Willem Buiter has noticed another flaw with Waxman-Markey: its carbon reduction targets are purely hypothetical, since virtually all of them, from now to 2050, can be “met” with offsets. Buiter mentions my favorite argument against the offset trade: it relies on an epistemological impossibility, comparing the emissions reductions purchased by offsets against a hypothetical universe in which no such purchases take place. He doesn’t bring up the incentive nightmare, on the other hand: the inducement for every party along the offset value chain to deceive the others and any agency set up to supervise the process. All in all, it seems beside the point to describe carbon offsets as a loophole; they exist precisely because they generate profits for a wide swath of businesses.
As horrible as the offset giveaway is, and the permit giveaway as well, they are not the worst. In theory, both could be fixed if the political system were suddenly to become more responsive to the public interest. Future amendments could require permit auctions and shut down the offsets. What can’t be fixed without overhauling the entire system is the absurdity of issuing permits on a sector-by-sector basis for actual carbon emitted, as if that could actually be monitored and enforced. Environmentalists may think this is a grand idea because, well, those who emit carbon into the atmosphere are bad people and must be kept on some sort of leash. Never mind that it will take an incorruptible army of inspectors to determine just who is behaving how badly, that most small emissions will have to be left outside of such a system altogether, and that parceling out emission budgets this way is an open invitation to rent-seeking.
The simple, effective, non-moralistic solution is to cap the extraction of fossil fuels from the earth, or their importation from other countries. That will make these fuels scarce and expensive, and we can all decide how much we are willing to pay for them according to any reason, noble or base, that moves us. Why is this not on the table?