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.

With respect to offsets, the Kerry-Boxer bill is a distinct improvement over the ACES. 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.

Probably the most important difference between the bills is that the Kerry-Boxer bill does not specify which agency would be in charge of administering and ensuring the integrity of any offset program. In the House bill, a last minute compromise switched all of the administration of biological sequestration offsets to the USDA from the EPA, a change widely criticized by environmentalists because of the belief that the USDA would not be as effective in regulation. The Kerry-Boxer bill doesn’t specify any agency, instead referring to the executive branch actor only as “the President” (which means it could be delegated to one or more different agencies). Of particular interest is that in the 801-page draft which leaked out yesterday, the program was administered by the EPA, but that this provision was dropped from the proposed bill. This might indicate that Senators Boxer and Kerry prefer the EPA as the offsets administrator, but that they are willing to have some ambiguity on the issue if it helps win farm state votes.

With respect to offset integrity, Kerry-Boxer makes accounting for offset reversals (when the anticipated amount of offsetting fails to occur) a key part of the bill; and unlike the Waxman-Markey bill, reversals are to be avoided and accounted for in all offset categories, not just biological sequestration. This is very important as it closes a huge loophole which could have destabilized the system and market. Though expanding the accounting for reversals to all offset categories, Kerry-Boxer does generally follow the lead of Waxman-Markey in dealing with offset reversals. Section 734(b) requires that the President require offset developers to either contribute offset reserve amounts to a central account registry equal to the probability of reversal times the total offset credit amount, or to hold insurance that would allow for the purchase of offset or emission allowance credits for any offset failure. The offset reserve option also features the requirement that the reserve be replenished by the project offset developer with half of the lost credits for an unintentional reversal or all of the lost offset credits if an intentional reversal. One could suppose that since unintentional reversals could be fully accounted for in the initial reserve requirements (since unintentional offsets should coincide with statistically likely failures) having a replacement of only one half of the loss would be more than sufficient to preserve the integrity of the system. The truth is that reversal probability calculations are so unknown at this time that we cannot be sure about the ratio of reserves to failures. Requiring a one-half replenishment might be more than sufficient or not enough. It is really a guess at this point, and though the statutory requirement of one-half is pretty specific, other provisions of the bill would allow the President to take actions to preserve the integrity of the required reductions.

The bill also embraces the notion that offsets should not cause impacts on the environment or other important social interests in many different bill sections. Just as in Waxman-Markey, the offsets advisory board, which is to make recommendations on offset categories, is to also give advice and recommendations to the President on “ways to improve or safeguard the environmental integrity of the programs.” (731(c)(6)). But in addition to considering environmental issues with respect to offset categories, the bill also requires the president to act (including rejecting individual projects) “to avoid or minimize, to the maximum extent practicable, adverse effects on human health or the environment resulting from the implementation of offset projects under this part.” (Sec. 732(c)). This gives the President or implementing agency authority to create regulations about environmental harms from offsets or reject offsets outright, and this is a very important recognition that offsets may create environmental or other harms. The President is also given broad leave to require that project developer’s applying for offset credit provide information about environmental or other effects of the offsets, by having a catchall phrase that the President can require all offset verification reports to have “any other information” that he believes necessary to fulfill the requirements of the Act. (736 (c)(6)).

With respect to the emissions allowance market, the offset parts of the bill have some positive attributes. It pulls back from the initial offering in Waxman-Markey of whole categories of already approved offsets (which the project developers wanted), replacing it with a requirement that the advisory board come up with the first set of categories within a year, but does then specify particular categories which the advisory board should consider. This basically ensures that the Advisory Board can approve these initial categories very easily without too much delay, which should increase the overall market liquidity. There is still the problem that the President is given power to assign offset reversal compensation to anyone (734(b)(1)), which means that in theory, the underlying inherent (not speculative) value of an offset could be decimated without warning, creating a toxic asset which could infect other commodity classes. However, when read with the other reversal provisions, which require insurance or reserves of the offset project developer, it seems unlikely that the holder of an offset would be required to account for reversals. Even if this is true, since it is so important to the market that holders of approved offsets do not bear the risk of arbitrary reversal, the bill should be changed to specifically hold only the offset developer responsible.

