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With respect to offsets, the Kerry-Boxer bill is a distinct improvement over the ACES [Waxman-Markey]. It allows a relatively strong approach to offset integrity, avoiding negative social or environmental effects, and facilitating possible integration with other systems. It also addresses some issues that will be important to the functioning of a trading market, but still leaves some uncertainties that could cause problems in the market.

One of the weakest features in both the House and Senate climate bills is the large quantity of offsets that polluters are allowed to buy in place of purchasing allowances or reducing their own emissions.  I have spent a lot of time talking to leading experts and analyzing the international offset market, which has led me to realize that large-scale, inexpensive international offsets don’t exist nor will they (see “Do the 2 billion offsets allowed in Waxman-Markey gut the emissions targets?“) — whereas large-scale inexpensive domestic emissions reductions strategies do (see “the 2020 Waxman-Markey target is so damn easy and cheap to meet“).

Moreover, CBO projects that roughly half of the domestic offsets will come from actual reductions in U.S. emissions (in uncapped sectors).  As for international offsets, they aren’t as bad as many people think (see “The CDM: Rip-offsets or real reductions?“), they haven’t gutted the Europe’s Kyoto targets under their trading system (see “Europe poised to meet Kyoto target: Does this mean the much-maligned European Trading System is a success?“), and lots of countries want to join the market (see “Japan’s carbon cuts may include offsets“).  That said, they need greater supervision (see “UN suspends largest CDM auditor — Copenhagen needs to clean up the Clean Development Mechanism, Senate should keep House’s tough offset language“).

The good news is that the Senate bill seems like a genuine improvement over the house bill in this key area, according to my guest blogger, Victor B. Flatt, the Taft Distinguished Professor of Environmental Law at the University of North Carolina, Chapel Hill School of Law, and the Distinguished Scholar of Carbon Trading and Carbon Markets, Global Energy Management Institute, University of Houston, Bauer College of Business.  His post, “Kerry-Boxer an Improvement over ACES on Offsets,” was first published by the Center for Progressive Reform here.

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Several months ago I met with the lead climate negotiator for a major European country.  I spelled out some of my oft-repeated concerns about international offsets aka the Clean Development Mechanism.  He kept nodding his head and said, “Work with us to fix it.”

Here are the key points about the CDM:

1. It’s certainly not as bad as many people think (see excellent overview from Point Carbon here — “The CDM: Rip-offsets or real reductions?“)
2. The Europeans are going to insist on keeping it.  It remains a principal mechanism for having polluters pay for clean energy in developing countries.  We certainly need some such mechanism.
3. Under the House climate bill, we don’t have to participate in any international offset market that does not meet high standards for quality assurance.
4. For all the lame and/or insufficiently audited CDM projects that became certified emissions reduction (CER) credits for the Europeans to buy instead of actual emissions reductions, they only bought about 80 million in 2008 and the average price was about $25/ton (see “Do the 2 billion offsets allowed in Waxman-Markey gut the emissions targets?“).
5. Many of the cheapest tons — the dubious Chinese HFC projects — are largely gone and the standards for CDM are certain to be tightened in whatever deal comes out of Copenhagen deal in the wake of ongoing news about questionable CDM oversight.
6. The central conclusions of my recent analyses and discussions with leading experts this year remains true.  Large-scale, inexpensive international offsets don’t exist nor will they.  Were the U.S. to enter the CDM market in a big way, prices would go up.  The overwhelming majority of emissions reductions in the climate bill as currently written will be met with domestic clean energy strategies (see “Game changer, Part 2: Unconventional gas makes the 2020 Waxman-Markey target so damn easy and cheap to meet).

That said, some in this country are trying to weaken in the Senate bill the international offsets oversight provisions found in the House clean air, clean water, clean energy jobs bill.  The latest story from the UK’s Sunday Times, “Carbon-trading market hit by UN suspension of clean-energy auditor,” should undercut the rationale for those efforts:

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Certainly the weakest part of Waxman-Markey is the 2 billion rip-offsets that polluters are allowed to purchase each year in place of reducing their own greenhouse gas emissions.  After all, total U.S. GHGs in 2005 were about 7.2 billion tons (see “Bush policies cause U.S. GHG emissions to soar 1.4% in 2007“).

