What's Off About Carbon Offsetting
by Travis Pantin
Sun, 2 Dec 2007 at 8:42 PM
updated Sun, 2 Dec 2007 at 8:45 PM
The carbon offsetting movement, whereby individual businesses voluntarily
opt to pay fines for their carbon emissions, is fundamentally flawed, a
University of Chicago law professor, Richard Posner, writes on his blog.
"The most serious drawback of the carbon-offsets movement is that it is
likely to make the problem of excessive carbon emissions more rather than
less serious," he writes.
According to Mr. Posner, the carbon-offset movement "creates the false
impression that global warming can be tamed by voluntary efforts, just as
cleaning up after dogs has been achieved by voluntary efforts, without need
for legal compulsion." This impression, if it becomes widespread, would
hinder other, more serious efforts to counter global warming.
Mr. Posner's co-blogger, Gary Becker, a University of Chicago economist,
writes that he thinks a legally enforced cap and trade system, similar to
the one proposed by the Kyoto Protocol, is preferable "despite its many
flaws."
In that type of system, polluting businesses would be given permits to emit
a certain amount of carbon dioxide, with the total amount permitted to all
polluters being less than the total pollution currently emitted. By slowly
reducing the amount of total pollution permitted and by allowing polluters
sell their permits to the highest bidder, the system works to slowly reduce
pollution while making sure we get the most out of the pollution that is
allowed.
Moral Hazard and the 'Fed Put'
Econobloggers across the Web are steadily digesting a speech given on Friday
by the president of the St. Louis Federal Reserve Board, William Poole, who
discussed whether Fed policy should be regarded as "bailing out" market
participants and creating moral hazard by doing so.
In this situation, "moral hazard" means encouraging overly risky investment
by allowing investors to think that the Fed will prevent them from suffering
complete failure.
On Economist's View, Mark Thoma abridges and repackages Mr. Poole's
lengthy speech into a humorous and highly readable dialogue form.
At one point, Mr. Thoma interrupts Mr. Poole in the middle of a particularly
dense exposition: "Hope you don't mind if I cut you off I know you have
quite a bit more evidence on this but what does this show us overall?" Mr.
Thoma narrates the conversation, too. "Yikes, from the look on his face I
think he did mind," he writes.
Mr. Thoma takes particular time to badger Mr. Poole about whether the fabled
"Fed put," a term used to describe the Fed's predictable bailout of
financial markets in distress, really exists.
Mr. Poole responds to Mr. Thomašs hypothetical questioner: "There is a sense
in which a Fed put does exist."
However, Mr. Poole denied on Friday that the Fed put reflects unwise
monetary policy. "Macroeconomic stabilization does not raise moral hazard
issues because a stable economy provides no guarantee that individual firms
and households will be protected from failure," Mr. Poole noted.
Blogger Paul Kedrosky "cordially disagrees" with that
point. He argues that some really big individual firms banks, for instance
are too important for the Fed to let them fail. Contrary to Mr. Poolešs
speech, Mr. Kedrosky says he thinks that some such companies actually can
expect predictable protection from the Fed, implying that such certainty
might create moral hazard.
Economics on the Web Homepage
|
Print
Send
RSS