This bill comes a long way in ensuring integrity, recognizing relations to international systems (a provision requiring that forestry offset credits be able to meet international standards under the UNFCCC), and accounting for the important environmental impacts that offsets can cause. If it can make corrections to assist the market, this will be an excellent offset system to work with.

I have taken the liberty of changing “Boxer-Kerry” to “Kerry-Boxer” throughout this reposting.

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:

The legitimacy of the $100 billion (£60 billion) carbon-trading market has been called into question after the world’s largest auditor of clean-energy projects was suspended by United Nations inspectors.

SGS UK had its accreditation suspended last week after it was unable to prove its staff had properly vetted projects that were then approved for the carbon-trading scheme, or even that they were qualified to do so.

The episode will be embarrassing for European lawmakers in the run-up to the global climate summit in Copenhagen, where they will attempt to lure big polluters such as America and China into a binding agreement to replace the Kyoto protocol. SGS is the second such company to be suspended – Norway’s DNV was penalised last November for similar infractions.

The EU’s carbon-trading system, which puts a price on pollution through carbon permits that can be bought and sold, is the key element in Europe’s fight against climate change.

About a fifth of the $100 billion of credits traded annually come from projects funded under the Clean Development Mechanism (CDM). The heavily criticised programme allows industrialised countries to offset their pollution by buying “certified emission reductions credits” generated by low-car-bon schemes in the developing world. China and India are the biggest generators of the credits: more than 900 projects are now running, producing billions of credits, with thousands more in the pipeline.

Critics say the system is not sufficiently policed and allows western polluters to buy their way out of more costly carbon-cutting measures.

All such schemes must first be approved by organisations such as SGS. DNV was the single biggest auditor until it was suspended last year, when much of its workload was shifted to SGS, which was simply unable to cope.

Simon Shaw, chairman of EEA Fund Management, a backer of emission-reduction projects and an investor in Climate Exchange, the carbon-trading platform, said: “There was obviously a lack of resources. We knew this was coming.”

UN inspectors said they found six irregularities in a recent spot check. The firm has now rectified these, but remains suspended until the UN verifies sufficient changes have been made. SGS could not be reached for comment.

Lawmakers are expected to reform the CDM in Copenhagen in December.

More vetting and oversight of projects are required — and tougher standards for auditors.  And that should improve quality and raise costs, both very good things.

The Clean Development Mechanism (CDM) has gotten a lot of attention after the recent release of a report by two environmental groups which argued that the CDM and the entire idea of offsets should be abandoned because offset projects can’t be proven additional to business-as-usual. The report also objected to offsetting as an easy way out for emitters.

While some criticism of the CDM is well-grounded, much of the debate around this international offset program would definitely benefit from better information. As the leading carbon market intelligence provider and the proprietors of the largest database of CDM projects, we at Point Carbon offer some data-driven insights as a contribution to the discussion.

First off, let’s make sure we define the CDM, as it is often confused with other groups or firms selling credits to offset your latest plane flight or a portion of some large company’s carbon footprint. Those are voluntary offsets, whereas the CDM is part of the Kyoto Protocol, an international agreement under which countries have taken on binding emission reduction commitments. Offsets used for compliance to this mandatory global program are vetted by the UN. They are called CERs (certified emissions reductions) and represent tradable units companies and countries can use to fulfill their requirements under the treaty. CDM projects “generate” CERs when they reduce emissions compared to a baseline: 1 CER = 1 metric ton of CO2-equivalent reduced. Currently, CERs cost in the range of $15-17 – at least twice as much as your average voluntary offset.

Just a year ago, CER prices were even higher – as the chart below shows, they went down considerably with the slumping economy. Large emitters in the countries that buy CERs (mostly Europe and Japan) saw decreasing industrial production and therefore lower CO2 output, in turn decreasing their need for offsets and thus bringing down the CERs price. Given that the economy is expected to pick up over the next few years, CER prices could get back into the €18-20 ($25-28) range.