Rip-offsets deserve to be called rip-offsets because it is far from clear how many of them represent real reductions (see discussion at “NRDC and EDF endorse the weak, coal-friendly, rip-offset-heavy USCAP climate plan” and below).

The good news in Waxman-Markey is you apparently have to purchase 5 tons of offsets to substitute for 4 tons of actual emissions reductions and you can’t get international offsets from a country that has not agreed to reduce its emissions — which together are vast improvements over the USCAP proposal.  Also, Waxman-Markey would in theory let EPA set tough standards for domestic rip-offsets.  How tough those would be in practice is anyone guess.

Certainly 2 billion is way too many, but rather than trying to rewrite the bill to sharply reduce those in the early years, which seems unlikely to be a successful negotiating strategy, I’d just suggest that progressives in Congress (and elsewhere), push to sunset the offsets.

After all, two main purposes of the rip-offsets are to:

1. Give polluters some alternatives to reducing their own pollution while they are actively developing and deploying alternatives, and
2. Give credits for difficult-to-quantify (but presumably real and cheaper) GHG emissions reductions while the government is actively developing protocols to bring the offsets under the cap.
   

Now if you don’t motivate polluters to change, you end up with the inaction of the coal industry — as typified by Jim Rogers in his interview on 60 Minutes this Sunday.

A decade ago the coal industry said “don’t regulate us, give us a decade to develop sequestration and other clean technologies.”  Well, they never seriously invested in sequestration and they refuse to adopt the many clean technologies that have been developed, as Rogers made crystal clear [see "Like Detroit, the coal industry chooses (assisted) suicide" and Bush wanted to destroy the future of coal as much as the industry did, Futuregen was “nothing more than a public relations ploy,” House study finds].

Now I see two basic sunset strategies.

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While I am not one to say “I told you so” [cough, cough], what else is the proper response to today’s Washington Post story by David Fahrenthold: “House Is Abandoning Carbon Neutral Plan: Move Highlights Congress’s Green Struggle“:

The U.S. House of Representatives has abandoned a plan to make its offices “carbon neutral,” a sign that Congress is wrestling with a pledge to become more green even as it crafts sweeping legislation on climate change.

The promise that the House would effectively reduce its greenhouse gas emissions to zero was a centerpiece of the Green the Capitol program in which the new Democratic leadership sought to use Capitol Hill as a kind of a national demonstration project.

But last week, a spokesman for the House’s chief administrative officer said the chamber’s leadership had dropped an essential part of the plan, the purchase of “carbon offsets” to cancel out emissions from its buildings.

I had been quoted criticizing the rip-offset purchase, especially from the Chicago Climate Exchange (CCX), in a Fahrenthold piece from a year ago (see House carbon offsets “a waste of taxpayer money”).

So I applaud the House decision, as I told Fahrenthold in an interview he didn’t use [Note to self: Get over it!]. I wouldn’t, however, frame it the way he did in the piece.

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Rip-offset price for a metric tonne of CO2 on the Chicago Climate Exchange.

For many years, I was the go-to scientist for the media when they wanted a quote dissing hydrogen cars, thanks to my book, The Hype About Hydrogen. Now that hydrogen is fading faster than the Y2K bug, I get more press calls on the next big green scam, rip-offsets (see “Question from WSJ blog: Are Bogus Carbon Offsets Really That Bad?“).

Case in point: “Landfills generate ‘green’ cash in northern Utah” in last week’s Salt Lake Tribune.

Weber County and Wasatch Integrated Waste Management System not only make money by turning methane gas generated in the trash heaps into electricity, they’re also selling carbon offset credits on the Chicago Climate Exchange….

While energy and environmental activists applaud such efforts, some are not so enthusiastic about the markets, like Chicago Climate Exchange, that let those curbing emissions trade on their own good deeds.

I am the unenthusiastic “some” here:

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Yet another damning analysis questions the value of rip-offsets and the Clean Development Mechanism (see “You can call a rip-offset a CDM project, but it’s still a rip-offset“).

