American Electric Power (AEP) owns power plants around the United States that together release about 3 percent of U.S. CO₂ emissions every year. The company has entered into a voluntary agreement with the U.S. government to cut its CO₂ emissions by 1 percent every year. AEP has determined that it would cost between $50 and $75 per ton of eliminated emissions to build cleaner power plants. In contrast, planting a sufficient number of CO₂ absorbing trees would cost only $1 to $2 per ton of emissions. AEP faces two problems in utilizing trees to reduce the polluting effects of its power plants. One is uncertainty about how much CO₂ trees absorb from the air. The company has already spent more than $17 million to reforest nearly 60,000 acres of land near its U.S. power plants and paid more than $7 million to protect a 4-million-acre forest in Bolivia. AEP projects that over several decades, the new U.S. trees alone will sop up 11 million tons of CO₂, or the amount that its power plants release in 16 months. Independent and government scientists disagree, however, about whether these estimates are accurate.

The second problem is that property rights to CO₂ tree absorptions are poorly defined. It is unclear, for instance, how much pollution-reducing credit AEP will be able to claim from its investment in Bolivian forests if Bolivian polluters try to also lay claim to the pollution abatement benefits those forests provide.

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