The House bill did not create this offset problem. The European Union's cap-and-trade scheme has long allowed European companies to buy UN-certified offset credits instead of cutting their own emissions. As Stanford researchers Michael W. Wara and David G. Victor found over a year ago, Europe's offset purchases have not drawn developing countries into "substantial limits on emissions," but have, "by contrast, rewarded them for avoiding exactly those commitments." As a result of this perverse incentive, Europe's cap-and-trade market is considering rules to ban the purchase of UN offset credits from major developing countries.
One of the offset schemes that Europe might ban involves a type of chemical plant found, among other places, in China. While dumping a notorious greenhouse gas into the atmosphere, the plant's owners suggest to the UN that the plant could incinerate the gas instead – if the owners were allowed to sell offsets. The particular gas emitted is 11,700 times worse than carbon dioxide, so naturally the UN agrees that the owners can sell 11,700 tons of emission offsets for every ton of gas incinerated. With offsets worth about $15 a ton, the profits have been enormous.
By purchasing such offsets, Europe pays poor countries not to harm the climate, and the House bill would do the same. Most markets, however, pay for "goods," not for stopping "bads." In the private sector, we call a market for not doing harm a "protection racket." By offering to pay protection money – by buying offset credits – we invite the protection-racket way of thinking into the realm of international negotiations.