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The Progressive Economics Forum

A billion dollars of bogus carbon credits

A story in today’s Vancouver Sun is disturbing, arguing that BC could make $1 billion from selling carbon offsets once the Western Climate Initiative gets underway. The projects are mostly in forest management and conservation, meaning less cutting and more sequestration of carbon in the forests themselves. The conservation part is undoubtedly a good thing — we need to manage our forests better because they are the only technology we know of to suck carbon dioxide out of the air.

The problem arises in the idea that we can sell these good deeds to companies in other parts of Canada or the US who are not reducing their emissions, so that they can claim that they are. That is, BC should engage in conservation to reduce emissions AND those companies should also be reducing their emissions. Furthermore, it is a huge mistake to exchange emissions reductions over a thirty-year period, embodied in forests (which could burn down, be devastated by pine beetles or be clearcut a few decades hence), for current emissions from burning fossil fuels.

The widely-accepted target of 350 parts per million encompasses this debate. We are currently at 390 ppm, and need to get back down to 350. To get there we need to stop burning fossil fuels as quickly as possible, AND we need to engage in tree planting, forest conservation and better management practices to suck up that excess atmospheric carbon. Offsets are basically a sham if we accept this framework because we need to do that stuff anyway. The only true offset would be a new technology that literally did suck carbon dioxide out of the airand bury it underground, forever. Such a technology does not yet exist.

The other projects mentioned include a cement company switching to biomass instead of fossil fuels, and energy efficiency retrofits in trucks. Again, these are projects that should be happening anyway if we are to have a habitable planet a few decades hence. One other project is just plain dubious, an energy company with improved “conservation” of natural gas at drilling sites. In this case, a company that is engaged in putting carbon in the atmosphere could get paid for a change in operational practices that somehow puts slightly less carbon in the atmosphere.

Perhaps more disturbing is that the protagonist of the story is UBC’s James Tansey, Executive Director of the ISIS Research Centre of the Sauder School of Business. That makes it sound like just some interesting academic research being reported. But Tansey is also the ED of Offsetters, a company engaged in developing offset projects of the very type mentioned in the article. It is not necessarily the case that there is a conflict of interest here, but a probing journalist ought to ask what role Offsetters has in these projects, and whether Tansey stands to personally profit from the $1 billion in offsets being “researched”.

Comments

Comment from Darwin O’Connor
Time: April 19, 2011, 11:51 am

All the things you want to happen would happen if we had the programs (carbon tax or cap and trade) in place to achieve the reductions we need. The programs we currently have in place are inadequate, so half measures like these are the result.

Comment from Purple Library Guy
Time: April 19, 2011, 3:29 pm

Cap and trade would seem to invite these sort of “offset” thingies. Carbon taxes don’t quite as obviously, but they can be introduced as tax credits or deductions or whatnot.

I think there’s a reason basic old-fashioned tough regulation has come off the table in the past decade or two, the same reason raising corporate taxes and so on have been largely off the table for some time: Corporations find it inconvenient and would prefer relatively toothless solutions, like cap and trade.

Comment from Kristi Bern
Time: April 20, 2011, 6:09 pm

Relying on forest conservation to create offsets is just an incentive to weaken forest oversight and burn up pine beetle wood. Offsetters used to be more focused on marketizing new energy efficiency techniques for small businesses or groundsource heat for municipal public services where funding was scarce. It seems that some of the half measures needed a little investment to take off, just the way that microcredit works when investors get lower return for social benefit.

I agree that making offsets too cheap and voluntary and easy there is no benefit, especially if it involves burning up forests or conserving them without massive insurance reserves priced into the offset. However, if there WERE a very robust offset where the purchase of fossil fuel alternative infrastructure (e.g. transit, passive heated buildings and home retrofits) could be pooled where it seems likely to make the most benefit and without becoming another subsidy for the most profitable corporations at the cost of forest management, would it make a difference in the anti-offset argument?
I would argue for it, and think we need to pressure the offset providers to be transparent about how much higher the bar should be. The cost of offsetting should NOT be so much cheaper than the cost of reducing emissions. If a company was capped and made to publicly report credit purchases at a rate of 10 tons carbon for every one that is not reduced at the going rate to escape a use tax, that might be a start in my opinion towards incenting reductions.
In my utopia, the credits should invest in public goods that are less smiled on by government these days that we badly need, like transit, well-insulated and passively heated or retrofit social housing, low income home insulation and heat retrofits, biomass cogeneration for farms and district biomass cogen from upgraded district sewage plants. All of these things have been done before in Scandinavia, all over Asia, and in parts of the USA and Europe. There is no excuse not to speed them up here, and count emissions much more agressively than we do.

