American Electric Power (AEP) owns power plants around the United States that together release about 3 percent of U.S. carbon dioxide (CO₂) emissions every year. The company has entered into a voluntary agreement with the U.S. government to reduce its CO₂ emissions by 1 percent every year. AEP has determined that building cleaner power plants would cost between $50 and $75 per ton of eliminated CO₂ emissions. In contrast, it would cost only about $1 to $2 per ton of CO₂ emissions by planting trees that convert CO₂ into wood.

AEP faces two problems in using trees to reduce the polluting effects of its power plants. One is uncertainty about how much CO₂ a tree absorbs. AEP has already spent $17 million planting 60,000 acres of trees on land near its power plants and has paid more than $7 million to protect an existing 4-million-acre forest in Bolivia. AEP projects that the new U.S. trees will sop up 11 million tons of CO₂ over several decades, or the amount that its power plants release in 16 months. Independent scientists disagree about the accuracy of these estimates. In addition, property rights to CO₂ tree absorptions are poorly defined. It is unclear, for example, how much pollution reduction credit AEP will be able to claim from its investment in Bolivian forests if Bolivian polluters try to lay claim to pollution abatement benefits that forests provide.

Under what circumstances could society come out ahead if AEP and other polluters planted trees instead of cleaning up their power plants?