Megan McArdle makes the obviously correct point that CO2 offsets are basically nonsense because of measurement problems. I'm a lot more cynical about human nature. If I were a businessman in any developing country, I would simply start building low-cost CO2 generating devices, and then start selling the 'offset' of turning them off.
The advantage of this to the developed world is that since the idea is so obvious, lots of other people would do the same, and this would drive the price of offsets down. Of course, some cost would be created by the need to disguise this at least a little bit (e.g., embed the generator within some actual production facility, do it by buying a negative cash flow existing factory, etc.). This would lead to a requirement, I assume, for government certification by the host government. So really the cost structure would be the bribes required to get the government to certify my offset. This would create the price umbrella for the market. Once all the middlemen are accounted for, it would also make clear what the whole offset business really is - a way to bribe influential members of third-world government to go along with the cap-and-trade fiasco.
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