s a lot of trees in Nicaragua.


Also, the environmental impact should be emphasized. Pollution levels can have a compounding impact on local areas, regardless of the offsets purchased which affect other areas.


i'm not an expert on climate change or economics, but this concept has always sounded like a load of bologna to me.

Bobby G

As any reader of Freakonomics can tell you, beware of allowing people to buy off their guilt... (think Israeli day care center).


This is important: when you're setting up a 'cap and trade' the 'cap' is just as important as the trading.

Carbon offsets and CDM projects are not subject to a cap on emissions, so there is really no way to tell if a project is actually reducing emissions, or just sqeezing the balloon, and moving the emissions to somewhere else in the economy.

Robot Mistake

Can I run my air conditioner more if I plant trees in my back yard?

The system seems very well designed to provide no incentive for individual behavior and a great bueracratic sheild for large corporations. Like turning your TV logo green for a week.


I wonder if the carbon emitted by these carbon offsetting programs (it takes some bulldozers and cars to plant some trees) is subtracted from the "carbon saved" figure.

Sam Carter

Carbon offsets are modern-day indulgences for the greens; it's the greatest product idea since the pet rock.

Richard Leonardi

As someone who has planted more than 5,000 trees in Nicaragua in the last 3 years - at my own expense - I can tell the cynics that it would really aid to have polluting companies help front this expense and the expenses of many others who planting trees. People who are actually trying to do something about the problem. However, the game appears quite difficult to enter. The rewards need to be in reach of the real world, not just NGO's and governments.


I hate the idea of a cap-and-trade system. In many cases, it'll be easier for companies to just pass the cost of carbon credits to the consumer than to upgrade equipment. We're already getting nickel-and-dimed when we buy a plane ticket. Considering how much fuel a plane goes through in a flight, I would expect a nice "Carbon Offset Surcharge" added to each ticket should the U.S. pass a cap-and-trade system.

If such a (flawed) system is inevitable, the least we can do is keep the money within the U.S. Why pay China for wind farms that can be built here?


You know, I buy carbon offsets, but I do it as the last resort. We have one (old) car, and we bicycle or take public transportation and do all sorts of wacky stuff like not use the AC in the summer, and dress warmly in the house in the winter, etc. Basically, we live like it's the (gasp) 1970s. I have no idea if TerraPass (the outfit that I use for offsetting) is the best or totally trustworthy. But I do know this -- the simple act of measuring/estimating my yearly CO2 and then plunking down some hard-earned cash to "offset it" keeps this type of conservation top of mind. I highly recommend going through this exercise.


Now just let me get this straight.
First we had wife swaps.
Worked OK for the better looking of the 2 husbands. Worked OK for the more athletic wife.
But the ugly husband and the sickly wife got dumped. Right?
Second we had toxic asset swaps.
Worked OK for those who closed down their Ponzi Schemes in '007 then got out of town in time to change their names.
Senile guys like Madoff who waited too long to cash in then took the rap.
Third we will have swaps on a colorless, odorless, invisible gas that has been in our champaign glasses for centuries before anyone started swapping wives, let alone mortgages.
OK then, if you have to. I'll get back to you in about 40 years and let you know if we will buy it. Oh! In the meantime don't hold your breath; you might accumulate CO2.

Steve E

I'm sure the fair minds at Freakonmics will offer the opportunity to others to present the other side of this argument. I also noticed that the biggest proponent to global warming (A. Gore) also stands to profits from offering these offsets. This must of been a simple oversight.


Isn't this just a way to make polluting cheaper for some people? And allow those who are able to pollute less to profit from it? Or the middleman.

In other words, a mechanism tfor the wealthy to pay to allay their guilt. A brilliant piece of marketing, because someone is profiting from this without providing anything they would otherwise need.

Like charging someone for recycling, and then tossing it all into the landfill anyway.


Well, the biggest problem *I* have with carbon offsets is the fact that they may in fact resemble mediaeval penances in more ways than one. Not only are they to extinguish guilt but they have no real benefit or purpose, beyond the exchange of an offering.

While there is little doubt that on average the world has warmed over a century or so (admittedly coming out of "The Little Ice Age") but there seems to be a poor correlation to CO2. CO2 has skyrocketed in the last 10 years but on average has not warmed (don't grumble go look at raw data from any of 4 sources), there was on average cooling from 1940 to the early 70s also in a time of significant CO2 output globally. Don't get me wrong - we're appalling polluters; we should conserve scarce resources, recycle, use alternative energy where possible and stop real pollution. CO2 just doesn't seem to be part of the problem.

Offsets are a perfect product though - high margin, guilt promotes their purchase, their intended outcome is not achieved (or is not relevant) but at least they get a few trees planted. It's a tax on the gullible and stupid.


the Gooch

No way could carbon offsets be a scam. If that were the case, I could lose my faith in the Enron execs who came up with the cap-and-trade dog-and-pony show...


Carbon dioxide is fungible. If one burns coal where coal is cheap and cost effective and sequesters an equivalent amount of carbon dioxide elsewhere where the sequestering is easiest, (in biomass which never decays, or as char mixed into the soil, or as liquid CO2 which never escapes), it is exactly the same as if one never burned the coal. Somewhat more energy is always used up in capturing the carbon than was produced by burning the coal, but the two energy uses are in different places, and moving energy around is difficult.

The problem is these cap and trade systems do not require an equivalent amount of CO2 capture, and the amount of capture actually happening is vastly too small. And carbon offsets which involve no carbon capture are horse manure allowed to decay.


The US government having belatedly recognised that something needs to be done about climate change then US Industry WILL have to reduce its CO2 output.

Once it is recognised that Industry needs to reduce its levels of CO2 output to mitigate climate change Cap and Trade is a method of giving Industry a choice on how it deals with the inevitable pain:
Either pay to continue as you are (for the cap should reduce every year and you'll pay more to stay as you are), or offset the cost of the necessary reduction.

Faced with the inevitable, some choice and some chance of offsetting the cost has to be good.

The European set up seems to need some further work to set the numbers up right so it achieves a genuine reduction, but at least it's already up and running..


Tree-planting to remove atmospheric carbon has been discredited:

Eric M. Jones

If I burn the trees you plant, to produce charcoal, and plow the charcoal into fields, it will sequester carbon for thousands of years. But I sense opportinities for fraud here.

If I find a vast bed of coal, can't I get money for NOT digging it up? The government had similar soil-bank schemes for farmers who were paid not to plant crops (this might over-simplify it...and I like helping farmers).

Better yet, please send me money for not having 20 children saving in total 20,000,000 kg of CO2. The "Carbon Footprint" is most affected by having progeny. Until that fact is addressed, I think it is all just a hollow do-goody dream.


Al (Man-Bear-Pig) Gore has really started something big with this Global Warming movement. Whether the end effect is good or bad, we will have to wait about 987 years (give or take a month) to see.