And yes, you have to wait until you use the bulb to get the credit; in particular, as you continue to use the bulb (and thus continue to use less electricity than your baseline) you’ll continue to get new carbon offset credits. Some types of credits are issued based on future carbon reductions, like planting trees – you get the credit when you plant the tree based on the assumption of the total amount of carbon that will be sequestered over the entire lifetime of the tree. That kind of credit-now-for-future-reductions accounting is controversial, and is one of the issues still being worked out in the carbon markets. TerraPass says that all the carbon credits they buy represent reductions of the specified amount of carbon in the same year that the consumer’s TerraPass was purchased.

When the US passed regulations on particulate emissions from coal plants during the H W Bush administration, they used a cap and trade system. If you reduced your pollution by more than you had to, you were allowed to sell your “surplus” to other polluters. Thus we reduced overall emissions by the cheapest method practical, by having the cheapest elimination technology be put to use.

Who got the credits for implementing such techology, the technology supplier or the technology user? The user of course, and we most certainly didn’t allow double counting!!!

We currently have state regulated utilities in effect getting either subsidies for “being green”, or being required to directly or indirectly via arm twisting. Thus the utilities that buy wind power or solar or whatever are already crediting this to their “books”.

In my opinion for the technology supplier to also be allowed to count this and sell “carbon offsets” is fraud, pure and simple.

That brings in the issue of “baselining”. Say I’m a big company and I want to “go green” (maybe as a PR stunt). I have a third party audit my current energy use and set that as a baseline. Now I cut my energy use, thus causing less carbon to be generated. I get to claim the reductions from the baseline as carbon offsets, which I can sell on the carbon market to people like TerraPass.

In one sense, setting a baseline is completely arbitrary, which seems like this whole carbon trading thing could be a farce. But it’s actually economically sound. Setting a baseline creates a property right in the ability to emit a certain amount of carbon (a property right which is created through voluntary agreement rather than by government fiat and which is enforced by contract law rather than criminal or tort law). That newly-created property can then be traded on the market. The question of where to set the baseline is actually irrelevant to that part – setting it *anywhere* will create tradeable property rights. And the Coase theorum suggests that no matter where the baseline is set, the emission credits will be traded on the market until everyone has what they want.

The catch is that the property (the tradeable credits) only come into existence when a recognized third party creates them, i.e. when someone like Green-e agrees to certify your emission reductions and issue you tradeable credits for them. The setting of the baseline becomes a matter of negotiation between you and them. You obviously want the baseline set as high as possible so that you can get as many credits as possible when you start reducing your emissions.

The certifier doesn’t have a direct interest in whether the baseline is high or low, but they do have an indirect interest in having their credits be seen as credible in the marketplace. Credibility in this case means that the reductions they certify are “real” in some sense, i.e. that the baseline isn’t artificially inflated. One component of that is that the baseline has to be based on your current activities at the time you decide to start obtaining credits. Reductions that you’ve already done in the past don’t count.

In your case specifically, the fact that you previously decided to invest in your own clean power generation and are consuming it all yourself would indicate that you are already “consuming” the carbon-freeness of what you are generating. In short, you’re acting like the wind farm does when they market their power as carbon-free, and like them in that case, you won’t get tradeable credits for it. On the other hand, if you started selling your solar generated power to the grid, you could get carbon credits for everything you sold that way, and then you could sell the carbon credits on the market. Of course, you’d then have to buy your electricity from the grid as well, so it may not pay off for you. But if you really wanted to, you could probably approach someone like TerraPass and see if they know of any way for small-time clean energy producers to get tradeable credits for selling to the grid. You’d have to go through some kind of certification process, which would probably not be worth the time and effort… but in theory (and maybe even in practice) it would be possible.

If a clean power supplier can sell directly to the consumer, then anything they sell that way should be ineligible for creating carbon offsets. I don’t know if that’s how it currently works, but I believe it’s supposed to: the various groups that certify and issue carbon credits supposedly only give them out for carbon reductions that would *not* have taken place otherwise.

So yes, there probably is double- or triple-counting going on. But that could be eliminated (in theory, after we smash the state), and if it were, then carbon markets would be a very libertarian way to address carbon emissions. Even if those flaws aren’t ever fixed, a flawed carbon market system (including retail sales to “environmentally-conscious” consumers) is still a better approach than pretty much anything else out there.

