In Canada, the role of the Auditor General is to serve as a watchdog on public spending – to ensure that public funds are spent in accordance with the government’s policies and that they are not wasted. Often the AG is the only official constraint on government largesse. Recently, I was involved in a case investigated by British Columbia’s Auditor General.
The AG’s office was looking into the operations of Pacific Carbon Trust (PCT), a provincial government agency that buys carbon offset credits and sells them to government departments, hospitals, schools, universities, and so on, in order that the entire operation of government can be declared ‘carbon neutral’. The government mandates that government agencies are responsible for any emissions of carbon dioxide, and must purchase carbon offsets from PCT at the pre-set price of $25 per metric ton of carbon dioxide ($25/tCO2) emitted. Given recent critiques leveled at carbon offset trading (e.g., see Helm 2010, 2012; Woodward 2011; van Kooten & de Vries 2013), it was only logical that the AG wanted to know if the offset credits that PCT purchased and then sold to the various government agencies was indeed meeting the stated objective of reducing CO2 – that is, whether the scheme was truly making the government’s operations carbon neutral.
The Auditor General’s report on the PTC and the government’s carbon neutral policy came out in March 2013 (link to report here). The AG examined two projects that, in 2010, accounted for 70% of PCT’s purchases of carbon offsets in 2010 – the Darkwoods Forest Carbon Project (450,000 offsets, or 450,000 tCO2) and Encana’s Underbalanced Drilling Project (85,000 offsets). In preparing its finding, the AG relied on a study of the Darkwoods Project (available here), which I conducted along with a now-graduated PhD student and a colleague from the University of Sterling in Scotland.
Because the AG quoted our report, I was subsequently called or emailed with a variety of queries concerning my role in the preparation of the AG’s report. Was I a member of the AG’s expert panel? No, I only did a brief telephone interview with the AG’s office in which I was asked some clarifying questions concerning the research we had done and my thoughts on carbon offsets. Did I/we get paid to prepare the study on Darkwoods? No. My colleague Frans and I had been alerted to the sale of carbon offset credits from the Darkwoods site by several newspaper articles. As we discussed this over coffee, and because we both were researching issues pertaining to the economics of carbon offsets, we wondered if it was possible to create carbon offset credits through forest conservation and what their implications might be for mitigating climate change. We thought it would be fun to look further into this matter.
The first thing we discovered was that the project was justified by comparing the carbon sequestered under conservation of the site versus the carbon that would be sequestered under a counterfactual management scenario. The difference between the two scenarios would constitute a measure of the carbon offsets. Well, that is not quite right (see below), but let’s first consider the counterfactual – clear cutting of the site by a private logging company. Wait a minute! A private owner would surely not be able to clearcut the site in one swell swoop. First off, whoever purchased the site would need to certify their operations before they would be capable of selling timber. That is, they would not be able to market timber unless the site was managed in a sustainable fashion. Thus, the original premise of the counterfactual against which to compare the carbon fluxes (conservation vs private owner) was flawed.
Because we did not have data on the Darkwoods site, we brought in the PhD student who also happened to be a registered professional forester. We asked if he could develop a GIS model of the Darkwoods site that would include the standing forest inventory (species and volume of timber), existing roads, elevations, slopes, et cetera. With some effort, the student was able to duplicate what existed on the stand. Then, using the Provincial Government’s TIPSY model (which is publicly available), we were able to determine how much carbon was located on the site, and how the site would change over time as a result of various management options. Indeed, for each management option, we were able to track the commercial yields of timber, CO2 released as a result of harvesting operations, and changes in forest biomass and carbon on the site over time. We then developed a forest management model to determine how a private company was most likely to manage the site in a way that would maximize its net returns subject to minimal sustainability constraints. This is all explained in the aforementioned paper. Even the management model that we used is provided in an Appendix so that anyone is free to duplicate our results using their own assumptions.
Our major finding was simply this: the conservation management regime that was used to justify the carbon offset credits sold to PCT led to less carbon offsets than would be available by sustainably managing the site for its commercial benefits. Indeed, the carbon credits available under such a management regime could be significantly larger if the wood was used in construction, replacing some other construction material such as concrete. By changing the counterfactual used to ‘create’ carbon offsets for sale, we found the opposite: it would be highly unlikely that the carbon offset credits claimed and sold to PCT would actually materialize. In essence, while government agencies spent taxpayer money to become carbon neutral, it was most likely all for naught and there would not be any benefit for the climate.
Subsequent to the AG’s report, I was pilloried in the Georgia Straight (see here), but not for our analysis of the situation. The attack was personal, questioning my ability to conduct scientific research because of my Christian beliefs. I was labeled a denier, thereby grouping me with the deniers of the holocaust (see here for a discussion of the term denier). The Georgia Straight did not address the research results or our findings, but rather attacked my ability to conduct the research.
