Rethinking the Cap and Trade Offsets

Enforcement for California’s cap-and-trade program began with the new year, but environmental organizations are voicing concern that the climate control measure may only result in a change on paper.
Rethinking the Cap and Trade Offsets
A generating station in Sun Valley, Los Angeles, is seen in this file photo. California’s carbon cap-and-trade system came into effect on Jan. 1, 2013. (David McNew/Getty Images)
Catherine Yang
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SAN FRANCISCO—Despite losing a court case earlier this week, environmental groups are determined to seek improvements to California’s cap-and-trade program, which they say may lead only to a change on paper. 

Assembly Bill 32 (AB 32), enacting the Global Warming Solutions Act, was signed in 2006 to allow the California Air Resources Board (ARB) to plan for a 2020 greenhouse gas emission limit with programs like cap-and-trade. 

Under the cap-and-trade-program, which the ARB began enforcing on Jan. 1, companies must pay for a permit for every ton of greenhouse gas emissions, and the state will hold a permit auction four times a year. The first auction of greenhouse gas permits was held last November, raising $233 million, as every one of the 23.1 million permits offered for 2013 were sold.

According to two environmental groups, Citizens Climate Lobby (CCL) and Our Children’s Earth (OCE), there is a loophole in the offset program that potentially undermines the effectiveness of the program. Nevertheless, a San Francisco judge ruled against the groups Monday, upholding the system as is.

Offset Credits Spark Debate

Laurie Williams, a CCL volunteer and attorney for the Environmental Protection Agency (EPA), said that the organizaton will file objections and ask the judge to look at the case again.

When a company’s total emissions exceed the allowances it purchased, it can take extra voluntary greenhouse gas emission reduction measures outside of those required by AB 32 to create offset credits. The offset credits function the way the permits do, ultimately allowing up to 8 percent of total greenhouse gas emissions to be covered by offsets.

“At the most extreme case, non-additional credits will completely displace all additional credits and the greenhouse gas emission reductions will only occur on paper,” reads the Statement of Decision on Citizens Climate Lobby et. al. vs. California Air Resources Board, authored by the Superior Court of California.

However, the footnote to that statement reads, “This exact scenario cannot occur here because the use of offsets is limited so that only 85 percent of all potential reductions can come from offsets.”

The nonprofits CCL and OCE are arguing that current categories of approved offsets—livestock manure digesters, destruction of ozone depleting substances, U.S. forests, and urban forests—allow current activities of the company to count as extra offset credits.

“The four protocols the board approved have a problem. The problem is that this would allow already ongoing activities to count as offsets, and that is specifically forbidden in the statute,” said Williams. California law states that these reductions must be additional to “already-happening-anyway” activities that could be included under the four approved protocols, according to the EPA.

“They should use offsets that have integrity,” added Williams.

Alex Jackson, an energy and transportation attorney and legal director of the California Climate Project with the National Resources Defense Council (NRDC), disagrees with the CCL and OCE, saying that the petitioners’ requests would have “set the [cap-and-trade] program backward in its integrity to protect the environment.” 

Yet like the CCL, the NRDC supports California’s cap-and-trade program as an example for national legislation. “[It is an] integral piece of the larger strategy to move away from fossil fuels,” Jackson said.

Jackson also said that the amendments the petitioners are pushing for would require an “unworkable” project-by-project analysis over the objective criteria that the ARB has already adopted.

“The European cap-and-trade was plagued with problems because of offsets,” Vesser said. Both critics and supporters of the judge’s recent ruling agree that, learning from Europe’s cap-and-trade system, California has sought to create a program that avoids the same pitfalls.

“There is a really strong disagreement of what constitutes additionality,” Vesser said. “I think the good news for California citizens is that ARB did hold the amount of offsets to 8 percent.”

Pioneering Climate Initiatives

California has been a leader in clean energy, attracting 40 percent of all global clean-tech venture capital in the first half of 2010 and holding 39 percent of the nation’s solar energy patents, according to Next 10’s “2010 California Green Innovation Index.” [ ]

Last December, a “climate dividend” was adopted by the California Public Utilities Commission. As a result of the dividend, a portion of the revenue generated by the cap-and-trade system will go directly back to households twice a year, and the dividend is estimated to be $20 to $40 per household starting this year.

“This part is unique and historic,” Vesser said. “They did this based on the idea that the atmosphere is a common domain. If somebody is going to generate a benefit, then any proceeds generated by that should go back to everyone.”

He added that climate control initiatives have to start at a local level. “It is very important because it’s going to show people that, yes, you have a stake in this,” Vesser said.

Sonoma, San Francisco, and Marin counties are all focused on renewable energy, and according to Vesser, “What they’re doing is making this service available to businesses and ratepayers in … right now a regulated monopoly market at a time when tremendous innovation is happening in the energy market.”

“We would love to see Congress do it,” he added. “We have to demonstrate how powerful this tool is on a local level so other levels [follow].”

This attitude of demonstration at a local level is precisely why the CCL, which focuses on lobbying for national climate control legislation, has followed AB 32 so closely. 

“Everything is helpful, but in order for us to avoid the serious impacts on climate change, there has to be national and international action,” Williams said. “California’s [program] could be looked at as an example for national and international legislation.”