Offsets: Current Issues

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Megan Ceronsky
Van Ness Feldman, P.C.

http://ase.org/eenoon

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Offsets: Current Issues

  1. 1. Alliance to Save Energy Brownbag on Offsets March 12, 2010 Offsets: Current Issues Megan Ceronsky Van Ness Feldman, P.C. 1050 Thomas Jefferson Street, NW Seventh Floor Washington, DC 20007 (202) 298-1800
  2. 2. Coalition for Emission Reduction Projects (CERP) <ul><li>Alpha Natural Resources </li></ul><ul><li>American Electric Power </li></ul><ul><li>Blue Source </li></ul><ul><li>Camco </li></ul><ul><li>C-Quest Capital </li></ul><ul><li>C-Trade </li></ul><ul><li>Deutsche Bank </li></ul><ul><li>Dominion </li></ul><ul><li>DTE Energy </li></ul><ul><li>Duke Energy </li></ul><ul><li>EcoSecurities </li></ul><ul><li>Element Markets </li></ul><ul><li>El Paso Corporation </li></ul><ul><li>Environmental Credit Corp </li></ul><ul><li>Equator LLC </li></ul><ul><li>John Deere </li></ul><ul><li>Leaf Clean Energy Company </li></ul><ul><li>Macquarie Bank </li></ul><ul><li>Natsource </li></ul><ul><li>Noble Carbon Credits </li></ul><ul><li>PG&E </li></ul><ul><li>Verdeo Group </li></ul>
  3. 3. Offsets in U.S. climate legislation <ul><li>In Lieberman-Warner, Dingell-Boucher, Waxman-Markey, Kerry-Boxer  efficiency; cost savings </li></ul><ul><ul><li>EPA: without international offsets, allowance prices in Waxman-Markey increase 89% </li></ul></ul><ul><ul><li>CBO: offsets in Waxman-Markey save ~ 70%/year </li></ul></ul><ul><li>Stabenow (S. 2729) </li></ul><ul><li>Cantwell-Collins (S. 2877) </li></ul>
  4. 4. Key Offsets Provisions in ACES <ul><li>2 billion ton ceiling on use of offset credits </li></ul><ul><ul><li>Translates into per-entity limit </li></ul></ul><ul><ul><li>Split between domestic and international </li></ul></ul><ul><ul><li>Ability to use up to 1.5 billion tons of international credits </li></ul></ul><ul><li>Banking permitted </li></ul><ul><li>Early offset supply </li></ul><ul><li>Domestic </li></ul><ul><ul><li>Overlapping authority of EPA and USDA </li></ul></ul><ul><li>International </li></ul><ul><ul><li>Emphasizes shift to sectoral crediting </li></ul></ul><ul><ul><li>Provisions for international forestry </li></ul></ul>
  5. 5. Positive Elements of ACES Provisions on Offsets <ul><li>Well-constructed project approval process </li></ul><ul><li>Elimination of unnecessary penalty on use of domestic offsets </li></ul><ul><li>Recognition of early action, need to generate early supply </li></ul><ul><li>However, significant unfinished business . . . </li></ul>
  6. 6. Ceiling Does not Equal Supply <ul><li>Supply constraints </li></ul><ul><ul><li>EPA: Domestic offsets will not exceed 200 million tons until after 2020 </li></ul></ul><ul><ul><li>Total CDM credits issued to date: 310 million </li></ul></ul><ul><ul><li>Uncertainties about international forestry </li></ul></ul><ul><ul><ul><li>Government requirement to acquire “supplemental reductions” </li></ul></ul></ul><ul><li>CERP: Avoid unnecessary policy barriers to supply </li></ul>
  7. 7. Early Offset Supply (Sec. 740) <ul><li>ACES credits early projects only for reductions starting in 2009-2012 </li></ul><ul><ul><li>Period is too short to encourage investment </li></ul></ul><ul><ul><li>CERP: Provide 5-10 year crediting period </li></ul></ul><ul><ul><li>Stabenow: Crediting period starting as early as 2001; includes provisions for REDD early offsets </li></ul></ul><ul><li>ACES provides a long list of project types that agency should “consider” making eligible </li></ul><ul><ul><li>More certainty needed about what will count </li></ul></ul><ul><ul><li>CERP: Provide an initial eligible list, and a 1 year deadline for promulgating methodologies </li></ul></ul><ul><ul><li>Stabenow: List of eligible projects </li></ul></ul>
  8. 8. International Offsets <ul><li>Starting in 2018, 5:4 penalty on use of credits </li></ul><ul><ul><li>CERP: Remove penalty </li></ul></ul><ul><li>Requirement for bilateral agreement with each country supplying credits </li></ul><ul><ul><li>CERP: Remove requirement for credits issued by international body under UN </li></ul></ul><ul><li>Unclear whether JI credits can be used </li></ul><ul><ul><li>CERP: Allow use of JI credits </li></ul></ul>
  9. 9. International Offsets, cont. <ul><li>Phase-out of CDM credits from “identified sectors” by 2016 </li></ul><ul><ul><li>Sectoral crediting systems will not be established by 2016 </li></ul></ul><ul><ul><li>CERP: Extend phase-out to 2020 </li></ul></ul><ul><li>International forestry </li></ul><ul><ul><li>Rapid phase-out of projects in favor of national baselines </li></ul></ul><ul><ul><li>CERP: Extend period for project-based crediting </li></ul></ul><ul><ul><li>Stabenow: Crediting period starting as early as 2001 </li></ul></ul>
  10. 10. Forestry: Accounting for Reversals <ul><li>Offsets Reserve </li></ul><ul><ul><li>Establishes insurance system for forestry projects </li></ul></ul><ul><ul><li>In event of reversal, credits cancelled in reserve </li></ul></ul><ul><li>For unintentional reversal, ACES still requires compensation to reserve </li></ul><ul><ul><li>CERP: Eliminate requirement </li></ul></ul><ul><ul><li>Stabenow: Eliminates requirement </li></ul></ul>
  11. 11. Forestry: Accounting for Reversals <ul><li>Agriculture sequestration </li></ul><ul><ul><li>Required to receive “term offset credits” </li></ul></ul><ul><ul><li>CERP: Allow project developer to opt for regular credits and offset reserve </li></ul></ul><ul><ul><li>Stabenow: Gives USDA flexibility </li></ul></ul>
  12. 12. Conclusions <ul><li>On offsets, ACES is a good starting point </li></ul><ul><li>Stabenow is an excellent framework for domestic offsets </li></ul><ul><li>Unfinished business … passing a climate bill </li></ul><ul><ul><li>Integrate Stabenow bill into Senate legislation </li></ul></ul><ul><ul><li>Remove unnecessary constraints on supply; ensure that program rules for international offsets can work </li></ul></ul><ul><ul><li>Continue to educate policy-makers, general public about offsets (especially international offsets) & the real-life benefits of market mechanisms </li></ul></ul>
  13. 13. Alliance to Save Energy Brownbag on Offsets March 12, 2010 For more information For weekly news and analysis about climate change policy and business developments, go to: www.vnf.com/news-signup.html Megan Ceronsky 202-298-1874 [email_address]

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