Carbonfund.org Blog

Update: On May 21, the Waxman-Markey bill passed out of the House Energy & Commerce committee. It now faces the scrutiny of, among others, the House Ways and Means Committee and Agricultural Committee before facing a full House vote.

Updates to the blog post below are indicated by italics.

The Waxman-Markey bill that is being considered in the US Congress would regulate greenhouse gas emissions from large polluters, including electric utilities, oil companies, or large industrial entities. It would set a declining cap that would put us on track to reducing our emissions by about 80% in the next 40 years, spurring market transformation in the clean energy sector and create thousands of new jobs.

The bill will also put the right market indicators in place to give businesses incentives to reduce their pollution. Companies that reduce their emissions by more than they are required to by law can sell those “carbon credits” to other companies that are trying to meet their reduction requirements. This bill will in effect will put a price on carbon that emitters will either have to purchase or sell to meet their requirements.

The purchase of offsets are included in the bill as an option for companies to meet their emissions targets—totaling up to 2 billion tons of CO2 offsets per year. This is more than 27% of the US’s total annual emissions, and has caused some observers to be concerned that the bill won’t actually work. But the controls for offsets within the bill are rigorous and use the best existing regulatory structures while sustaining a market that has to date been responsible for saving much of the world’s forests and spurring clean energy development.

Within this market, offsets will be valued 20% less than will be equal to the value of the emission reductions regulated by the cap, except for international offsets. So, any 5 tons that are offset internationally are actually counted as 4 tons towards their allowance of carbon to pollute. For example, if a company needs to reduce their emissions by 4000 tons to meet the cap, they could:

• Reduce their emissions to 4000 tons
• Purchase credits from another company (or companies) regulated under the cap that has reduced 4000 tons
• Purchase domestic offsets that total 54000 tons
• Purchase domestic offsets that total 5000 tons

So the potential for reductions, if companies offset all their emissions with international offsets, will be 20% more than what the cap mandates. See the discussion draft here.


Standards –Real, Permanent, Additional, Verifiable and Enforceable

Section 732 deals with the standards that must be met for an offset to be considered under the bill. Per standard practices in the voluntary offset sector, the offsets must be real, permanent, additional, verifiable and enforceable.

• Real: The project must generate the expected carbon offsets and reductions.
• Permanent: It must permanently reduce carbon dioxide emissions.
• Additional: It must be additional to any mandated or regulated offsets, reductions or green power requirements. And it must be above and beyond business as usual, as defined by each certification body.
• Verifiable: It must be certified to ensure against double counting.
• Enforceable: It must adhere to a standardized methodology for determining the extent to which reductions are achieved.

The key to understanding how offsets work—and even help us go beyond our goals—is additionality. SEC 734.A requires that offsets be additional to the extent that they “are not required by or undertaken to comply with any law, including any regulation.” Any reductions taken by a company to meet regulations required by law cannot be considered an offset. For example, if an energy company builds wind turbines to meet a renewable energy mandate set by either the state or federal government, they cannot then sell that energy as renewable energy offsets.

Where are the offsets going to come from?

With the steady increase in investment in renewable energy from utility companies trying to achieve the cap, one could expect that the availability of renewable energy offsets will be depleted. That means the market will shift to forestry projects, agricultural reductions, and energy efficiency.

One advantage to the bill is that it allows 1 billion tons of offsets to come from international projects. The US has been responsible for a majority of the emissions that are causing climate change—causing potential environmental catastrophe all over the world. These offsets will pave the way to saving international forests and their endangered wildlife, improving water quality and reducing erosion, and reducing emissions. (See, for example, Carbonfund.org projects here.)

The bill will also allow for offsets to come from the agricultural sector in the US, incentivizing no-till farming and other practices that will reduce the agricultural impact on climate change.

In order to ensure that the offsets are real and additional, regulation could come about. Currently the carbon market is unregulated, except for organizations such as Carbonfund.org which use voluntary regulatory systems to ensure that our offsets actually work (read about certification here). Part of the mechanism of the bill is to create a regulatory body within the EPA that will periodically review and approve all projects that are being used to offset emissions.

Additional Resources

For more on the bill, check out a recent NYTimes Editorial on the value of protecting forests and the need for forest-based carbon offsets; an article by Cornell University economist Robert H. Frank, who argues that offsets make economic sense; and an article by Glenn Hurowitz on the political sense of offsets in Waxman-Markey.

Bookmark It

Hide Sites

Like what you see? Check out these related posts:

1. Waxman-Markey Draft Clean Energy Bill
2. CBO Predicts a $24.4 Billion Net Gain in Revenue from Waxman-Markey
3. Point Carbon: US Needs Offsets to Meet Targets
4. Carbonfund.org Speaks at Nat’l Press Club on Offsets, an Integral Climate Change Solution
5. Carbonfund.org’s Co-Founder Featured in Seed Magazine