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Getting Credit for Going Green: Making Sense of Carbon "Offsets" in a Carbon-Constrained World

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Members of Congress this year can take an important step toward a U.S. cap-and-trade marketplace in greenhouse gas emission allowances. Legislation proposed by Sen. Joseph Lieberman (I-CT) and Sen. John Warner (R-VA) would establish a national cap on carbon emissions and then auction emission allowances to industries, which in turn could trade those allowances or use them to cover their emissions. An often overlooked but nonetheless controversial component of this proposed cap-and-trade system in the Lieberman-Warner bill is a provision that will allow emitters to meet their emissions targets, in part, by obtaining carbon “offset” credits from reductions in emissions that are not covered by cap-and-trade restrictions, including emissions from forestry and agricultural sources and from unregulated energy uses.

Making sure Congress crafts these carbon offset credits wisely as part of a mandatory cap-and-trade system is a difficult but important challenge. The reason: Carbon offsets have earned a bad name in many quarters, particularly here in the United States where the appetite for companies and individuals to demonstrate “carbon neutrality” by offsetting their carbon emissions in the absence of a cap-and-trade system has spawned an unregulated, voluntary offset market that many consider to be unreliable at best, and rife with fraud, at worst.