Should We Subtract Additionality?

Sean Casten presents a thought-provoking case against the use of additionality in climate policy:

Suppose I have a million bucks. Should I invest that million bucks in something that saves 1,000 tons of GHG emissions per year and saves me $500,000/year in energy costs, or should I invest it in something that saves 100 tons of GHG emissions per year and costs me $500,000/year in operating costs with no associated savings? That should not be a hard question ... yet additionality tests make it so.

Why? Because additionality is a qualitative test. Too often it ends up being boiled down to financial metrics. Good investments, by virtue of being good, are judged to fall into the "you would have done that anyway" box, while bad investments, by virtue of being unable to attract sufficient capital, are deemed worthy of public incentive. Implicit is that public funds should only be put toward shoddy investments!

That's a bit of an unfair assessment: additionality is only important to the extent that carbon offset programs are important as part of one's larger climate policy. But I think it's clear that offset programs are not going to be, and should not be, the main vehicle by which we reduce carbon emissions. They are, however, important in terms of reducing emissions in areas where normal capital investment -- whether under current financial conditions or under a carbon pricing scheme -- is not a viable option.

Take, for example, the project I'm currently involved with, which intends to evaluate the potential of using carbon offsets to finance putting out coal mine fires, which are a significant contributor to carbon emissions worldwide. (People might remember the mine fires in Centralia, Pennsylvania in the 1980s, which led to the town being abandoned eventually.) Paying to put them out is often quite expensive, particularly for underground fires -- and that's in the US. In developing countries, China and India in particular, weak enforcement of mining regulations and lack of financial resources have resulted in fires burning on a massive scale, and generating a massive amount of carbon emission. (Things are so bad in India, for example, that a repeat of the Centralia disaster is happening as we speak.)

The upshot is that carbon offset programs could be an effective way to finance abatement in developing countries, in that it covers an area that lacks sufficient capital or regulatory mechanisms, even though in developed countries coal fires are restricted to the most intractable. Focusing on these hard-to-get-to areas should be the aim of carbon offset programs going forward.