Lynne Kiesling’s blog Knowledge Problem is one of the best sources you’ll find for free-market thoughts on energy issues. Here, she raises an interesting point about carbon offsets after pointing out some slippery arguments about them:

Why do I support the development of carbon offset transactions and their brokers? Because it’s a Coase-style private, voluntary, transaction-based approach that enables private parties to achieve mutually beneficial outcomes.

You know, I think I agree. If carbon emissions are a problem, this is certainly a better approach than the Pigou Tax route.

On the other hand, some of the current carbon offset programs are more like a shakedown than a Coasean bargain. Any program that invests in this scam, for instance, is a poor bargain. Here’s how Fred Smith summed it up in his recent Senate testimony:

Under the Kyoto Protocol, for example, companies in the developing world that reduce output of the greenhouse gas HFC-23 are allocated carbon credits representing the amount of carbon dioxide-equivalent that they reduce. In total the amount of credits so allocated are worth about $5.9 billion when sold to countries that want those credits. Yet reducing HFC-23 is actually a simple process, achieved by installing scrubbers at a modest cost. According to a study published in the journal Nature last week, installation of those scrubbers could have been financed by loans or grants at a total cost of about $130 million. Thus almost $6 billion has been diverted away from other uses into the pockets of industry in the developing world. This is a massively inefficient way of achieving modest emissions cuts. Worse, it has now become apparent that China is creating HFCs – with 12,000 times the global warming potential of CO2 – for the purpose of being paid to destroy them under Kyoto. This is what such schemes have always created, from the British in India offering bounties for poisonous cobras – which led to mass breeding of the creatures – to the modern-day version of that ploy.

Yet a carefully-managed carbon offset program would be worth investigating and perhaps even, especially if it invested in “no regrets” projects, worth joining.

For the record, by the way, my household’s carbon footprint came out as below average, when I measured it a few days ago at safeclimate.net. So my personal Coasean bargain might be quite affordable.

One final point comes from a commenter at Lynne’s site arguing against carbon offsets:

To me, the most important feature of Private Offsets is that they are geared to higher-income (if not elite) consumers and there is no better way to undermine costly social change than to give this group a way take their own dollars and opt-out.

To be encouraged, then…