Why the Commission hates offsets

The European Commission is doing its best to kill off offset projects – whether JI, CDM or domestic offsets under Article 24a. The reasons they give are that everywhere should have cap and trade schemes instead. CDM was a failure bla bla bla. I think that the real reason is that promoting offsets will reveal an ugly truth: the cost of abatement is far higher than we want to believe.

If you look at a conventional marginal abatement cost curve drawn by the artists at Mackinsey, you see a curve sloping up from bottom left to top right. Broadly, the cheap reductions are outside the sectors covered by the EU ETS and the expensive ones are within the sectors covered by the EU ETS.

So on this logic, if you freed up industrial companies in the EU ETS to buy domestic offsets from sectors outside the EU ETS (as Article 24a of the EU ETS directive envisages), then they’d be able to save money.

Ooops. Forgot one thing. Those MAC curves only tell half the story. They ignore: the hassle of getting stuff done on the heating system, the wife going mad at dust caused by the plumbers, the difficultly of getting time off to supervise the chaps fitting the internal insulation, the lack of familiarity with reliable suppliers, the bother of learning a bus timetable, the two minute walk through the cold to the bus stop, the lack of shopping trolleys on the train, the fact there aren’t showers at work, the nice taste of steak, etc. etc. My hunch is that if you had a complete list of costs and not just the half-baked one done by consultants then the MAC curve would have rather a different shape.

In fact, all those things which look so cheap to do and then economists and policy makers are surprised they don’t happen and call them “market failures”, all those things would be at the top end of the curve.

So in this case if you allowed offsetting, you wouldn’t get any takers from industry anyway, because it would be cheaper to abate from their own machines or just switch off the power. And, furthermore, they’d have to admit that cutting emissions, by the measure of conventional economics, isn’t the jolly cheapo win-win they’d like us to think.

Or they might have to admit that conventional economics is screwed up after all. And that wouldn’t do, would it?

This entry was posted in Climate change policy. Bookmark the permalink.