Region Focus (a magazine put out by the Fed in Richmond) has an article on carbon offsets by Vanessa Sumo. It discusses economists’ analyses of carbon offset markets and their effect.

If people voluntarily purchase carbon offsets, that must mean the offsets are “cheaper” than the guilt they feel over their carbon footprint, notes University of Melbourne economist Joshua Gans. The lower the price of the offset, the more easily they assuage their guilt. If a consumer’s electricity use is no longer constrained by guilt, then he might end up consuming more electricity.

Moreover, if the money that comes from offsetting “dirty” electricity goes to investing in wind or solar energy, then increased competition from “green” electricity may also provoke incumbent power companies to drop their prices and produce more “dirty energy.” The lower prices that result could increase overall electricity consumption by all households. Hence, trying to do something good for the environment might inadvertently encourage the sort of behavior that is anathema to someone worried about carbon emissions in the first place.

In a recent paper, however, Gans finds that it’s unlikely that carbon offset programs would do more harm than good. He argues that the ability of green power to pressure utilities into lowering prices depends on the volume of offsets for building that green power capacity. The price effect would be small if only a few people subsidize a wind farm. But if a large number of people purchase offsets, then a huge amount of green power would be available. This is more likely to displace dirty electricity than to provoke more of it.

Net emissions of carbon dioxide will likely fall as a result of carbon offsets, but Gans suggests that the reduction is probably not as large as offset purchasers think. “They’re not wiping them out entirely,” Gans says.

It mentions other research too but you’ll need to read the article for that.

Also, of interest is this New Yorker article by Michael Specter that discusses the attempts by corporations to measure and deal with their carbon footprint. Bottom line: it is really hard to do.

Yesterday, the newspapers reported that the government was considering a plastic bag tax. I wrote that I thought that was a good idea. However, by the end of the day, for no apparent reason, the government had ruled it out.

Today, the newspapers are reporting that there is a proposal before the government for a ‘traffic tax.’ Many have proposed this before and the Australian Automobile Association’s plan is similar to others. It proposes to reduce registration fees and then use electronic tolling to charge motorists by use with lower charges for off-peak use and when people have environmentally friendly cars. In Finishing the Job, Stephen King and I proposed a similar system although we wanted to ease the pain on the poor by offering credits when motorists took public transport. John Quiggin and I pushed that recommendation further last year.

So I am clearly in favour of this idea. But I write this with some nervousness; will it be ruled out by the end of the day? I must say that usage charges for motor use is as close to a no-brainer as you get with environmental policy. How the government responds will be a test of how serious it is in dealing with climate change sooner rather than later.

The government is considering a tax on plastic bags. The rationale is clear: they cause waste with costs that neither supermarkets nor shoppers currently internalise. Apparently, there is some skepticism that this will actually result in a desired change in behaviour; the argument being that it could just become a straight out tax.

Fortunately, the Irish did the world a favour and introduced a similar tax back in 2002 (a 15 cent Euro charge). And the results have been studied. For instance, a paper published in Environmental and Resource Economics found that:

The effect of the tax on the use of plastic bags in retail outlets has been dramatic—a reduction in use in the order of 90%, and an associated gain in the form of reduced littering and negative landscape effects. Costs of administration have been very low, amounting to about 3% of revenues, because it was possible to integrate reporting and collection into existing Value Added Tax reporting systems. Response from the main stakeholders: the public and the retail industry, has been overwhelmingly positive. Central to this acceptance has been a policy of extensive consultation with these stakeholders. The fact that a product tax can influence consumer behaviour significantly will be of interest to many policymakers in this area. This paper analyses the plastic bag levy success story and provides insights and general guidelines for other jurisdictions planning similar proposals.

This is as strong as an endorsement as you are ever likely to get. Basically, in Australia, retailers argue that the reduction will only be about 30 percent. The Irish experience suggests that that is a dramatic under-estimate. The only potential bad news is that there won’t be much revenue for possible uses on environmental clean-up. But let’s face it, that is the best bad news one could hope for.

[Update: Peter Garrett has ruled out a bag levy. Terrific. ;( ]