The Left demagogues free trade policies, claiming they offshore jobs and siphon American wealth. However, an international carbon offset provision in the Waxman-Markey energy bill could cost the nation millions of jobs and billions of dollars. An offset is a project that reduces, avoids or sequesters greenhouse gas emissions.

Cap-and-trade needs offsets for two reasons. First, Congress needs to avoid forcibly shutting down companies that can’t keep up with the mandated reduction schedule. Offsets are a way for so-called carbon polluters to make political peace with Congress by making green investments. If emitters buy the rights to a portion of the alleged carbon reductions, Congress has promised to let them off the hook for failing to get below the cap.

Second, offsets are needed to prop up green investments. Under an offset scheme, emitters struggling to meet a cap won’t care if green projects are a sound investment. They will be delighted to fritter away cash on offsets, so long as they are cheaper than emissions permits.

The list of analyses calculating the cost of the looming energy tax is all over the map. The EPA suggests a paltry postage-stamp-a-day, while the Heritage Foundation forecasts thousands-of-dollars per year, with several others in between. While no serious analysis suggests cap-and-trade will help the economy, offsets are pivotal to all of the models’ cost predictions.

Electricity producers are slated to make the lion’s share of reductions under Waxman-Markey. To meet the ever-falling cap with a combination of offsets and permits, they will be forced to raise rates. President Obama has promised that cap-and-trade will be “paid for by polluters,” but every indication says the opposite is true. Electricity-giant American Power’s CEO Mike Morris said he would have to raise rates thirty to fifty percent in order to comply. Morris also insisted that any offsets, technologies or credits he buys are “absolutely recoverable … dollar-for-dollar” from consumers. The paucity of domestic offsets will send companies like American Power scurrying to the international marketplace to buy carbon absolution.

Two forces are driving international offsets in place of green investment at home. Foremost is the clamor from developing nations about the inequity a global carbon regime would exact on their blossoming economies. They rightly contend it’s hypocritical for the First World to preach carbon restraint after our people already escaped poverty through industrialization. Developing nations promise to abandon their objections if the developed world will assist them in attracting green investment. Governments don’t control enough wealth to make good on this promise; they need a way to force the private sector to sink good money after bad into dubious green projects. Enter carbon offsets.

The second reason to rely on international offsets is a simple question of scale. America doesn’t have the offset inventory to supply domestic needs. We will have to pay other countries not to cut down their forests so our factories can keep their doors open.

This reliance would cause a massive offshoring of American wealth. Waxman-Markey allows two billion tons of carbon emissions each year if companies fund an offset market. David Kreutzer of The Heritage Foundation estimates offsets could cost $20 per ton, for an economy-wide offset tax of $40 billion per year. Much of this cash, and the jobs that it supports, will flow overseas.

It’s hard to understand how Democrats who got elected railing against the offshoring of American jobs can support a measure that mandates our consumers pay a tax to subsidize unsustainable green investments abroad.

We aren’t the first to try this backdoor approach to carbon reductions. Europe has been tinkering with the Clean Development Mechanism (CDM) for years, trying to offset its Kyoto requirements. CDM claims to have 1,600 projects scrubbing 2.9 billion tons of CO2 from the air, but the veracity of these claims is laughable. The World Wildlife Fund says as many as twenty percent of the offsets are unverifiable. Additionally, CDM decertified its two biggest auditors—Norway’s DNV and Britain’s SGS—because they failed to properly vet projects before approving them for the global offset market. American companies have thus far been immune from coerced investment in these fraudulent schemes. That would all change under Waxman-Markey.

This is likely a moot point because the international offsets authorized in Waxman-Markey will not provide the cheap carbon absolution some suggest. When companies are forced to pay huge sums for emissions permits—because they cannot find verified offsets to meet their mandated reductions under the cap—you and I will be left to pay a much higher bill than anyone is predicting.

Mr. Valvo is government affairs manager at Americans for Prosperity and has just released a study entitled, Exposing the Special Interests Behind Waxman-Markey.