I believe this is not correct, at least in many states. First, in many states clean power receives special financing, accelerated depreciation, and even direct support. Second, in several states (NY for example) you can buy your power from clean sources at a very different rate from the prevailing spot rate for power. So in this case, the power could be sold three times, without fraud:

1) To the state in the form of subsidy for clean power production
2) To the consumer as clean power
3) To the carbon market as offset credits

Terrapass and the plethora of other carbon offset marketers are legitimate. They are the consumer-facing portion of the carbon-emissions markets, much like Schwab for the financial markets or McDonalds for the beef markets. They buy carbon offsets in large lots in the market, then turn around and sell them to you in small amounts. They make a profit by pricing the offsets to you at above their cost, like any other retailer.

Addressing your specific points:

this rate implies that all 300 million Americans could offset their CO2 emissions for about $100 billion a year, a ridiculously low figure that would be great news if true

The rate is determined by the market, and that’s the current going rate. Kurt’s point about low-hanging fruit is probably the explanation.

For TerraPass’s offset claim to be correct, they have to have a technology that is one and probably two orders of magnitude more efficient than solar in Arizona.

TerraPass doesn’t have any technology other than a website, a way to take orders, and a way to trade on the carbon markets. They don’t make the carbon offsets themselves. They buy them from the people who do.

My guess is that TerraPass is less like a real carbon offset and more like, say, the International Star Registry

They are actually selling carbon offsets, and carbon offsets are actually real.

This type of thing is incredibly amenable to fraud.

True. TerraPass claims to be audited and to only deal in carbon offsets that are verified by independent third parties. Third-party auditing is a big deal in the carbon-trading markets – as it should be in any market.

Also, this is a brilliant way to finance a power station. Say you want to build a wind power station. Actual regular investors will, you know, want a return paid to them on their investment. But TerraPass has apparently found a way to get capital from people without paying any return.

That’s exactly the point, and yes, it is a brilliant way to finance a power station. Clean energy costs more than dirty energy, and clean energy can’t compete with dirty energy as a profit-making enterprise if all they are offering is energy. People who want clean energy will have to pay a premium to get it. Retail distribution of carbon offsets is a great way to funnel that premium from the consumer to the producer, since it can be done independently of the actual distribution of the energy itself. It’s like a lot of other innovative financial instruments; people have found ways to unbundle (for example) real estate from the risk inherent in owning property, so that the risk and the property can be sold separately to different buyers. In this case, retail sales of carbon offsets unbundles the cleanliness of (for example) wind power from the actual electricity it produces. The electricity is sold to the grid, the cleanliness is sold to the eco-freaks.

But also note that TerraPass isn’t in the business of raising capital for clean power projects, any more than Vanguard is in the business of raising capital for companies in the S&P500. They’re both middlemen. The clean power projects raise capital by selling offsets on the market, TerraPass buys them on the market and resells them to hippies.

It’s actually a beautiful example of how capitalism, markets, and economics leads to positive outcomes in an efficient way. Don’t tell the hippies that, though – they’ll have a stroke. Just let them keep thinking that they’re saving the planet without having to worry about those evil markets. (I speak from experience: I learned about TerraPass from a socialist friend who was very proud of using it to become carbon-free. I looked into it, and when I praised him for participating in a market-based solution to environmental issues he blocked his ears and went “na na na I’m not listening!”)

My guess is that TerraPass, when it sells the electricity from these projects to customers, is selling it on the basis that it is earth-friendly and causes no CO2 emissions. This lack of emissions is likely part of the “bundle” sold to electricity customers. But note that this would be selling the same lack of emissions twice — once to TerraPass certificate holders, and once to the electricity customers. I am sure they are both told they are avoiding X tons of emissions, but it is the same X tons, sold twice (at least).

This is not the case. The electricity is sold to the grid, which means it is bought at market rates for electricity, without any premiums for being clean. And again, TerraPass isn’t in the electricity business – they just buy carbon offsets from people that are (wind farms, mostly).

IowaHawk is offering the same thing, but for the discounted rate of $9.95!

That’d be a great deal, if it came with third-party audits that verified that carbon output was actually reduced by the specified amount as a result of the purchase.

Really, instead of making fun of the carbon offset retail biz, we market-friendly folks should be encouraging it. It beats the tar out of everything else the enviro-fascists would like to do – it’s voluntary, it’s market-based, and it might actually do some good.