Offsets in Play as CARB Nears Final Action on AB 32 Plan

With the California Air Resources Board facing a statutory deadline this month to adopt a master plan for carrying out the state’s climate protection law, AB 32, a battle over the role that carbon emissions offsets should play looms. Energy companies are pushing to maximize use of offset projects in cutting greenhouse gases. In place of actual emission reductions from a power plant or other polluting facility, offsets allow utilities and other companies to buy into projects that curb greenhouse gases elsewhere. They can range from reforesting tropical lands to capture carbon from the air to making beneficial use of methane produced by hog farm manure to keep the powerful greenhouse gas out of the atmosphere. Compared to cutting emissions from making electricity in California, such projects can save money and may prove to be the only way to fully achieve the state’s emissions reduction goals, the utilities say. “New greenhouse gas reducing technology will take time to develop and is generally not likely to be available in the early years,” wrote John Busterud, Pacific Gas & Electric environmental affairs director, to the Air Board late last month. On the other side stand renewable energy developers, labor representatives, and environmental groups. They worry excessive use of offsets to meet the state’s greenhouse gas reduction goals would short circuit investment in energy efficiency, renewable energy, and green collar jobs to cut emissions and dependence on fossil fuel. “Compliance offsets erode the ability of AB 32 to maximize crucial environmental, economic, and public health benefits in California,” wrote Carla Din, Apollo Alliance western regional director to the Air Board. The Air Board’s draft plan for carrying out AB 32 would seek to roll back greenhouse gas emissions to their 1990 level by 2020. It would do this through a series of direct regulations on emitters, plus a carbon cap-and-trade program for big industries, including companies in the power sector. The draft plan would allow the “capped” emitters under the trading plan to meet 49 percent of their emissions reduction requirements with offset projects. The Air Board plan justified the limit recognizing that “unlimited” use of offsets “could reduce the local economic, environmental, and public health co-benefits and delay the transition to low-carbon energy.” Under the draft plan, offset projects could be conducted anywhere in the world. The Air Board is set to consider adopting the plan December 11 against the backdrop of agreements Governor Arnold Schwarzenegger recently penned to encourage forestry offset projects in tropical areas of Brazil and Indonesia. At the same time, he entered another agreement with representatives from six nations pledging cooperation on transfer of greenhouse gas reduction technologies. (Circuit, Nov. 21, 2008). Earlier this year, the governor struck an accord with Mexican representatives to facilitate carbon offset projects along the border region. But even with those agreements, the limits outlined in the plan may be too restrictive, according to Latham & Watkins attorney Robert Wyman, who represents a coalition of companies on AB 32, including Reliant Energy, which operates power plants in California with 3,392 MW of generating capacity. His group also includes oil companies. Wyman argues that because the power sector would be subject to both direct regulations under the plan, such as energy efficiency and renewable energy mandates, as well as a declining emissions cap under the Air Board’s proposed carbon cap-and-trade program, utilities and generators would be “particularly dependent on access to offsets.” That’s because most of the emission reductions would be required under direct regulations, leaving few added options for making the added cuts slated under the cap-and-trade program. Southern California Edison asked the Air Board to eliminate the 49 percent cap on use of offsets altogether. The utility also asked the board to allow utilities to use offsets to meet any shortfalls in achieving emission reductions, not only under cap-and-trade requirements, but under “specific rule measures.” For utilities, specific rules under the plan would include maximizing energy efficiency on their customers’ premises and achieving a 33 percent renewable portfolio standard by 2020, up from 20 percent in 2010. Offsets, Edison said, provide “an effective means for the regulated community to meet compliance obligations while keeping the state on track to meet its emission reduction goals.” The prospect of relying on offsets has rattled the state’s renewable energy industry. Any “significant use of compliance offsets” warned a contingent of renewable energy companies and advocates in a joint letter to the Air Board late last month, “will likely drain potential new flows of capital away from renewable energy and other clean tech.” Placing limits on offsets, though, “can help direct new capital toward clean tech,” they said. A November 26 Union of Concerned Scientists analysis of the offset program in the Air Board’s draft plan shows that it would allow more offsets than the proposed cap-and-trade program would require in emissions reductions by 2020. By then, the cap-and-trade program aims to cut carbon dioxide emissions by 34.4 million metric tons a year. In the same year, the plan would allow 47.4 million metric tons of emissions offsets, according to the Union of Concerned Scientists. As a result, the carbon market would be flooded with offsets and companies would be able to meet all of their cap-and-trade program emissions reductions with offsets. Union of Concerned Scientists economist Chris Busch advised the board to minimize use of offsets and give preference to offset projects that maximize benefits in California, such as jobs and reductions of air pollution.

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Offsets in Play as CARB Nears Final Action on AB 32 Plan

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