In the state of Georgia, we are very familiar with the economic engine that is created by the lumber industry. Our state has the most commercially available, private timberland in the country at 22 million acres. In 2019, the industry had an economic impact estimated at over $36 billion and employed over 141,000 Georgians. Recently, however, a colleague of mine in the Murphy Center sent me a podcast from the Wall Street Journal in which the host explains the economics of the carbon offset market – that is, not cutting down trees and getting paid for it.
Historically, the best way to profit from a forest was to cut down its trees and sell it. Today, the carbon offset market is changing that paradigm and landowners can make money from trees by keeping them planted and healthy. This is because some of America’s largest corporations are eager to purchase these offsets created by the carbon absorption capacity of forests. It allows a company that cannot avoid certain emissions to offset them instead by purchasing credits, or offsets, from a landowner. Thus, this carbon offset market both reduces CO2 in our atmosphere and keeps trees standing.
So, problem solved? Maybe not. If we look just at the question ‘Do carbon markets reduce the number of trees cut down and thus reduce carbon intensity?’ the answer is, yes. But, where I have a problem with the carbon offset market, along with any market that purports to produce more stuff with less environmental inputs (also referred to as eco-efficiency), is that it ignores system-thinking.
If we want more sustainable systems and economies, we can’t just offset carbon (ie. reduce the carbon intensity of a product) – though this is an important part of the equation. We also have to reduce overall consumption. For example, in this case, it’s important to reduce the number of trees being removed from the system, but if that ultimately just passes the buck so that we produce more stuff, the impact does not change much.
I think Ehrlich and Holdren’s 40+ year-old IPAT equation is still the most elegant model for understanding environmental impact.
I = P*A*T
I – impact
P – population
A – affluence (GDP per capita)
T – technology (a measure of the amount of resources required to produce a unit of GDP)
So, if we think about carbon reduction as a technological reduction method – it reduces the amount of resources per unit of GDP – the rate at which we reduce the carbon and bring down the “T” variable is only useful if we also reduce “A” and “P” (the rate of emissions growth that stems from population and per capita income growth). In short, overall environmental impact does not change much by changing the rate of only one of your variables; they have to be considered together.
I love the idea that carbon offsets are booming. The more trees the better as far as I’m concerned. But, if the result of a carbon offset is simply to allow a company or individual to feel better about behaving in the same way that they always did without changing habits of consumption, is the impact really changing in any meaningful way? Probably not. More likely, it just encourages business as usual.
Dr. Heather Farley is Chair of the Department of Criminal Justice, Public Policy & Management and a professor of Public Management in the School of Business and Public Management at College of Coastal Georgia. She is an associate of the College’s Reg Murphy Center for Economic and Policy Studies.
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