Paying off our global warming sins

Today, with the Bush administration asleep at the wheel of a warming planet, more than 100 companies that spew carbon dioxide, including Ford, Dupont and Motorola, voluntarily participate in the Chicago Climate Exchange. The exchange is a kind of experimental environmental marketplace, in which companies agree to lower their greenhouse-gas pollution every year. Municipalities, waste-management firms, universities and coal-fired power producers also participate. If a company reduces its greenhouse gas emissions more than the amount that it has agreed to, it generates a credit, which represents -- in metric tons -- the amount of reduced carbon dioxide. On the exchange, it can sell those credits to other companies that may not have met their annual target, so they too can be in compliance.

Companies can also sell the carbon credits to TerraPass, Carbonfund, DriveNeutral and the like. This merry new band of environmental middlemen buy the credits with your money and then retire them. That puts the credits out of commission for good and, ideally, forces the companies that would have otherwise bought them to reduce emissions the old-fashioned way, like upgrading pollution controls. Or, it raises the price of buying a credit from someone else, since with fewer credits available to purchase, the cost of each one should go up. Carbon-neutral groups provide the polluters with an old-fashioned incentive to cut emissions: money. With carbon-neutral firms waiting in line to buy credits, the companies have all the more reason to produce them. For the carbon-neutral groups, the economic principle is simple: If you want companies to clean their act, pay them to.

The carbon groups trade in other measurements of pollution reduction, too. One is called renewable energy certificates, "Recs," which correspond to megawatt hours of electricity generated from renewable sources that don't emit greenhouse gases. For the most part, the carbon-neutral groups buy Recs from wind power plants. The wind farmers sell their energy to utility companies, replacing some of the power that would otherwise be generated by fossil fuels. Again, the idea is that an increased demand for Recs will help alternative energy plants flourish and utilities cut back on the greenhouse gases. Whole Foods brags that it bought 458,000 megawatt-hours of Recs, the largest purchase of wind energy credits in the history of the U.S. and Canada.

Some of the groups also sell carbon neutrality by underwriting the planting of trees around the world. As you recall from high school biology class, trees, in the process of photosynthesis, absorb carbon dioxide from the atmosphere. The groups also sell the chance to reduce other greenhouse gases. One method involves dairy farms' converting the methane (a greenhouse gas more than 20 times as potent as carbon dioxide) produced by cow manure into electricity. Another method burns methane leaking out of rotting garbage in landfills, turning it into CO2, softening its impact.

In practice, the groups refer to all measurements of pollution reduction -- from Chicago Climate Exchange credits to tree planting -- as carbon offsets. Some of the groups let you choose which type of offset you want to buy, while others sell them as a package. There's no umbrella association to calculate how many carbon offsets have been sold to date and how much pollution they've reduced. But TerraPass, one of the most popular groups, reports that it has 6,500 customers, each paying about $50, and has raised over $300,000 for "American clean energy." It states that it has offset 79 million pounds of carbon dioxide or the equivalent of not driving 90 million miles. Americans drive approximately 3 trillion miles a year, so it's apparent at this point that the carbon-neutral business is a drop in the oil bucket. On top of that, critics say, lie the murky benefits of carbon offsets themselves.

Tree planting, for instance, is one of the easiest carbon offsets to market. After all, green customers love the other environmental benefits of trees, such as preventing soil erosion. And trees are appealing and familiar, unlike preventing gas from leaking out of landfills or manure, which is a tougher sell. Yet the easiest offsets to sell, observers say, may not be the most effective way to reduce greenhouse gases. Planting trees, they point out, won't do anything to make renewable energy available faster. Plus, planting a tree means it won't be sequestering much carbon until years in the future, when it grows. Then there's the little matter of what happens if even the most well-managed forest, say, burns down, and much of the carbon you paid to sequester is rudely released into the atmosphere.

"Even if we stop deforestation completely, it's noise on the graph of the carbon impact," says Tom Arnold, chief environmental officer for TerraPass, which doesn't deal in trees. "Clean energy production is a solution to climate change. Deforestation is a cause of climate change, and should be stopped. It's not a solution to climate change."

Renewable energy certificates are also popular with consumers and companies like Whole Foods, allowing them to claim they're offsetting their own emissions, while encouraging the growth of clean energy. Yet some environmentalists have their doubts about Recs. Environmental Defense, for one, doesnt like counting renewable energy fed into utility grids as a carbon offset.

"Not all renewable energy certificates are direct emission reductions because of the way the energy grid works," says Tom Murray, project manager of corporate partnerships for Environmental Defense. "If I buy a Rec, it means I bought a certain amount of megawatts of green power. But it doesn't necessarily mean that somewhere in the grid there was an absolute reduction in emissions for a certain period of time." Perhaps while that clean, renewable electricity was being fed into the grid, overall demand went up -- it was a hot summer requiring more electricity to keep air conditioners running -- and so more coal and natural gas were burned, too. He argues that just adding more clean energy into the mix on a grid doesn't go far enough to prove a reduction has occurred.

Next page: The competition to claim wind-power credits is leading to nasty battles