The Government Accountability Office — hardly a bastion of progressive eco-analysis — has written a devastating critique of rip-offsets, which concludes:

Key lessons from the CDM include: (1) the resources necessary to obtain project approval may reduce the cost-effectiveness and quality of projects; (2) the need to ensure the credibility of emission reductions presents a significant regulatory challenge; and (3) due to the tradeoffs with offsets, the use of such programs may be, at best, a temporary solution.

In short, what the hell is the point of the CDM?!

The GAO’s recommendations are equally strong, if still understated: (more…)

Richard Sandor and his Chicago Climate Exchange (CCX) may be doing more to destroy the credibility of the carbon trading market than anyone in the world, as the Wall Street Journal makes painfully clear today.

I urge anyone considering throwing their money away on rip-offsets to read the entire piece, “Pollution Credits Let Dumps Double Dip: Landfills Find New Revenue in Trading System Meant to Curb Greenhouse Emissions.”

Sandor has turned the CCX into Bear Stearns or Lehman Brothers and turned the carbon trading market into another example of casino capitalism — all in the name of the almighty dollar (see “Q: What is the difference between carbon offsets and mortgage-backed securites?“).

What CCX is doing — and how Sandor justified it to the WSJ — is almost beyond belief. Let’s start with the rip-offsets.

Buried in a recent Post article was the amazing fact that CCX was selling offsets from a landfill that was flaring methane — and that was going to keep doing so whether they got money from CCX or not (see Is the Chicago Climate Exchange selling rip-offsets?) Even if you think rip-offset money should go for methane flaring projects (I don’t), paying people to do things that they were going to do anyway means that your money is not offsetting any emissions at all. In rip-offset jargon, the project fails the additionality test — for a good discussion of this important concept, see this piece.

Should anyone pay CCX for making the sun rise in the morning? I suppose that if someone wants to flush their money down the toilet, that is their business. But if CCX is becoming the dominant player in the U.S. carbon market by selling rip-offsets and is working to become part of the foundation of a serious national carbon trading system, then it is everyone’s business.

After all, the story reports Sandor says the United States will adopt rules similar to CCX’s and that “companies that buy credits on the Chicago exchange today stand a good chance of being able to use them to comply with any future federal emissions rules.” Let’s hope that is just a huckster’s hype, since all major climate bills currently being considered rely heavily on rip-offsets — and John McCain would allow unlimited rip-offsets at the start of his climate plan (see “McCain speech, Part 2: Relying on offsets = Rearranging deck chairs on the Titanic“).

The WSJ made clear today that the landfill story above was not an anecdote but a core CCX strategy:

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A: Lipstick.

Carbon offsets and mortgage-backed securities are quite similar in that is impossible for the vast majority of people, even experts, to know what value they have, if any.

In the case of the securities, before paying good money for them, you have to figure out what the value of the underlying mortgages are. Oftentimes they are almost worthless. In the case of carbon offsets, before you pay good money for them, you have to figure out the value of the underlying projects they fund. Oftentimes they are almost worthless.

The only difference between the two is one of perception. Most people now realize how dubious the securities are. But most people apparently don’t realize how dubious the offsets are, because sales of offsets keep rising. So I repeat, the only difference is “lipstick” — the offsets look on the surface to be more attractive.

At a policy level, offsets can destroy the environmental value of climate legislation (see “Boxer bill update: Probably no U.S. CO2 emissions cut until after 2025” and “McCain speech, Part 2: Relying on offsets = Rearranging deck chairs on the Titanic“). Indeed, at a large scale, offsets are probably worse than the securities, because even if the mortgages are underwater, you know the houses aren’t valueless. But as a major 2008 analysis from Stanford found

… “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.

And this led to the study’s stark conclusion:

… any offset market of sufficient scale to provide substantial cost-control for a cap-and-trade program will involve substantial issuance of credits that do not represent real emissions reductions.

Talk about your sub-sub-sub-prime loans.

Yet even at an individual level, lots of vendors are selling very dubious offsets, including the Chicago Climate Exchange, as many journalists have found when they examined the underlying projects (see here and here and here).

In particular, I have argued that the most popular offsets are the most dubious:

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Carbon Retirement — you read it here first (or maybe second).

