Carbon Traders Ask California to Add Offset Projects to Curb Projected Rise in Compliance Costs

By Carolyn Whetzel  

 

SAN FRANCISCO--Carbon traders and regulated entities have urged California to boost the supply of offset projects available under its greenhouse gas emissions cap-and-trade program to avoid skyrocketing compliance costs during the second phase of the program.

Their plea came April 11 at the Climate Action Registry's 10th annual conference, which focused largely on California's economywide emissions trading program and efforts to link it with the cap-and-trade program adopted by the Canadian province of Quebec (see related story; 69 WCCR, 4/10/12).

Brokerage firms and other watchers of the carbon markets speaking at the event mostly praised the structure and design of California's program, but said their analyses indicated there would be a shortage of carbon offsets beginning in 2015, pushing the cost of compliance instruments up.

Officials from Chevron Corp. and Pacific Gas and Electric Co. also expressed concern about compliance costs and suggested the California Air Resources Board increase the time period in which covered entities are allowed to retain carbon offsets.

At the opening plenary, CARB Chairwoman Mary D. Nichols acknowledged the potential shortage of offsets.

Four Types of Offsets Approved

Under California's program, covered entities may use emissions offset projects to meet up to 8 percent of their compliance obligations. So far, CARB has approved accounting protocols for four types of offset projects--forestry, urban forestry, destruction of ozone-depleting substances, and livestock manure digesters.

The agency also will try to approve protocols for agricultural waste and California landscapes, she said. Nearly all of the offset projects will be domestic, Nichols said. International offsets will play only a limited role in California's program, she added.

“We walked a pretty narrow line in terms of the offsets,’’ Nichols said. “We worry whether there are too few. On the other hand, if there are too many, it could flood the market.’’

Answering questions about potential legal threats to the cap-and-trade program, Nichols replied that California's climate policies are “going to provide work for lawyers.’’

“You can never predict what will happen in the courts,’’ Nichols said. “Throughout the design of the cap-and-trade program, we've worked with the attorney general's office. We'll just keep on as we have been and do the best we can to stay out of trouble.’’

Nichols also fielded questions about whether other jurisdictions are interested in building a broader market.

“We'd like to see it get bigger,’’ Nichols said, but “we can't predict what other states will do.’’

British Columbia and other Canadian provinces are at various stages of developing emissions trading programs, she said. However, some other states have backed away from cap-and-trade, largely due to political reasons.

Elections Could Portend Trading Interest

Depending on the outcome of the November elections, there could even be renewed interest in a national trading program, Nichols suggested.

In a separate session at the April 10-12 conference called “Navigating the American Carbon Market,” policy analysts from the California Legislature outlined pending climate and energy bills.

“It's going to be a busy year,’’ said Panama Bartholomy, special assistant to Assembly Speaker John A. Perez (D).

Most of the 53 measures seek to improve or nibble “around the edges’’ of existing laws and programs, Bartholomy said. Much of the focus will be on how to appropriate the revenue generated through the cap-and-trade auctions, he said.

$1 Billion Expected in First-Year Auctions

California's emissions trading auctions are expected to raise about $1 billion for the state in the first year of the program. The challenge will be to develop a framework for spending that is consistent with the state's Global Warming Solutions Act of 2006 (A.B. 32), Bartholomy said.

Katie DeCarlo of the Ella Baker Center's Green Jobs Campaign said lawmakers need to ensure that some of the revenue is used to support energy-efficiency projects that can help create job opportunities in low-income neighborhoods.

“I'm pretty confident we can come up with a plan this year,’’ said Henry Stern, a policy adviser for Sen. Fran Pavley (D), chairman of the Senate Committee on Natural Resources.

The cap-and-trade program comes with high price tag, so the state must make it a success, said Robert Lucas of the California Council for Environmental and Economic Balance.

Lucas also cautioned lawmakers against counting on the auction revenue too soon, suggesting that a last-minute lawsuit could block the auction.

By Carolyn Whetzel