Common Tragedies

Thoughts on Environmental Economics

Offsets and Algae

Posted by jab12004 on March 26, 2009

After spending a lunch seminar listening to a number of knowledgeable Europeans talk about the ETS, I feel a bit overwhelmed by how many potential strange side effects there might be in a huge cap and trade system.  These might not be preplanned nor malicious, but I have a feeling there will be some unintended consequences.

With this on my mind, one article caught my attention about biofuels producing algae under a U.S. cap and trade system.  If algae biofuels are eligible for offsets, we might see some strange side effects.  Right now algae based biofuels are years away from commercialization.   However, if the right offsets are granted and carbon prices are high enough, the biofuels algae industry might find itself on a perverse fast track of sorts.  One quote sums it up.

At a high enough carbon price — maybe $40 to $50 per ton — producers could sell the environmental attributes of their fuel for more than the actual fuel. “You could make biodiesel, pour it down the drain, and make a lot of money,” Ballentine said.  (E&E subscription required)

While I am in favor of putting a price on carbon, I don’t think I could find anyone who likes the above situation.  My first reaction is to say we shouldn’t have offsets, but I am in no way an expert on this topic and won’t pretend to be.  All I know is that I constantly hear about the problems they cause and not much about the benefits they might have.  So I leave it as an open question, what do you think about offsets?  Could they provide enough advantages  to make them worth it?

 

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2 Responses to “Offsets and Algae”

  1. dWj said

    Actually using the biodeisel would presumably release the carbon that was sequestered in its production, right? So if you award an offset for its production and require a permit for its use, there’s no price of offset that’s going to leave you below zero.

    If there is a price of carbon at which dumping it down the drain is below zero, then that doesn’t seem perverse to me; it sounds like you’ve achieved economically practical carbon sequestration.

  2. Josh Blonz said

    You have a good point about it being a form of sequestration. However, it seems like a pretty expensive way to sequester carbon compared to just growing some fast growing crop like popular (although this has other issues I’m sure).

    I guess perverse comes to mind since we have invested research money and effort into third generation biofuels, and this seems like a strange way to use them.

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