I don’t normally endorse individual companies. But I have long thought European allowances were the best alternative to offsests and am delighted someone has made a business out of it.

The business opportunity is clear — offsets suck. At a policy level, they can destroy the environmental value of climate legislation (see “Boxer bill update: Probably no U.S. CO2 emissions cut until after 2025” and “McCain speech, Part 2: Relying on offsets = Rearranging deck chairs on the Titanic“).

At a personal level, lots of vendors are selling very dubious offsets, including CCX (see here and here and here). I can’t imagine why you would waste your money on the most popular offsets, trees (see no trees and certainly not a Northern forest — heck, even offset seller Terrapass disses trees). And don’t get Climate Progress started on the other popular offset, RECs (see “Schendler Part II: Good RECs vs. Bad RECs“).

But I know some of you out there really want to be carbon neutral, and while you have bought 100% renewable power for your superefficient home that uses a geothermal heating and cooling system to replace natural gas, and you bought a Prius for the family car and you telecommute, you just haven’t figured out how to avoid some driving and flying.

What to do? Buy real emissions credits from the European market and retire them permanently! Now that is the best idea since solar baseload.

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If want to reduce your carbon footprint, what should you do about your air travel until we have carbon-free jetfuel?

The Stockholm Environment Institute and the Tufts Climate Initiative has a good handout on the subject, “Flying Green.” They note

… the average American is responsible for the emissions of about 20 tons of CO2 annually…. If you fly to Europe and back from the US, you’ll add about 3-4 tons to your (already large) carbon footprint. With one flight you will have caused more emissions than 20 Bangladeshi will cause in a whole year. Unfortunately they are the ones who will lose their homes and livelihood once sea level rise inundates their low lying country.

Personally, I have cut back air travel a great deal to reduce emissions, to spend time with my daughter, to spend more time blogging, and, of course, to spend less time flying, which just isn’t very pleasant anymore.

The handout has a number of good suggestions and factoids — why should flying economy be considered better for the environment than flying business class?

Also, while I’m not a big fan of carbon offsets, the handout offers some good principles for such purchases and then recommends a few offsets companies.

If you want to learn more about the controversial issue of just how much damage to the climate air travel does, you might read this. If you want to know more about offsetting air travel emissions, read this.

If you must buy carbon offsets, caveat emptor — in particular, don’t buy them from the Chicago Climate Exchange (CCX). That is the point of a terrific front-page article in today’s Washington Post “Value of U.S. House’s Carbon Offsets Is Murky, Some Question Effectiveness of $89,000 Purchase to Balance Out Greenhouse Gas Emissions.”

Yes, it is nice to be quoted above the fold in any major newspaper — the quote in the headline is from me — but the reason I think the article is important is that the reporter took the time to track down the offset projects the taxpayer money went to. The results are not encouraging. I am not a fan of offsets (see my many posts dissing “Offsets” under that category on this blog’s side bar) — and certainly wasn’t a fan of the House buying offsets from the CCX in the first place.

But I was surprised by the overall lameness of the specific projects and utterly shocked to read the words of CCX CEO Richard Sandor (a man I have a fair amount of respect for):

It basically rewards people for having done things that had environmental good in the past and incentivizes people to do things that have environmental good in the future.

Shame on him for having this policy, and double shame if he actually believes it is the right thing. Offset money is supposed to cause carbon emissions reductions that would not otherwise have happened without that money (the so-called additionality criteria), in order to offset our own emissions (which we have first worked hard to reduce). We are most certainly not expecting our money go to rewarding people for having done things that had environmental benefit in the past. Geez — I’ve done a whole bunch of things that had environmental benefit in the past — see list here — does that mean I’m entitled to some of Sandor’s CCX money? Absurd!

An old friend of mind, consultant Mark Trexler, put it well in the article when he said,

If you don’t have additionality, you know what you’re getting. You’re getting nothing.

Kudos to uber-capitalist Sandor. He has proven you can get nothing for something.

Well, Lawrence Berkeley National Laboratories has collected many of the most popular carbon calculators — including their own — and compared their features here. Pick one and go for it!