Clean economic models (it continues)

Will this never end? The Economist blog, FreeExchange continues the economic modeling nonsense. They argue that carbon offsets could lead to an increase in dirty power consumption. “How?” you may ask. A good question.

Here is their logic. You buy offsets and so feel less guilty about using coal power so you consume more. At the same time, those offsets are used to put in windfarms. These compete with the coal power and so there is more power consumption overall.

The problem is step 1. It is true that you could buy offsets and then just feel less guilty. But my understanding of the plan is that you buy offsets to, I don’t know, offset (!) your current emissions. That means that you know that if you consume more you have to pay more (for your externality) and that means that you consume less coal powered electricity. So even should windfarms compete with coal as a result, less coal fueled electricity is produced and the system works. The moral of the story: don’t buy offsets to offset guilt but to offset carbon consumption and things will be fine.

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