The Role of Offsets in an Emissions Reduction Program


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Janet Peace
VP for Markets and Business Strategy
Pew Center on Global Climate Change

This EE Noon seminar will explore questions surrounding carbon offsets, which are credits for projects that reduce greenhouse gas emissions outside a cap.

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The Role of Offsets in an Emissions Reduction Program

  1. 1. The Role of Offsets in an Emissions Reduction Program Janet Peace VP for Markets and Business Strategy Pew Center on Global Climate Change Alliance to Save Energy March 12, 2010
  2. 2. Outline <ul><li>Intro to Pew </li></ul><ul><ul><li>Introduction to Offsets </li></ul></ul><ul><ul><ul><ul><li>Misperceptions </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Types and Issues </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Quality Criteria </li></ul></ul></ul></ul><ul><li>Offsets and cost containment </li></ul>
  3. 3. Introduction to Pew Center <ul><li>Established in 1998 as an independent, non- partisan climate organization </li></ul><ul><li>Three-fold structure: </li></ul><ul><ul><ul><li>Research – 100+ reports over 10 years </li></ul></ul></ul><ul><ul><ul><li>Actively advise on policy – state, federal, international </li></ul></ul></ul><ul><ul><ul><li>Business Environmental Leadership Council (BELC) </li></ul></ul></ul><ul><ul><ul><ul><li>46 companies </li></ul></ul></ul></ul><ul><ul><ul><ul><li>$2 trillion in revenues </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Nearly 4 million employees </li></ul></ul></ul></ul><ul><li>Founding member of USCAP </li></ul>
  4. 4. Introduction to BELC
  5. 5. Offsets <ul><li>Definition: </li></ul><ul><ul><li>The reduction, removal or avoidance of emissions from a specific project that is used to compensate for emissions occurring elsewhere </li></ul></ul><ul><li>Role in a GHG limitation program : </li></ul><ul><ul><li>Spread the price signal beyond sectors covered by the program </li></ul></ul><ul><ul><li>(and thus generate emission reductions in sectors not covered by the program) </li></ul></ul><ul><ul><li>Help ensure costs of meeting emission limits are as low as possible (cost containment) while ensuring environmental outcome. </li></ul></ul><ul><ul><li>Providing a bridge for technology implementation in sectors covered by the program (emission reductions at start of the program) </li></ul></ul>
  6. 6. Offset Misperceptions <ul><li>Compliance Grade vs. Voluntary Offsets </li></ul><ul><li>Rules vs. No Rules </li></ul><ul><li>Oversight vs. No Oversight </li></ul><ul><li>Demand for Compliance vs. Demand for “Greening” </li></ul>
  7. 7. Offsets in a Mandatory Program <ul><li>Administrator Sets the Rules Including: </li></ul><ul><li>Positive List (what counts) </li></ul><ul><li>Performance Standards </li></ul><ul><li>System for Validation </li></ul><ul><li>Registry for Tracking </li></ul><ul><li>System for Verification </li></ul><ul><ul><li>Certification for Verifiers </li></ul></ul>
  8. 8. Project Categories <ul><li>Direct emission reductions </li></ul><ul><li>Indirect emission reductions </li></ul><ul><li>Biological sequestration </li></ul>
  9. 9. Direct emission reductions <ul><li>Occur at project site </li></ul><ul><li>Examples: </li></ul><ul><ul><li>industrial operational improvement </li></ul></ul><ul><ul><li>methane capture </li></ul></ul><ul><li>These are the easiest because - </li></ul><ul><ul><li>clear boundaries </li></ul></ul><ul><ul><li>easily quantifiable </li></ul></ul><ul><ul><li>little risk of double counting </li></ul></ul>Industrial Improvement Methane Capture
  10. 10. <ul><li>Occur at location other than project site </li></ul><ul><li>Examples: </li></ul><ul><ul><li>renewable energy and energy efficiency </li></ul></ul><ul><li>Not typically a good fit for a GHG program that limits emissions from electricity generators - </li></ul><ul><ul><li>boundaries unclear </li></ul></ul><ul><ul><li>ownership uncertain </li></ul></ul><ul><ul><li>risk of double counting </li></ul></ul><ul><ul><li>Are essential and should be supported through other policy and funding mechanisms! </li></ul></ul>Indirect emission reductions Project implemented here Emission Reductions here
  11. 11. <ul><li>An activity that removes and stores CO 2 or other GHGs from atmosphere or avoids the release of stored carbon into the atmosphere </li></ul><ul><ul><ul><ul><li>cultivation of new forests or grasslands </li></ul></ul></ul></ul><ul><ul><ul><ul><li>changes in farming practices </li></ul></ul></ul></ul><ul><ul><li>Avoided emissions (subcategory) </li></ul></ul><ul><ul><li>prevents the release of currently sequestered carbon </li></ul></ul><ul><ul><ul><ul><li>avoided deforestation </li></ul></ul></ul></ul><ul><ul><ul><ul><li>reduction of soil disturbance in agriculture </li></ul></ul></ul></ul>Biological Sequestration Reforestation New farming practices
  12. 12. Sequestration <ul><li>Considerations: </li></ul><ul><li>Baseline establishment </li></ul><ul><ul><li>much more complex for biological than technology-based projects </li></ul></ul><ul><li>Permanence </li></ul><ul><ul><li>biological and geological sequestration can be reversed </li></ul></ul><ul><li>Leakage </li></ul><ul><ul><li>increase in emissions outside a project’s boundary due to project </li></ul></ul>
  13. 13. Sequestration: Options <ul><li>Sequestration vital to climate change mitigation </li></ul><ul><li>Range of policy options emerging to address previous issues: </li></ul><ul><ul><li>insurance and bonding mechanisms </li></ul></ul><ul><ul><li>buffer accounts </li></ul></ul><ul><ul><li>land use covenants, easements and long-term leases </li></ul></ul>
  14. 14. Key Offset Quality Criteria <ul><li>Measurable </li></ul><ul><li>Surplus (not required by law) </li></ul><ul><li>Independently verified </li></ul><ul><li>Unambiguously owned </li></ul><ul><li>Address leakage </li></ul><ul><li>Address permanence </li></ul><ul><li>Environmentally additional </li></ul>
  15. 15. <ul><li>Must be established to quantify GHG reductions from an offset project </li></ul><ul><li>Baseline represents projected emission levels in the absence of the offset project </li></ul><ul><li>The difference between the projected “without-project” case and the actual emissions of the project are credited as an offset </li></ul><ul><li>Offsets are only as credible as their baselines </li></ul>Additionality – what is it? Emissions without project with project
  16. 16. <ul><ul><li>How to know if a project’s emission reductions are additional? </li></ul></ul><ul><li>In practice - </li></ul><ul><ul><li>1) Set a performance standard or </li></ul></ul><ul><ul><li>2) Use a series of tests, (project by project) to assess whether it is additional: </li></ul></ul><ul><ul><ul><ul><li>Regulatory surplus </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Financial barriers </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Technological barriers </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Institutional barriers </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Other barriers </li></ul></ul></ul></ul>Additionality – how to tell?
  17. 17. Offsets are essential for cost containment Source: USCAP, 2009
  18. 18. For More Information Janet Peace Pew Center on Global Climate Change