Calif. offset firm seeks to nationalize its reach

Debra Kahn – E&E News

April 6, 2009

SAN DIEGO -- By playing their cards right, offset firms -- which have until now marketed to a small niche of environmentally conscious businesses and consumers -- have a chance to turn their voluntary programs into huge opportunities if the mandatory House cap-and-trade bill passes.
At the "Navigating the American Carbon World" conference here, the mood was jubilant, thanks to the bill introduced last week by Reps. Henry Waxman (D-Calif.) and Ed Markey (D-Mass.). The draft legislation would permit covered industries to use offsets -- reductions in emissions not covered by the cap -- for up to 2 billion tons of greenhouse gas emissions per year, as a cost-lowering mechanism.
For the California Climate Action Registry, a state-created nonprofit that monitors voluntary emissions reporting, the news was especially timely. Less than 48 hours after the new House cap-and-trade bill dropped, CCAR announced it was changing its name from the California Climate Action Registry to the Climate Action Reserve. The nonprofit has shifted its focus from reporting to verifying offset projects in recent years, and wanted its name to reflect that shift, group President Gary Gero said.
The group is also pushing to have its projects' emissions reductions recognized as legitimate reductions under California and the West Coast's budding cap-and-trade system, by setting aside some allowances specifically for reductions taken before 2012.
"We are now well beyond the borders of California, and our focus has shifted from being a registry for emission inventories to focus on offsets and project reductions," he said. "What we have been saying now is our members should be recognized by the state of California as they develop their cap-and-trade program by the allocation of set-aside allowances from the cap. That is a fundamental promise that we need to make sure is kept."
Offsets are one of several thorny issues in any cap-and-trade system. Originally conceived as a way for environmentally minded businesses and individuals to support emissions-reducing efforts outside of their own actions, they have given rise to a national market that reached $254 million in 2007, or 42 megatons of CO2 equivalent, according to Ecosystems Marketplace. Whether the emissions reductions would have happened anyway, without the project's sponsorship, is notoriously difficult to prove, and various standards have emerged to give buyers a sense of authenticity.
Now advocates are trying to ensure a niche for offsets in a mandatory emissions program, arguing that they can be a cheaper way for businesses to meet their obligations. An alliance of businesses and environmental groups including General Motors, the Natural Resources Defense Council, Shell, BP, Duke Energy and the Nature Conservancy has been particularly influential. The Waxman-Markey discussion draft includes several of the U.S. Climate Action Partnership's recommendations, such as unlimited banking of credits, multi-year compliance periods and incentives for research into carbon capture and storage.
Gero said the timing of CCAR's rebranding, two days after the release of a major cap-and-trade bill, was coincidental. "It's just reflective of how fast things are moving," he said. "We had developed a strategic plan to do this about 6 months ago, and were planning to do it over the course of 12 to 18 months," he said. "But just as the world has taken off, our board said it's time for us to do this sooner."
Leading the pack in a complex, potentially lucrative business
It appears the Climate Action Registry is well-placed to take a leading role in offset verification if Waxman-Markey's offset provisions remain intact. According to the World Resources Institute, of the 17 existing voluntary standards for offsets, only two meet the bill's requirements: the Regional Greenhouse Gas Initiative and CCAR.
"Offsets will unquestionably play a role, and likely a significant one," said WRI Senior Associate Alexia Kelly.
"We're awfully proud of the way the bill recognizes us for the quality work we do," said Gero, who testified to Waxman's Energy and Commerce Committee last month on the environmental integrity of offsets and has answered technical questions for committee staffers. While the bill does not recognize CCAR by name, he noted, "we're absolutely thrilled and excited and proud that WRI would think we're one of the only two that qualify."
Gero compared the potential relationship between government and nonprofit offset verifiers to that of the North American Electric Reliability Corp. and the Federal Energy Regulatory Commission, which recognized NERC as an enforcer of mandatory reliability standards in 2006.
If the bill passes and EPA decides to give the Climate Action Reserve an official role verifying offset projects, the group will have its work cut out for it in terms of meeting demand. It's aiming to have 1.5 million tons of projects registered by this fall and 4-5 million tons by 2010 -- compared to the 1 billion tons per year that the bill gives domestic offsets. "That's still clearly not a billion, but we're not the only game in town, and we don't cover all sectors yet," Gero said.
Agriculture and forestry are ripe for expansion of offset projects, he said, as are ozone-depleting substances and gases with high global warming potential. "I don't know whether we can get a billion, but there's an awful lot of domestic opportunity," he said. "We're one little ice cube on the tip of the iceberg."
On the state level, California is under pressure to figure out how to reward businesses that have already taken action to reduce their emissions below business-as-usual levels. It's working on a list of "additional" actions that would qualify, but might not finish the process until the regional cap-and-trade program takes effect in 2012 -- or is superseded by a national system.
"It's unfortunate that we do have to go through a set procedure to do these things, and it is going to take time," said Michael Gibbs, California EPA's assistant secretary for climate change. "We could end up not finishing the early action rules until it's too late, and that's clearly not acceptable. Then, we're always faced with the question of how much to invest in what we're doing locally as a national program comes into existence, as well."
"The pressure for quick action is of course hugely intense," he said. "An entity that's going to have a regulatory compliance obligation decides to take action in advance and wants that action recognized and reported. It's the single largest pressure point in terms of trying to move quickly."