Monday, March 10, 2008

The Attacks on Offsets Continue - Stanford Univ

Below is a story from an environmental trade press publication talking about a "study" that will be coming out from Stanford University soon trashing the domestic offset option within mandatory climate legislation.

This "study" takes the entirely flawed proposition that the domestic ag offsets program would be at all similar to Kyoto's Clean Development Mechanism (a program that allows companies and/or industrialized countries to conduct GHG reduction projects in developing countries in order to create GHG reduction credits). The domestic ag offsets program, as outlined in the Lieberman-Warner bill has nothing to do with Kyoto's CDM -- but that hasn't stopped an academic or two from positing that this is how the program would be run . . . and "finding" as a result that the offsets program would not generate the predicted reductions.

The result, this "study" finds, is that mandatory climate policy should instead use a carbon price cap or carbon tax to control costs rather than a market approach provided by the offset program.

This study WILL be circulated all over the U.S. Congress by both environmentalists who oppose offsets and some industries who don't want a cap-trade bill.

There is significant potential that this type of damaging thinking will sway key members of Congress -- especially since there is not a coordinated defense of the ag offset option being conducted by the agriculture industry at large.

When I say "If you are not at the table, you are on the menu;" this is what I mean.

Carbon Control News

Stanford Study May Stir Debate On Limiting Costs In Climate Bills

Posted March 7, 2008

A soon-to-be-released Stanford University study may spark new skepticism of proposals for using emission offsets as a cost-control mechanism under federal cap-and-trade legislation or in emerging state climate change programs, according to sources familiar with the study.

The study will suggest that a so-called economic “safety valve” approach that limits the price of carbon credits is preferable, and that the use of emission offsets by industrialized nations would have serious shortcomings as a way to encourage emission reductions by emerging economies such as China and India.

The analysis is likely to influence debate on initial drafting of cap and trade legislation by House lawmakers, as well as the debate on pending Senate climate change legislation by Sens. Joseph Lieberman (I-CT) and John Warner (R-VA), which allows some use of offsets to meet compliance obligations. In addition, sources say the analysis also has implications for efforts by states including California to develop rules for crediting offsets in their own emissions control programs.

Furthermore, the study may serve as a counterpoint to an upcoming EPA analysis of Senate climate legislation—a cost analysis that many observers expect to play up the role of emission offsets as a means to lower compliance costs.

At a March 3-4 conference in Washington DC on carbon sequestration, hosted by the Edison Foundation, Stanford University Energy and Sustainable Development Program Director David Victor said the upcoming study will question the effectiveness of using offsets as a substitute for a safety valve approach to limit the cost of carbon credits. In addition, Victor said it will show that “between a third and two thirds” of emission offsets under the Clean Development Mechanism (CDM)—set up under the Kyoto treaty to encourage emissions reductions in developing nations—do not represent actual emission cuts. Victor is developing the analysis with Stanford University’s Michael Wara.

Domestic ‘Offsets’

In the Senate, the Lieberman-Warner measure would allow domestic “offsets”—emission reductions that occur at sources not subject to an emissions limit—to be used for up to 15 percent of a source’s compliance with emission controls. The legislation also would allow similar use of international emission credits, up to 15 percent of a source’s compliance needs, from countries that have emissions trading systems. One source tracking the issue says the legislation amounts to indirect recognition of CDM credits in the European emissions market, since CDM credits are used to lower costs in that market.

The Stanford report builds on previous work analyzing the CDM and will provide a “general critique” of offsets as a cost-control mechanism as well as an in depth look at the CDM’s shortcomings as a means for reducing emissions in developing countries, according to a source familiar with the study. The source adds that while the analysis focuses significantly on international offsets, many of the same problems can also affect domestic markets. “We don’t see these problems going away,” the source says.

The extent to which the report will serve as a counterpoint to other analyses of the Lieberman-Warner bill may become clearer when EPA releases its cost analysis, expected in the next week or two. Many observers expect that report to highlight offsets as a potential strategy for limiting the costs of the legislation.

The source familiar with the study says the Stanford paper will highlight the slowness of the offset market, using CDM as an example, in responding to any sudden demand for emission credits – a lack of liquidity that makes offsets a poor mechanism for cost containment. From a cost-control standpoint, the source says issuance of CDM credits would have to significantly increase to be effective, creating an inherent tension between expanding efforts to verify projects and weakening environmental standards. “The alternative is having an explicit discussion about a price cap and safety valve,” in emerging climate programs, the source says

From the standpoint of developing country actions, the source says the study will identify problems in ensuring that the emission-reduction projects that receive CDM credits go beyond what developing countries would do anyway. One example of the challenge is a major ongoing effort to seek CDM credit for natural gas fired power plant construction in China, despite indications that Chinese energy officials are already pursuing such construction for other reasons.

Sector-Based Approach

The source says a better alternative than the CDM for encouraging emission reductions from developing nations would be a sector-based approach or a climate trust fund that could back clean-energy projects that are truly additional to existing efforts. The source says that the current, narrow focus on crediting project-specific CDM efforts under a cap and trade program makes it hard to devote adequate resources to verifying the real benefits of the projects, according to the source.

The source says offsets can still play a “niche” role in advancing climate change efforts but says that the current Lieberman-Warner bill’s approach to offsets may be overly generous. From the standpoint of international credits, the source says that an argument can be made that the measure gives too much power to other governments to monitor the quality of those emissions reductions.—Doug Obey

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