I was beginning to think I was the only person who saw a huge looming issue with any worldwide (or even countrywide) greenhouse gas reporting system. Obviously I wasn’t alone in this concern, and we’ve already got a smoking gun example of this being A Big Problem, albeit not with CO2.

Greenhouse Gases: Who’s Cheating? (emphasis added):

Consider sulfur hexafluoride (SF6), a man-made gas used to insulate transformers and other electrical equipment. It’s a potent greenhouse gas, 23,900 times more powerful than CO2. That means under cap and trade, the price you pay for the right to emit one ton of SF6 is also 23,900 higher than the price of CO2—which is now $18 per metric ton in Europe. Under the U.N. Framework Convention on Climate Change, industrialized countries report how much of the stuff they’re pumping into the atmosphere. They calculate emissions using information on how much SF6 manufacturers sell to customers and estimates of how much escapes to the atmosphere from devices or production facilities. If you believe the reports, emissions of SF6 are declining.

The reports are wrong. When researchers actually measure the chemical in the air, they find it in quantities more than three times greater than what the reported amounts would indicate—and levels are increasing, not declining. The findings were a surprise, says NOAA’s Tans: “It wasn’t on anyone’s radar screen.”

Why the discrepancy? No one knows for sure. Some of the blame goes to China, which hasn’t been required to report emissions and which has balked at submitting to international verification. But the gap is too large to be explained just by emissions from developing countries. Another probable cause is under-reported emissions in the U.S. While utilities and other companies recycle the gas by sucking it out of aging equipment, more of it may escape than workers realize or report. “We have a very big issue, not just internationally but also domestically,” says Lukas Rothlisberger, CEO of DILO, a leader in SF6 maintenance and recycling equipment: “Some of the numbers used, in my humble opinion, are very flawed.”

It’s a cautionary tale. “If we can cheat on something like sulfur hexafluoride, what happens when carbon dioxide is worth $50 or $100 per ton?” asks Michael R. Woelk, CEO of Picarro, a measuring instruments company in Sunnyvale, Calif. SF6 is not unique. Scripps’ Weiss has found more than three times as much nitrogen trifluoride (NF3) in the atmosphere as he expected. NF3 is a chemical used in flat panel manufacturing—and is a powerful greenhouse gas.

The problem here is as simple as it is tough to solve: Individual actors, including governments, corporations, NGO’s, small businesses, and even individual consumers, all have (or will soon have) a huge financial incentive to lie “just a little”, with almost no chance of their being caught in many situations.

I’ve asked this basket of questions before, mostly in terms of international relations, but let me lay out the scenario again.

It’s 2015, and the UN gets reports from every country on the planet about their CO2 emissions for 2014. The add them up, and hand the total over to the scientists, whoc then do the most obvious thing possible with them: They compare them, plus actual observations (atmospheric CO2, plus sources and sinks not accounted for in the country-level reports), and see how it all reconciles. And it doesn’t. I’m not talking about balancing a checkbook and finding you and the bank differ on your balance by 23 cents, and you can’t find the discrepancy, but they find a really big gap. Do they assume their basic science is wrong, and there’s a new or larger source (e.g. defrosting permafrost) they underestimated? Do they assume that one of the big sinks, like the Southern Ocean or forest aren’t sucking up as much CO2 as expected? Do they assume that the US and/or China and/or India and/or Russia and/or … are cheating? How do they figure out where the mystery CO2 is coming from (or not going to)?

If they somehow manage to conclusively figure out it was a given country, thanks to flows of fossil fuels and satellite measurements of emissions, say, then what do we do with that knowledge? How does the world punish company X or country Y for lying, especially since you can bet anything you own that they’ll deny it? How should policy adjust to the fact that some entities around the world or in any given country are much more likely to lie than others? Do we say we “know” certain actors will cheat, so therefore we need an even higher price on carbon to make sure we really hit the emissions level science tells us are necessary? And how do we get the offending parties back in line?

The fundamental mechanism is undeniable: We all talk about the “need to put a price on carbon”, which I agree with wholeheartedly. But that same price that creates an incentive to reduce greenhouse has emissions also creates an incentive to cheat. Under any pricing plan a certain number of individuals and companies and countries will willingly become the climate equivalent of the sleazy used car dealers who used to turn back mechanical odometers on vehicles and jack up prices.

This is a huge, steaming pile of a problem, one that I wish I could find a way to solve. Sadly, it applies equally well to a cap-and-trade or carbon tax system, so there’s no way for us to choose one policy path over another to easily circumvent the issue.