A Solomon-like Decision

Jane Van Ryan
Posted October 19, 2009

As we've explained in this blog, there's no doubt that the Waxman-Markey climate bill would be very expensive for American consumers. According to studies, it could increase fuel costs, kill millions of jobs and increase the amount of refined fuels imported from overseas. An issue we have not yet discussed is that there is another provision that could result in a massive transfer of wealth from the United States to other countries.

The provision allows for international offsets, which means companies that are having difficulty meeting their U.S. greenhouse gas (GHG) emission allowance obligations can pay to reduce emissions elsewhere in the world by purchasing international offsets. On the surface, this might appear to be a reasonable--and altruistic--way to recognize that climate change is a global problem. But in actuality, it is an extremely costly experiment that could fall on the backs of American consumers.

This issue came up during last Thursday's Senate Energy and Natural Resources Committee hearing when Sen. Maria Cantwell asked about the cost of the international offsets. She noted that the Environmental Protection Agency (EPA) calculated the Waxman-Markey bill could result in $1.4 trillion sent overseas. This figure was confirmed by Dr. Reid Harvey of EPA, who said without sending this money abroad, the cost of the Waxman-Markey bill in the United States would be 90 percent higher.

The Senate's Kerry-Boxer climate bill makes fewer international offsets available than does Waxman-Markey, thus reducing the amount of money sent overseas, but it also would raise the cost of the bill in the United States. Simply put, it is cheaper to pay for offsets in other countries than to buy domestic offsets or reduce emissions here, because it costs less to plant trees and fund other projects overseas that could be certified as reducing GHGs.

This means Congress is facing a Solomon-like decision. As it deliberates over the House and Senate bills, it must determine whether it is better to send $1.4 trillion overseas, or expect American consumers to pay the higher price of domestic offsets or GHG reductions in the United States. Neither decision is likely to be acceptable to Americans who are going to pay more for virtually everything, including energy, under either of the climate bills.

Add to that fact the recent revelation that international offsets might not be very effective in removing GHGs from the air. As the Washington Post reported Oct. 15, the preservation of a forest in Bolivia is falling far short of its GHG reduction target.

The Congressional Research Service recently reported that the availability of international offsets is the greatest factor in reducing the overall cost of a cap-and-trade program. Clearly, however, their use comes with considerable risk.