10 Jun 2009

Credit Fraud: Carbon Edition

I have cautioned against over-enthusiasm for carbon credits and carbon offsets. Although I support their use to protect forests under REDD (Reduction of Emissions from Deforestation and Degradation; see this and this), I worry about accounting.

The Economist reports carbon fraud in Papua New Gunea. (Ironically, PNG is the home of the leading REDD activist, Kevin Conrad.) It seems that the PNG government was selling "synthetic" offset credits without any permission, certification, accounting or oversight -- since 2005!
The broader issue with any kind of carbon credit, however, is ensuring that governments of poor countries behave impeccably. Indeed, if problems like this can happen in Mr Conrad’s own back yard, it suggests that the challenges ahead for REDD are tough ones.

Avoided deforestation is a big deal for climate-change policy. It is also a prize worth fighting for, even if it is hard to achieve. Poor governance, on top of poorly defined and defended forest property rights, mean that without proper care REDD could become a recipe for disaster rather than part of a solution the world needs.
Ouch. (Also read this overview from them.)

Bottom Line: It's not easy to set up markets, but it's easy to understand that you can only sell stuff you own!

1 comment:

  1. Thought you would be interested in a comment from one of my former students who is making carbon offset deals worldwide.

    According to him there is only one rating (oversight?) agency for these and he is concerned because in his opinion their ratings are about as good as S&P and Moody’s were for the mortgage backed securities. He gives the whole structure not more than 7 years to collapse because carbon levels will be steadily increasing and folks will start nosing around to find out how fraudulent the offsets are.


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