Trading Hot Air

I realise I have perhaps been too harsh to completely dismiss the current state of affairs with "Carbon offsets". I have claimed that these are a "bastardised" form of *allocation* trading. My reasoning is that trading allocations works because the number of allocations is finite and controlled. If one starts to use something like planting trees or buying incandescent lightbulbs, you can buy an infinite amount of these and obviously this would break down the system. Contrast this to a carbon tax, that like any sin tax will reduce demand for the sinful product (in this case carbon), punish bigger users in proportion, and if it replaces other non-carbon-proportional taxes, will be revenue neutral, thus there should not be any net capital flight away from the taxing country.

However, adopt cumulative palatable changes to this system and something strange happens. First, these offsets can move from being voluntary to being compulsory for a certain energy class. Say with electricity, an automatic calculation of carbon based on your electricity bill is used to bill you for the offset. Ditto with fuels. This would not be too controversial. Next, these could be further refined by more accurate metering. CH4, NO2 etc. levels could be monitored over different urban areas and these could form the basis for more compulsory offsets.

In the long term these offsets would be collected by the government and become quite proportional to the carbon usage. The offsets would no longer necessarily go to the lowest price, nor to the one decided on by the payer, but be decided pretty much like any other Government project. This way it would end up being indistinguishable from a carbon tax. This is just a pathway for the Government to sell the idea of something that is essentially increasing cost for basic utilities without any added direct value - generally a fatal policy move.