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Another Unregulated Market

Apr 22, 2010 • Environment, Regulation, Thinking Economically • 177 Views    1 Comment

Carbon offset markets are about thinking at the margin. Hoping to become the first carbon neutral state in the world, the Vatican bought carbon offsets. The U.S. House of Representatives funded an $89,000 purchase of carbon offsets. Before boarding, you can buy a carbon offset to compensate for emissions during a plane flight. In each example, someone was paying to create an “extra” environmental benefit (a forest that “inhales carbon dioxide”) in order to compensate for the marginal cost of environmental harm (airplane emissions). 

Yes?

Maybe.

The market in which carbon offsets are sold is unregulated. Consequently, government is not directly checking whether sellers are actually creating the offsets that are purchased nor whether cost and benefit are connected. For example, in a recent Christian Science Monitor article, investigative reporter Phillip Martin found major deficiencies in the carbon offset market. Essentially he discovered that certain offsets never were created. 

The Economic Life

A market is a process through which demand and supply determine price and quantity of a good or a service. A recent paper from the Pew Center on Global Climate Change suggests that oversight of carbon markets should accompany current financial reform.

 

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  • Ilya Sabnani

    It’s funny you mention the lack of regulation in the carbon offset market- in my environmental economics class, a graduate student, who used to work in offset trading, said the whole market is effectively a fraud. According to him, most of the time falsified paperwork and the like are used by corporations/countries/whoever was selling the offsets. Especially when there is no government oversight (sort of like there was in CMBS ratings before the Oct. 2008 crash), there’s more of an incentive for polluters to underreport emissions and simply put their offsets on the market.

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