Robert Frank defends carbon offsets at the sister blog. I’m sympathetic to much of Frank’s argument; in particular, the fact that Al Gore has a big house isn’t much of an argument against carbon offsets. (If the crops are failing and the flood waters are rising, it won’t be much help to stand on a street corner shouting: But Al Gore had a big house!)
But I’m not happy with the example that Frank chooses to illustrate his point. He writes:
Suppose you live in a northern city with normally mild summers and are considering buying a bedroom air conditioner to ease you through the occasional brutal heat wave. Your choices are between a highly efficient model that sells for $500 and a less efficient one that sells for only $300. Because you’re concerned about global warming, you feel obligated to buy the more efficient model. But because you use your air-conditioner so infrequently, buying that model won’t actually help much. You’d do much more to curb global warming if you bought the cheaper model and used the money you saved to buy carbon offsets.
My first thought is that you’d be better off buying a couple of high-quality fans for $79 each. Beyond this, I’m troubled by the example because what makes it work is the willingness of somebody to spend $200 extra for the environment. This can’t be how large change can come. Usually the argument I hear made to encourage people to buy energy-efficient appliances is that they will save you money in electricity costs after a year or two. It’s hard for me to see carbon offsets making a difference if they’re being driven by voluntary contributions. Although I guess the idea is that if voluntary contributions become some sort of norm, they can gradually become mandatory contributions. I don’t claim to have any handle on the policy issues here; I just thought it was an odd example.
I'd agree that the example is poor, but for somewhat different reasons.
By hypothesis, buying the $500 air conditioner doesn't help much – ie, buying the $300 air conditioner doesn't hurt much. In fact, given this, buying the $500 air conditioner is probably environmentally irresponsible, since to a rough approximation the cost will reflect the amount of carbon emissions (and other environmental harms) from the manufacturing process.
So, since buying this cheaper air conditioner isn't an issue, there's no reaon to spend the $200 difference on carbon offsets. You should just donate whatever amount you please to whatever cause you please. Maybe you'll decide to buy $200 in carbon offsets (if you believe the carbon offset business is honest), but if so, it should be for reasons unrelated to your air conditioner.
There is so much fuzzy thinking about the role of the individual and the environment. Simple example: we often see phrases like "would provide enough electricity to heat x thousand homes, the size of a city like y." That phrasing equates homes with a city when, of course, homes are a small part of the total energy usage in a city or of an economy.
Another example, if you look at the relative paybacks, it seems better to have cities and at least some towns invest a ton of money up front in LED lighting, taking all the money that would go to individual consumers to encourage various savings like CFLs, because the cities and at least some towns use that much more energy.
I've also seen reasonable (but everything's questionable) discussions of whether it would simply make more sense to put in trees. Not because they clear CO2 but because they reduce cooling needs. Lots and lots of trees.
And then you see people in your daily living who recycle – which isn't worth much to the environment, especially in this economy – and who may even drive a Prius but who pay a lawn service to maintain an essentially sterile grass environment with mulch piled in every bed and around every tree. We are creatures of contrast, doing for the environment on one hand while crushing it with the other.
The problem with the "it saves you money in the long run" picture is that it's often full of bologna (baloney?). Discounted future savings using a reasonable discount rate often barely make up the difference during the life of the appliance.
Suppose you use your air conditioner 3 weeks per year during hot weather, for 8 hours a day. Suppose it's a medium sized room air conditioner, and it requires around 1500 watts of power. Using the handy units calculator at the unix command line I get 252 kilowatt hours per year of energy usage. At $0.12/kwh that's around $30/yr. With a 5% discount rate, and a 15 year lifespan I get $341 of present value to use the machine throughout it's life. To save $200 in present value, your "higher efficiency" one has to use 41% of the energy, which is 615 watts. But typical differences in air conditioners is a seasonal coefficient of performance of say 9 vs 12 which is to say that the higher efficiency one uses 75% of the energy, instead of 41%.
Another thing you've missed is that if the carbon offsets are really better at saving carbon, then instead of buying the $500 air conditioner, you should buy the $300 air conditioner, take say $100 and buy carbon offsets, and with the $100 you saved you should do something else.
In fact, when it comes to air conditioners, I'd bet around $20 would offset the entire usage over 15 years. I mean people are buying something like $200 carbon offsets to offset their entire SUV consumption for a year last I heard.
However, my biggest concern with carbon offsets is: Do they really work? How much are we paying people to do things they would have done anyway? (like replace old generating equipment and upgrade the efficiency of powerplants or oil drilling equipment or whatever)
I don't think he's suggesting this is what would actually happen. Professor Frank is ranking two suboptimal possibilities, and arguing that the less efficient of the two is more likely to occur in practice. In practice, you'd need to use taxes or subsidies to get the better outcome.
I live in Houston, Texas. We have to run our air conditioners about 240 days a year. Shouldn't you guys just take up a collection and send me the money to buy a more efficient air conditioner?
I'm kidding, of course, but this is exactly why the problem needs a more intelligent, localized approach. What's inefficient and sort of ridiculous for, say Minneapolis, makes a lot of sense for Houston.
@william well efficiency is relevant to conditions however it is standard as far as enegrgy use and thru-put…
I agree with most of the other commenters.
But Andrew, you're phrasing the question in a way that misses the main point of the example. The relevant question is: Consider someone who is willing to pay an extra $200 for a less environmentally damaging air conditioner. Would they prefer to spend the same amount of money to get an air conditioner while generating even less environmental damage? The way you phrase the question, you're just asking about Joe Shmoe, but Frank was restricting the set of people under consideration to those who are already willing to spend an extra $200 to reduce environmental damage. Makes a huge difference.
Somewhat off topic, but Eric Kleinenberg's book on the Chicago heat wave of 1995 makes the argument that if the city had adopted even minimally higher-efficiency standards for AC units, Chicago would have avoided the local brown-outs and some unknown fraction of the estimated 700+ heat-related deaths. An altruist who is willing to pay an extra $200 for a less environmentally damaging AC unit is also likely to care about such "social" damage, assuming he/she has the relevant information. If you take a more comprehensive view of costs/benefits (which I think people-other-than-economists typically do), the $200 for a more efficient unit is a better bargain than sinking that $200 into carbon offsets.
(Doesn't Professor Frank live in Ithaca? That explains a lot about his example.)
@krippendorf: Haven't read Kleinenberg's book, but as a Chicagoan who lived through the story, I don't find this theory prima facie. To me, it seemed more like a city mobilization failure — like the failure to efficiently evacuate New Orleans prior to Katrina.
I wouldn't voluntarily pay an extra $200 because my individual effect would be de minimus — and I would never pay it off. Some summers in Chicago we don't run the AC at all. It seldom is on as long as two weeks.
Krippendorf said: If you take a more comprehensive view of costs/benefits (which I think people-other-than-economists typically do), the $200 for a more efficient unit is a better bargain than sinking that $200 into carbon offsets.
I'm not an economist, but in my opinion the larger problem is that economists are the only ones who systematically pay much attention to costs/benefits, perhaps we should show them some appreciation for that.