From Climate Progress:

Q: What is the difference between carbon offsets and mortgage-backed securites?

A: Lipstick.

Carbon offsets and mortgage-backed securities are quite similar in that is impossible for the vast majority of people, even experts, to know what value they have, if any.

In the case of the securities, before paying good money for them, you have to figure out what the value of the underlying mortgages are. Oftentimes they are almost worthless. In the case of carbon offsets, before you pay good money for them, you have to figure out the value of the underlying projects they fund. Oftentimes they are almost worthless.

The only difference between the two is one of perception. Most people now realize how dubious the securities are. But most people apparently don’t realize how dubious the offsets are, because sales of offsets keep rising. So I repeat, the only difference is “lipstick” — the offsets look on the surface to be more attractive.

At a policy level, offsets can destroy the environmental value of climate legislation (see “Boxer bill update: Probably no U.S. CO2 emissions cut until after 2025” and “McCain speech, Part 2: Relying on offsets = Rearranging deck chairs on the Titanic“). Indeed, at a large scale, offsets are probably worse than the securities, because even if the mortgages are underwater, you know the houses aren’t valueless. But as a major 2008 analysis from Stanford found

… “between a third and two thirds” of emission offsets under the Clean Development Mechanism (CDM) — set up under the Kyoto treaty to encourage emissions reductions in developing nations — do not represent actual emission cuts.

And this led to the study’s stark conclusion:

… any offset market of sufficient scale to provide substantial cost-control for a cap-and-trade program will involve substantial issuance of credits that do not represent real emissions reductions.

Talk about your sub-sub-sub-prime loans.

Yet even at an individual level, lots of vendors are selling very dubious offsets, including the Chicago Climate Exchange, as many journalists have found when they examined the underlying projects (see here and here and here).

In particular, I have argued that the most popular offsets are the most dubious:

For instance, I can’t imagine why you would waste your money on the single most popular offsets, trees (see no trees and certainly not a Northern forest and especially not trees in a world of drought-driven climate change — heck, even offset seller Terrapass disses trees). If you really care about slowing and reversing deforestation — and you should — then don’t waste your time with individual forestry projects, which can’t guarantee net reductions in the deforestation anyway. Instead, find an organization that is trying to support the new U.N. program launched last month that focuses on nation-wide forest-saving efforts, Reduced Emissions from Deforestation and Forest Degradation Programme, which the UN hopes “could be the foundation for a system in which rich countries would pay poor ones to slow climate change by protecting and planting forests.”

And don’t get Climate Progress started again on the other popular offset, RECs, which are the junk bonds of offsets (see “Schendler Part II: Good RECs vs. Bad RECs“). Then we have a major review of the latest agricultural science, which says of another popular offset, no-till farming, “evidence that it promotes C sequestration is not compelling” and “Studies that have involved deeper sampling generally show no C sequestration advantage for conservation tillage, and in fact often show more C in conventionally tilled systems” (see “No-till farming does NOT save carbon and is NOT a carbon offset“). Another emerging offset, enhanced oil recovery, is also not a net carbon reducer. And please, please, follow Rule Three of Offsets: No Geo-engineering.

Finally, I just can’t get excited about most methane offset projects. They aren’t a bad idea, and their benefits are certainly easier to verify than many other offsets. But that is in some sense precisely their problem. Once there is a hard cap on carbon emissions and a trading system, all those cheap, easy to verify methane-saving projects will be the first projects funded. So paying good offset money to fund methane offsets now mainly just accelerates some inevitable projects a few years. Also, from my perspective, one of the few overarching benefits of funding offsets is jumpstarting the transition to an economy built around energy efficiency and renewable energy. Most methane projects don’t do that at all.

As I’ve said before, if you really, really want to spend some of your hard earned money this way, Don’t Offset Your CO2 Emissions, Retire Them. And save the lipstick for hockey moms.