The Economist has a timely article discussing why carbon offsets don't work in the real world like they do on paper.
MANY readers profess puzzlement as to how carbon offsets could fail to reduce one's carbon footprint. The answer is that they probably do reduce one's carbon footprint, but by nowhere near the one-for-one ration that seems to be implied by the extraordinarily low price of carbon offsets. Unless they are implemented under a cap-and-trade system, these sorts of environmental efforts are plagued by something called the rebound effect, which is to say that using more efficient technologies causes the price to fall, which causes people to use more of the carbon-emitting substances in question. This is particularly true in markets for things like electricity, which are characterised by monopoly providers and extremely high fixed costs for existing plant, making it unlikely that carbon emitting generators will actually be taken offline (and made worse by the fact that the dirtiest power is supplied by the baseload plants, which are least likely to be taken offline). If you are salving your conscience by buying carbon offsets, which allows you to cheerfully emit 20 times more than the average person, then even a conservatively estimated rebound effect means that carbon offsets are increasing the amount of emissions.
The story gives a couple of examples of how this works, but what it comes down to is basic economics. If you make something cheaper and easier to do, you will get more of it. Buying carbon offsets in a different locale doesn't clean the air where you are. It cleans the air in some other place while encouraging polluters in your own area.
The article does a good job of explaining how all this works and is worth the read.
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