Lifecycle Analysis for different sectors is published online by universities and research centres in the UK and Scandinavia, allowing people to choose what they will do, what to buy, and where they can make the biggest difference in their lives. Canadians need to get to that level of public discussion instead of leaving all the information with governments and companies behind closed doors and blacked out FOI responses.

Comment from Marc Lee
Time: April 21, 2011, 8:06 am

Kristi, thanks for your comments. I think ultimately offsets are just another way of pricing carbon. I’d rather we just did that across the board at a pace that would get us to $200 a tonne by 2020, and use the revenues as you suggest. That would not preclude doing the good stuff — using the funds for forest conservation, fuel switching and efficiency.

To some extent you can say that offsets are just doing this as a parallel system of carbon pricing. But I find the resulting claims of carbon neutrality a fundamental flaw in that exercise.

Comment from James Tansey
Time: April 21, 2011, 9:12 am

Marc: The link to your email on the blog doesn’t work. I’d be happy to engage with you on the merits of cap and trade over other systems, but I resent the implication in your article that there is any conflict of interest in my role in this field. Only one of the projects mentioned in the article involved the company and it is certainly no secret that I was involved in creating the company from my institute at UBC. In fact, a big part of my job as a faculty member is to help transfer research into the real world. Our role in the market has been to establish the highest possible bar for quality to ensure that cap is not diluted.

Offsets play a relatively small role in the cap and trade system relative to the effect of establishing a cap. It is important that BC maintain its leadership position in the creation of the WCI and the study was intended to counterbalance the view that it would just represent a cost for the Province. WCI may not be a perfect system, but its the strongest platform we have in North American right now.

Comment from Marc Lee
Time: April 21, 2011, 11:50 am

James, thanks for the clarification that only one of the companies mentioned is linked to Offsetters. But even that is important information that should have been in the article — the journalist should have made the connection, as I disagree it is widely known to Sun readers that you wear both hats.

Comment from Marc Lee
Time: April 21, 2011, 12:02 pm

This article in Slate regarding academic economists failing to disclose conflicts of interest, and a proposal to the American Economics Association to adopt a code of ethical standards, would seem pertinent to the discussion:

http://www.slate.com/id/2279937/

Comment from James Tansey
Time: April 25, 2011, 6:13 pm

Marc

Thanks for the link to the article in Slate. Fortunately we are very proactive on these issues and we a strong policy at UBC for disclosure. I’m sure you’ll have made similar disclosure as part of the Climate Justice project, which I understand supports some of CCPA’s work too using grant funding. Also, the fact that my biography at ISIS Research Centre at UBC makes my role in the founding of the company very much explicit should also satisfy any requirements for disclosure.

Perhaps its better to focus on matters of substance in your article. To suggest that offsets are a ‘sham’ because in your words ‘we need to do that stuff anyway’ rather misses the point. It also shows why universities need to be involved in this debate. Basic economics suggests that any actions we need to take to reduce emissions now have costs: there is very little ‘stuff’ we can do ‘anyway’ without investment capital. The case for acting now, described in the Stern report and elsewhere is that the the costs of early action are much lower than the future costs of climate change impacts. If we put a price on carbon through cap and trade and offsets, and allow for those funds to be used to support investment in clean technology, improved forest management, fuel switching and a wide range of other initiatives that we’ve already seen in BC we can accelerate the pace at which emissions reductions are achieved within the WCI. I would have assumed that was an approach the CCPA would endorse.

