Well-intentioned carbon credit incentives can be exploited to increase polluting production

Evidence

A common strategy in the defense phase is to devise creative ways to outwit a law. An even more creative scheme is to find ways to exploit the law to one’s benefit. Even positive economic incentive systems can be corrupted for a new source of lucrative profits (Rosenthal & Lehren, 2012a). In an effort to reduce global warming, the UN rated gases according to their power to warm the atmosphere. The UN wanted to phase out a certain coolant used in air-conditioning and refrigeration that has a huge warming effect and depletes the ozone layer. Manufacturers, mainly in China and India, figured out that they can make huge profits by increasing production of this coolant and destroying the waste gases released in its manufacturing for generous carbon credits that they can sell in the international market. This well-intended incentive system got corrupted into a subsidy for increased production of the coolant! — Albert Bandura, Moral Disengagement, 1527

Categorization

• XREF: Connects to the Milgrom/Roberts institutional-design material already in the library: incentive systems get gamed, and institutions must be designed against corruption. — connects to: Amazon deforestation is economically rational under existing incentives — Vincent Bevins, If We Burn: The Mass Protest Decade and…, 319; A mere duty to warn can outperform formal emission limits through market pressure — Richard J. Lazarus, The Making of Environmental Law, 504; Tradeable emissions rights could cut pollution at lower cost than command-and-control rules — Richard J. Lazarus, The Making of Environmental Law, 799
• CANDY: The carbon-credit coolant swindle is a compact, surprising anecdote: a punishment/green-subsidy scheme that literally paid polluting factories to make more coolant.