The Role of Offsets in an Emissions Reduction Program

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Alliance to Save Energy:

The Role of Offsets in an Emissions Reduction Program

Janet PeaceJanet PeaceVP for Markets and Business StrategyVP for Markets and Business StrategyPew Center on Global Climate ChangePew Center on Global Climate Change

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Outline

•Intro to Pew

•Introduction to Offsets–Misperceptions–Types and Issues–Quality Criteria

•Offsets and cost containment

Introduction to Pew Center

•Established in 1998 as an independent, non-partisan climate organization

•Three-fold structure:• Research – 100+ reports over 10 years• Actively advise on policy – state, federal, international• Business Environmental Leadership Council (BELC)

o46 companieso$2 trillion in revenuesoNearly 4 million employees

• Founding member of USCAP

Introduction to BELC

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Offsets

Definition:• The reduction, removal or avoidance of emissions from a specific

project that is used to compensate for emissions occurring elsewhere

Role in a GHG limitation program:• Spread the price signal beyond sectors covered by the program

(and thus generate emission reductions in sectors not covered by the program)

• Help ensure costs of meeting emission limits are as low as possible (cost containment) while ensuring environmental outcome.

• Providing a bridge for technology implementation in sectors covered by the program (emission reductions at start of the program)

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Offset Misperceptions

•Compliance Grade vs. Voluntary Offsets

•Rules vs. No Rules

•Oversight vs. No Oversight

•Demand for Compliance vs. Demand for “Greening”

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Offsets in a Mandatory Program

Administrator Sets the Rules Including: •Positive List (what counts)•Performance Standards•System for Validation•Registry for Tracking•System for Verification

−Certification for Verifiers

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Project Categories

• Direct emission reductions

• Indirect emission reductions

• Biological sequestration

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Direct emission reductions

Occur at project site

Examples:industrial operational improvementmethane capture

These are the easiest because -• clear boundaries• easily quantifiable• little risk of double counting

Indus trial Improvement Indus trial Improvement

Methane Capture Methane Capture

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Occur at location other than project site

Examples:renewable energy and energy efficiency

Not typically a good fit for a GHG program that limits emissions from electricity generators -

• boundaries unclear• ownership uncertain• risk of double counting

Are essential and should be supported through other policy and funding

mechanisms!

Indirect emission reductionsProject implemented here

Emission Reductions here

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An activity that removes and stores CO2

or other GHGs from atmosphere or avoids the release of stored carbon into the atmosphere

– cultivation of new forests or grasslands– changes in farming practices

Avoided emissions (subcategory)prevents the release of currently

sequestered carbon

– avoided deforestation– reduction of soil disturbance in agriculture

Biological Sequestration

ReforestationReforestation

New farming practicesNew farming practices

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Sequestration

Considerations:

Baseline establishment• much more complex for biological than technology-

based projects

Permanence• biological and geological sequestration can be reversed

Leakage• increase in emissions outside a project’s boundary due

to project

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Sequestration: Options

Sequestration vital to climate change mitigation

Range of policy options emerging to address previous issues:

• insurance and bonding mechanisms• buffer accounts• land use covenants, easements and long-term leases

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Key Offset Quality Criteria

•Measurable•Surplus (not required by law)•Independently verified•Unambiguously owned•Address leakage•Address permanence•Environmentally additional

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•Must be established to quantify GHG reductions from an offset project

•Baseline represents projected emission levels in the absence of the offset project

•The difference between the projected “without-project”

case and the actual emissions of the project are credited as an offset

•Offsets are only as credible as their baselines

Emissions

withoutproject

withproject

Additionality – what is it?Additionality – what is it?

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How to know if a project’s emission reductions are additional?

In practice -

1) Set a performance standard or 2) Use a series of tests, (project by project) to assess

whether it is additional: – Regulatory surplus– Financial barriers – Technological barriers– Institutional barriers – Other barriers

Additionality – how to tell? Additionality – how to tell?

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Offsets are essential for cost containmentOffsets are essential for cost containment

0

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40

60

80

100

120

140

2015 2020 2025 2030 2035 2040 2045 2050

$/to

n C

O2e

Int'l ≤ Domestic

No G2 Forest

Delay

REDD only

Core

Methane in

Source: USCAP, 2009

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For More Information

Janet Peace

Vice President, Markets And Business StrategyPew Center on Global Climate Change

www.pewclimate.org