Carbon Credits – Where Does the Money Come From?

Carbon Credits – Where Does the Money Come From?

As congress moves forward with sweeping climate legislation, many groups are preparing plans and gearing up for the promised windfall profits they will supposedly be eligible to receive. Groups in Washington, DC and throughout the country are working feverishly to stake their claim on carbon credit money, but few have actually taken the time to ask themselves where this money is coming from.

The first thing that people should know about carbon credits is that they represent transfer payments and not new money. Aggregate wealth can not be created out of thin air no matter what carbon credit trading advocates tell you.

The money generated by a cap-and-trade program is money that is taken from covered industries such as coal-fired power generation and steel production. These industries are forced by government regulation to purchase the right to emit carbon dioxide. If the story ended here, many credit seekers would simply shrug and say “So what?”. The problem is the story doesn’t end here because these industries can easily pass along the costs of purchasing emission permits to their customers. The net affect of credit seeking behavior is a realization that the increased cost of electricity and certain carbon intensive goods have been paid for by you and your neighbor in the form of increased utility bills and more expensive machinery.

There are those within the greater agricultural community who have been seduced by the promise of carbon credit payments for basically continuing to operate their business as usual. While I fully support the right for people to earn their own living, one can hardly claim that receiving carbon credit payments is “making money”. Mandatory carbon trading, specifically for agriculture is nothing but a system of wealth transfer from the very industries farmers rely on for their livelihood. While farmers may receive a credit for no-tilling their land, this payment will likely be completely offset if not out right exceeded by an increase in transportation, fertilizer, irrigation and machinery costs.

So where do carbon credits come from? The answer is staring you in the face as you look in the mirror. You are subsidizing this credit trading scheme by paying increased costs on the products you use the most. Carbon credits ARE transfer payments, but many people fail to see that this transfer is happening in their own wallet.