Market participants have been growing increasingly pessimistic about the possibility of offsets from projects that reduce emissions from deforestation and forest degradation (REDD) making it into California’s cap-and-trade program. But REDD credits may yet have a fighting chance, as officials with the California Air Resources Board confirmed that they will continue considering adding international sector-based offsets to the program.
By Gloria Gonzalez
13 February 2014 | Major doubts have been expressed recently about whether offsets from reduced emissions from deforestation and degradation (REDD) will ever make it into California’s cap-and-trade program. But state regulators affirmed this week that REDD credits are still on their radar.
Political opposition has been one of the major factors driving the growing reservations that REDD would ever be allowed into California’s program . In February 2013, State Senator Ricardo Lara introduced Senate Bill 605, a proposal that would have limited offsets to anywhere in the US and possibly within the Western Climate Initiative, which includes Quebec but not states outside of North America. The bill did not pass the California Assembly before the end of last year’s legislative session, but could be reconsidered in its new form this year and remains a threat to the role of international offsets in California’s program, observers say.
But the California Air Resources Board (ARB), the agency charged with overseeing the cap-and-trade program, appears to be committed to considering the offsets in spite of that political opposition. In a proposed update to the AB 32 scoping plan, the outline governing California’s compliance with its landmark greenhouse gas (GHG) emissions reduction law, the ARB clearly states that the agency still views international offsets as potentially playing a role in the program and will continue considering them.
“As the cap-and-trade program continues to help achieve our long-term climate goals, it will be increasingly important to bolster the offset program,” the ARB said in the document. “There are real challenges to identifying in-state offset protocols, but ARB is committing to pursuing those that are workable. Part of the strategy to ensure sufficient offsets are available is to continue to consider international sector-based offset programs.”
The ARB specifically mentioned the REDD placeholder featured in the cap-and-trade regulations, but did not provide a timetable for starting a REDD rulemaking, which would need to happen before the credits are allowed into the program.
The agency also cited the safeguards recommended by the REDD Offsets Working (ROW) Group, which limit accepted offsets to those from jurisdictional REDD+ programs. ROW released its technical and policy recommendations to California and Acre, Brazil and Chiapas, Mexico, the US state’s partners in a memorandum of understanding, in July 2013. The document also referred to the Governors’ Climate and Forests Task Force, a coalition of 22 subnational jurisdictions contemplating programs and policies such as REDD.
“Continued evaluation of REDD and other sector-based offset programs further demonstrates California’s ongoing climate leadership and could result in partnering on other mutually beneficial and low emissions development initiatives, particularly those in Mexico,” the ARB said in its proposed update.
Leading By Example
California's Global Warming Solutions Act of 2006 (AB 32) sets a goal of reducing state-wide GHG emissions to 1990 levels by 2020 and reducing emissions 80% below 1990 levels by 2050. The proposed update recognizes that the US state must continue to lead at the international level by planning for emissions reductions after 2020 – the scheduled last year of the trading program – and by continuing collaborations with other states, provinces and countries taking action on climate change, said Erica Morehouse, an Environmental Defense Fund attorney who focuses on the policy and legal aspects of implementing AB 32.
“The proposed update identifies international sectoral offsets, such as REDD, as a potential key opportunity for California to help curb deforestation, the cause of roughly 15% of the world’s greenhouse gas emissions, while efficiently meeting the state’s domestic emission reduction targets,” she said in a blog post. “The state’s engagement on REDD, along with the ongoing collaborations with China, Mexico, and other U.S. states, is a building block of meaningful global climate leadership.”
Companies that must reduce their emissions under California’s cap-and-trade system may use offsets for up to 8% of their compliance obligations. However, the program restricts the use of international offsets to 2% of a regulated entity’s compliance obligation in the second compliance period (2015 – 2017) and 4% in the third compliance period (2018 – 2020).
California’s program already allows offsets from domestic forestry, urban forestry, livestock and ozone-depleting substances (ODS) projects. ARB officials have pledged to continue evaluating additional offset protocols, with an emphasis on in-state opportunities. The agency has already proposed a coal mine methane protocol and is also developing a protocol to reduce GHG emissions from rice cultivation.
More than 3.6 million offsets have been issued by the ARB under the ODS protocol, while more than 1.6 million have been issued under the forestry and nearly 83,000 under the livestock protocol, as of February 12, according to the ARB. Credits have yet to be issued under the urban forestry protocol, which is not expected to contribute major volumes to the program.
“With just the envisioned six compliance offset protocols, it is clear there will not be enough offsets to meet the 2013-2020 maximum offset demand if every entity chose to use the maximum number of allowable offsets,” the ARB said in the document. “It should be noted that the cap-and-trade program is designed so that offsets will play a larger role in cost containment in the later years of the program.”