Yes, I belong to a Christian organization, the Cornwall Alliance, which uses peer-reviewed scientific research, not to question the facts of observed climate change (which are undeniable), but to refute the results of computer models that attribute anthropogenic emissions of CO2 to be the leading factor in causing catastrophic global warming. That increases in atmospheric CO2 are likely to cause some warming is not questioned, but the extent of that warming is questioned. Without any evidence the Straight claims that “This is the best-funded, most organized Christian anticlimate group in North America.” Interesting, this is much like claiming that the Georgia Straight is on par with the New York Times! Truth be told, the Cornwall Alliance is basically a one-man operation with a network of voluntary scientists, economists, pastors, theologians, and others; its principle aim is to educate evangelical Christians about the dangers of departing from the orthodox faith (see Douthat 2012) to take up the environmental agenda on its own terms, rather than the biblical mandate of stewardship (for discussion see Beisner 1997). The Cornwall Alliance is about as well funded as a small local church, if that, but, given the quote, it seems to be making a large impact.
Now, the Straight also questioned why the AG relied on a report written by a non-expert (a person not ‘certified’) in the area of forest carbon offsets. Since when does an academic need to be certified in measuring carbon offsets. I spent nearly a decade as a professor in the Department of Forest Resource Management at the University of British Columbia and have written several dozen peer-reviewed articles on biological carbon sequestration, measurement of forest carbon offsets, incentives to create forest offset credits, and forest conservation, several of which are considered seminal papers in the area. I contributed to the 2007 IPCC report on the use of carbon offsets from forestry to mitigate climate change, and have written several of the seminal papers in the area. If I am unable to produce a study on forest carbon offsets, then I do not know who would be capable of so doing‼
The problem with forest carbon offsets is now well known. (1) Most projects to create such offsets are not additional – they would have proceeded in any event. In that case, any carbon that gets sequestered cannot be sold as an offset. (2) The vast majority of projects to create carbon offset credits fail to account for the increased release of CO2 resulting elsewhere. For example, more than 80% of the timber not harvested in the U.S. Pacific Northwest as a result of spotted owl protection was harvest elsewhere (Wear and Murray 2004). Indeed, Boyland (2006) argues that at least 25% of the carbon credits that a project creates are lost due to leakages. The additionality and leakage arguments basically rule out the use of areas such as National and Provincial Parks, and provincial set asides such as much of the central coast of BC, for consideration for carbon credits. Recognizing this, some environmentalists have made the case for including carbon credits regardless because their sale helps to protect wildlife habitat and other environmental amenities. While it may be important to protect wilderness areas on those grounds, it is disingenuous to use payments for such a purpose to make people believe that the purchase of carbon credits actually makes their or the government’s activities carbon neutral. How would you like to pay for one thing in good faith, but receive something entirely different?
What happens in most cases that involve carbon offsets ‘rent seeking’ is a major problem. Economic agents lobby governments (and the media) to be given the right to create and sell carbon offset credits because, if they succeed, they benefit financially. Such agents usually lobby on behalf of financial institutions and ‘certifiers’ of carbon offsets; certifiers are companies that receive their legitimacy from environmental NGOs, such as WWF, and departments in certain governments in the EU. In turn, the certifiers give carbon offset credits their legitimacy, but, based on my own investigation of studies in the field of carbon offsets from forestry, there is no guarantee that the certifiers have any expertise in this task. In fact, I have often found quite the opposite. It is little wonder, therefore, that many economists prefer straightforward carbon taxes over emissions trading – financial institutions do not stand to make large profits in trading carbon emissions and there is a lot more transparency under a tax than emissions trading system.
Finally, the Cornwall Alliance is concerned about poor people, because in all of this the world’s poor are the ones harmed the most by action to mitigate climate change. I make this is abundantly clear in point 4 in my blog ‘Climate Confusion’ (pdf), and even more so in my recent climate textbook – current climate policies are detrimental to the poor. It is surprising, therefore, that a left-leaning publication such as the Georgia Straight would choose in favour of financial institutions and rent seekers over the poor and oppressed. But then, again, the Georgia Straight is more anti-Christian than it is supportive of the downtrodden.
Beisner, E. Calvin, 1997. Where Garden Meets Wilderness. Eerdmans.
Boyland, M., 2006. The economics of using forests to increase carbon storage, Canadian Journal of Forest Research 36(9): 2223-2234.
Douthat, Ross, 2012. Bad Religion. How we became a Nation of Heretics. New York: Free Press.
Helm, Dieter, 2012. The Carbon Crunch. How We’re Getting Climate Change Wrong – and How to Fix It. New Haven, CT: Yale University Press.
Helm, D., 2010. Government failure, rent-seeking, and capture: the design of climate change policy, Oxford Review of Economic Policy 26(2): 182-196.
van Kooten, G.C. and F.P. de Vries, 2013. Carbon Offsets. Chapter 165 in Encyclopedia of Energy, Natural Resource and Environmental Economics edited by J. Shogren. Amsterdam, NL: Elsevier.
Wear, D. N., and B.C. Murray, 2004. Federal timber restrictions, interregional spillovers, and the impact on U.S. softwood markets, Journal of Environmental Economics and Management, 47(2): 307-330.
Woodward, R.T., 2011. Double-dipping in environmental markets, Journal of Environmental Economics and Management 61: 153-169.