As an academic, I’m proud of having help create a company that has led the way in North America, has created over 20 jobs and has attracted investment and interest around the world. That’s part of a new vision for what universities can achieve.

Comment from Marc Lee
Time: April 26, 2011, 4:43 am

I think it is more that the article in question did not specify the potential conflict. It would have been fine to just quote you as the CEO (or whatever) of Offsetters. It was the business section, after all. But neglecting that and painting this as an academic evaluation is, minimally, bad journalism.

I’m no expert on conflict of interest policies, but seems to me that doing research and running a company in the same field raises the prospect. I’m sure there have been fierce debates over this issue over the years at UBC and other universities. I’m in no position to judge whether UBC’s policies are adequate or not, but at a basic level I think academics should be academics, and businesspeople businesspeople (and business faculties abolished). Better to choose one hat over the other.

That said, on the UBC ISIS site, I cannot find any original study or press release referring to it, only the Sun article. However, there is a media release on the Offsetters website, and it looks like large chunks of the Sun article quote from it:
http://www.offsetters.ca/media-centre/press-releases/2011/04/19/BC-emerges-as-a-leader-in-carbon-offset-creation

So I’d love to see some disclosure on how all of that came to be. And please email me the study or provide a link; I’d be happy to comment more on the substance.

As for offsets as policy, search the blog for “offsets” and you’ll find much more. My critique above was theoretical, but even at a practical level there have been many problems with verifying and enforcing offsets. The tremendous extent to which they are relied upon in WCI to achieve emission “reductions” is also problematic, though as you note, perhaps the best we can in North America right now.

Comment from James Tansey
Time: April 26, 2011, 1:00 pm

This work was completed by ISIS as an short academic study based on publicly available information from the WCI and other sources. It wasn’t rocket science. WCI and Point Carbon indicate carbon prices of $20-75 per tonne in 2020. We identified the projects in the pipeline and applied some basic arithmetic to come up with the numbers. If you look at our site, you will find 82 similar weekly news scans and over 30 briefings produced in conjunction with PICS. You have no basis for questioning the independence of this analysis and you should focus on matters of substance.

In addition, you’re confusing your personal preferences for a separation of roles with allegations about conflict. For there to be a conflict, there would have to be some evidence of harm or distortion. What you are describing is overlapping interests and faculty members are encouraged to take active roles on boards and as advisors outside the campus.

We also engage partnerships with organization like CCPA, even when there is a history of ties with political parties like the NDP and unions. You and I have had debates in the past about the substance of your work on the carbon tax and you’ll recall that I disagreed with your conclusions. I focus on the substance, rather than an implication that you are carrying a political or economic bias. I suggest you do the same.

Comment from Marc Lee
Time: April 26, 2011, 2:23 pm

So just to be clear on the facts: the as-yet-unreleased study was done by ISIS, but Offsetters put out the media release, quoting you as from ISIS but neglecting to mention your role at Offsetters; that omission was picked up by the Sun when it essentially reprinted most of the press release from Offsetters.

Like I said in the original post, this does not necessarily constitute a conflict of interest, but certainly is bad form.

Having cleared that up, please send along the study by email or a link when it is posted. I’d love to be able to engage on the substance but only have the media release and the Sun story to go on.

Comment from James Tansey
Time: April 26, 2011, 2:34 pm

No. ISIS and UBC put out the press release on an embargoed basis to a small number of journalists. Offsetters posted the release after the piece was published in the Sun. So the source for the Sun journalist was UBC and he interviewed me directly before writing the article.

This probably helps explain your confusion.

Comment from Marc Lee
Time: September 30, 2011, 11:54 am

Several months later … I never did get Tansey’s report in the email, and it does not seem to have been posted on the ISIS website.

Comment from Marc Lee
Time: December 28, 2012, 9:45 am

Offsetters gets purchased by US firm in late 2012, Tansey made President:

“ERA Closes Acquisition of Offsetters Clean Technology Inc. and Carbon Credit Corporation
— ERA Closes Private Placements for Proceeds of $413,440 — Appointment of Dr. James Tansey as President and CEO”
http://finance.yahoo.com/news/era-closes-acquisition-offsetters-clean-005423073.html

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