Deforestation in the Amazon rainforest could significantly reduce rain and snowfall in the western United States, resulting in water and food shortages and a greater risk of forest fires, according to an eye-opening study published in the Journal of Climate last year. The potential connection has caught the attention of California regulators overseeing the state’s cap-and-trade program, providing perhaps another reason to allow international REDD offsets into the program.
28 July 2014 – Severe drought conditions in the US state of California have led state officials to impose criminal penalties for water wasters. The drought could also help make the case that California should allow projects aimed at curbing tropical deforestation into the state’s carbon trading system.
California’s State Water Resources Control Board approved an emergency regulation to force water agencies, their customers and state residents to increase water conservation in urban settings – by reducing outdoor water uses such as washing down driveways and watering landscapes – or face possible fines of up to $500 a day. What brought on this surge in water regulation? The fact that California residents are using more water than last year – with urban water use in May up 1% over the monthly average for the previous three years – despite two drought emergency declarations by Governor Jerry Brown and his January plea for residents to voluntarily reduce their water use by 20%.
What may seem like a local problem could have its roots in the tropical deforestation that has occurred in Brazil and other countries. Researchers found that total deforestation of the Amazon rainforest could reduce rainfall in the Pacific Northwest by 20% and cause a 50% reduction in the Sierra Nevada snowpack, a crucial source of water for California, according to a major scientific study published in the Journal of Climate last year.
Although it is difficult to quantify whether specific weather patterns such as the current drought are directly tied to deforestation, data trends indicate that deforestation has a direct impact on rainfall in California, according to Rajinder Sahota, Chief of the Climate Change Program Evaluation Branch of the California Air Resources Board (ARB), who spoke at an ARB board hearing on Thursday. But it remains difficult to convince residents of any possible connection, especially when they dealt with mudslides and floods in the state last year, she said.
“People tend to latch on to the most recent events as an indication of what’s going on,” Sahota said.
The role of tropical deforestation and the possible connection to California’s drought arose in the context of an update that ARB staff was providing regarding its planned consideration of sector-based offsets, specifically from projects that reduce emissions from deforestation and forest degradation (REDD). ARB’s legal counsel Jason Gray discussed the multiple co-benefits of REDD projects, including protection against decreased precipitation from forest loss, which could be of interest given the current drought situation.
The sectoral approach
The regulations governing California’s carbon trading program allow for sector-based crediting mechanisms under which emissions reductions are measured across an entire sector in a jurisdiction rather than on a project-by-project basis if they meet rigorous criteria established by the state’s Global Warming Solutions Act of 2006, Gray noted. There are currently no approved sector-based offset programs, but he outlined many potential benefits, including providing another source of offsets to keep down the compliance costs of California’s program, and to ensure that California’s rules are enforceable in international jurisdictions participating in the program.
The regulations identify REDD programs as the first sector for consideration, a recognition of the fact that deforestation and degradation of tropical forests accounts for 11-14% of global greenhouse gas (GHG) emissions, Gray said. If the goal is to control GHG emissions caused by tropical deforestation, that cannot be achieved without REDD offsets, said Frank Harris, Environmental Economics Manager of Southern California Edison.
Even when pressed by ARB board members, however, Gray was reluctant to outline a timeline for the consideration of sector-based offsets, although he did suggest that it would happen well before the scheduled end of the cap-and-trade program in 2020. “I think it’s much sooner than that,” he said.
But in anticipation of a slow rulemaking process for REDD offsets, particularly given the controversy associated with these projects, market participants are urging the ARB to consider revamping the cap-and-trade regulations to allow regulated entities to roll over the limit on sector-based offset usage. As of now, sector-based offsets can only be used to fulfill 2% of the total obligation in the first (2013-2014) and second (2015-2017) compliance periods and 4% in the third period (2018-2020). Since regulated entities cannot use the eligible 2% in the first period because sector-based offsets are not yet allowed into the program, they should be allowed to do so in subsequent periods, some market participants argue.
“I would encourage consideration of that,” said Timothy Tutt, Program Manager, State Regulatory Affairs for the Sacramento Municipal Utility District, a buyer of carbon offsets and partner in the development of a voluntary methodology to quantify offsets generated from wetlands restoration projects in California.
“Stagnant” market for California offsets
Pressure to allow international REDD offsets into the program is building in large part due to the concerns of market participants that the five offset protocols currently eligible in California’s program and the relatively slow project development under these existing protocols will lead to a supply shortage starting next year when transportation fuels come under regulation.
“Unfortunately, the current offset market is really stagnant,” Harris said, urging the ARB to pursue additional protocols such as rice cultivation – expected to be put forth for board consideration later this year – as well as REDD offsets.
Carbon offsets can be used to meet up to 8% of each covered entity's compliance obligation under the California program. As of now, the ARB only allows domestic projects generated under forestry, urban forestry, livestock, ozone-depleting substances and coal mine methane protocols to supply offsets to the cap-and-trade program.
The ARB has issued offsets to 59 projects for a total of more than 11 million compliance offsets to date. The maximum demand for offsets during the first compliance period would be roughly 26 million tonnes if all entities use the full 8% of offsets allowed – a proposition many market experts say is unlikely. However, the ARB staff believes there will be sufficient supply to meet the demand even if every entity exhausts the full 8% cap, factoring in the number of additional offset projects listed with the ARB that have yet to be issued offsets, as well as the expected introduction of projects under the recently-approved coal mine methane protocol, Sahota said.
Demand for offsets could rise to as much as 92 million tonnes in the second compliance period and 83 million tonnes in the third period based on the 8% usage limit, meaning a major supply shortage could be on the horizon. The ARB needs to keep looking in earnest for new protocols, Sahota said.
Could the drought provide more motivation to include REDD offsets in the California program? ARB Chair Mary Nichols acknowledged the challenges of adopting new protocols given that the offsets program is “one of the more controversial parts of the cap-and-trade program.” But she also called sector-based crediting “the next real horizon” for the offset program.
“The good news is we don’t have very many offsets,” she said. “The bad news is we don’t have very many offsets.”