SO I WAS OUT AT DINNER this evening reading The New York Times and I noticed, buried within the recesses of the Business Day section, that a unit of the General Electric Co. has come up with a new credit card -- a new credit card guaranteed to wipe out guilt! At least that's what I inferred from scribe Claudia Deutsch's lead, at any rate:
Feel guilty about fueling up that gas guzzler or buying that box of incandescent bulbs? Would you feel better if, instead of frequent flier miles or cash, your credit card’s rewards program allowed you to offset your role in global warming?
As one might expect, my answers, respectively, were No and No. But still, for people out there who are feeling guilty about their impact on the environment -- yes, you, with your reliance on modern conveniences like indoor plumbing and electricity! -- this card is just for you.
Cardholders who sign up for the GE Money Earth Rewards Platinum MasterCard -- boy, that's a mouthful -- will, in lieu of useful things like airline miles or actual cash back, pay for carbon offsets. For every $100 purchased on the card, $1 will be spent on a carbon offset.
Carbon offsets, for those unfamiliar with the idea, are voluntary payments people make to offset the environmental damage they're causing through, well, existing. These payments are spent on things like renewable energy projects, tree planting, and other eco-friendly projects that "offset" carbon dioxide emissions from not-eco-friendly places like coal-fired power plants. This, proponents say, will help reduce man's impact on the environment, reduce the effects of climate change, and so on. (Now, if only we could get the developing world on board ...).
Actually, to be perfectly honest, I don't really have anything bad to say about this idea. After all, it seems like a clever way for General Electric to tap a new market for its credit card products. Plus, according to the Times story, GE is heavily involved in its own carbon offset programs as an investor in projects and producer of goods used in these projects. In business, they call this a "win-win." I don't know if GE was clever enough to actively tie the two together, but it sure would be a good idea.
I don't even have anything bad to say about carbon offsets, either. If people are voluntarily making such payments in an effort to reduce their environmental impacts, I can't see how that's anything other than a net good. However, I do take issue with one statement a GE official made in the story, which was this:
“We are not sending a message that you can buy your way out of your environmental responsibility,” said Lorraine Bolsinger, vice president of GE Ecomagination. “We’re offering another tool in the kit for reducing carbon footprints.”
I don't mean to quibble, but let's be honest: the whole reason carbon offsets exist is because people want to buy their way out of their "environmental responsibilites" while still enjoying the fruits of a resource-, energy-rich life. Not that I find anything wrong with this either. These are, after all, voluntary payments and if people want to make them, then that's their business.
However, the trouble with carbon offsets is that they're ungodly inefficient. Consider how the process works. Let's say 10,000 people each spend $100 on carbon offsets, for a total offset payment of $1 million. This money is then sent to the carbon offset processor, which decides where it is spent, but naturally keeping a bit of the money for overhead and such. The remaining money is invested in a wind farm. Several giant windmills are built as a result, and they generate clean power for the electricity market.
Wind power generally costs about $1,000 per kilowatt of capacity to get up and running. So if we say that $900,000 is spent on the turbines and what not, that creates an extra 900 kW worth of electric capacity. If we further assume the plant will run at half-capacity over the year, that will mean a typical output of 450 kW. With a typical residential power bill at 500kWh per month, the new wind plant will create enough energy for several hundred homes.
Let's say the prevailing cost of power is $0.10 per kWh. Assuming constant output of 450 kW, that would result in electricity being generated worth $394,200 per year. It would also offset carbon emissions by about one ton per megawatt-hour, for a total offset of 3,942 tons of CO2 per annum. (0.45 * 8760, the number of hours in a year).
Now let's say that instead of buying carbon offsets, the 10,000 people collectively decide to reduce their power consumption by 15 percent. (They go sparingly on the air conditoning). At 500 kWh per month, that works out to 75 kWh per customer, for a 900 kWh reduction per customer over the course of a year. (At a dime per kWh, that works out to about the same amount spent on the carbon offset). With 10,000 customers, that works out to a total reduction of nine megawatt-hours per year, for a savings of $900,000. Not only that, but each person would save the equivalent of 1,100 pounds of carbon emissions. Not offset, but save. That works out to about 5,500 tons of CO2 per annum (0.55 * 10,000).
This is a simple example but I do think it shows the power of conservation. Not only do people save money instead of spending it, the environmental effects are greater -- for you're not just off-setting the use of coal power or some such, you're actually reducing it. If one expands on this example, one can see the potential benefits are even greater.
Power is a strange resource. Since it can't be stored, it must be constantly produced, and when demand rises sky-high so does its price, as power companies must often buy on the spot market to satisfy their customers' demand. Since demand is so great, new renewable energy projects add just a few drops in the supply bucket, and as such have no impact on price. But if demand were to drop sharply, so would the price. I wasn't able to find information on-line tonight about the price elasticity of electricity, so I don't know how much the power cost might drop, but I think it's a reasonable assumption to say power costs could drop at least moderately.
For instance, let's say our 10,000 customers were joined by a whole bunch of other people who decided to save money and turn off their air conditioning. If that pushed down overall power rates by 1/10th of a cent per kWh, it would save each of our 10,000 customers an additional $5.10 per year, for a total net savings of $51,000 on top of the $900,000 they were already saving. So, to recap: conservation means saving more money and cuts down on environmental nastiness. But mostly it saves money, which one does not do when one voluntarily pays others for carbon offsets.
Speaking of saving money, the interest rate on the new GE Money Earth Rewards Platinum MasterCard ranges from between 13 pc and 19 pc per annum, depending on a cardholder's credit history. It might be worthwhile to forgo the "free" carbon offsets and just pay cash for them when you're feeling particularly guilty. Unless, of course, you can use your offsets to pay for Ted Turner running around in a superhero costume:
CAAAAAAAAAPTAIN PLANET!Posted by Benjamin Kepple at July 25, 2007 11:58 PM | TrackBack