[Note: More recently the board that grants offset projects their credits has been very stingy, as it does not want to be accused of letting through any non-additional or questionable projects. Therefore, very little of the potential volume of CERs is getting approved or made available to offset buyers.]

The CDM was established as one component of the global program to address climate change, with two objectives in mind: cut the cost of reducing emissions for the countries that have binding reduction targets, and help developing countries get on a pathway to sustainable development by channeling funds into clean technology and energy projects. Globally, any amount of greenhouse gas not entering the atmosphere is a good thing – whether it would have been emitted in Belgium or Bolivia. From an economic perspective, taking advantage of the most cost-efficient reductions also means more money is left for other societal and policy priorities (did someone say “healthcare”?). But others argue that the CDM allows industrialized countries to shun their responsibility and avoid needed ‘domestic’ reductions.

A middle-of-the-road argument is that offsets are a useful transition tool: they minimize the cost of reducing emissions at the global level by capturing the cheapest reductions (those that can be achieved with existing technologies) first, while expensive new carbon-cutting methods are in the works. Countries and companies will invest in long-term expensive solutions if they know the supply of offsets won’t be there forever, and if they know global carbon caps will continue to get tighter. The CDM was thus designed to evolve with a tightening global carbon cap to which an increasing number of countries is subject. “Advanced” developing nations like China, Mexico, Korea and Brazil were expected to take on binding targets in future years when the CDM was established under Kyoto.

But beyond the overall debate on allowing international offsets as a compliance option, there is the more specific issue of the quality of the projects, and whether they are good enough to be used in place of reductions in industrialized countries. That’s where arguments about “additionality” come in: it’s hard to determine what would have happened in a counterfactual scenario, so it’s hard to prove whether emissions reductions achieved by CDM projects are additional to what would have happened otherwise. As the debate rages, here are some facts and data that can offer insights on the bigger picture:

1. The CDM has gotten a big start in a short time.

There are currently over 1,600 registered CDM projects in over 100 countries, and over 7,000 projects at some stage of consideration to be eligible for generating emission reduction credits. If the projects currently in the pipeline were to reduce emissions by the amount their developers estimate, they would cut over 2.7 billion tons of carbon dioxide equivalent (CO2e) through 2012, according to the UN. If we account for various risks – risk that the project falls apart, is not approved, or does not deliver all the emission reductions forecasted – Point Carbon estimates the collective reductions through 2012 will eventually be about 1.5 billion tons CO2e. That’s a lot of reduction: more emissions than Japan (the world’s 5th highest-emitting nation) puts into the atmosphere each year.

Pipeline of GHG reductions generated by CDM projects, risk-adjusted, by project type (in thousand metric tons CO2-equivalent). Source: Point Carbon

The CDM has channeled a lot of investment to developing countries. The World Bank estimates that CDM leveraged over $100 billion in clean energy investment to the developing world through 2008, with another $41 billion in 2008 alone [link to WB’s 2009 ‘state and trends of the carbon market’ report]. For comparison, governments’ official development aid to clean energy policy and projects totaled about $20 billion cumulatively from 200-2006.

2. The CDM project quality assessment process is rigorous, arguably transparent, and therefore slow.

Before a project can generate credits, it goes through a lengthy approval process in the host country, with external auditors, and with the UN. This involves evaluating the methodology by which project developers propose to cut emissions, and assessing whether the baseline used (what would have happened in the absence of the project) is plausible. The project is also evaluated to see if it would have been undertaken in the absence of expected revenue from selling the resulting offsets, and more.

The approval process is governed by a rotating Executive Board of experts from developing and developed countries, whose meetings are webcast and whose decisions are made public. Because these are extremely contentious issues, the approval and crediting process takes a long time, and the Executive Board’s decisions are often criticized. It can take well over a year before projects are issued credits, which leaves investors dangling. The board is extremely strict: about half the projects that have received a positive evaluation from third party verifiers and were approved by their host countries’ authorities are still rejected or turned back for corrections. The grounds for rejection almost always center around concerns that the project is not ‘additional.’ On the other hand, some of the projects the board has approved involve emission reduction methods many would not put in the “clean” or “sustainable” category, such as supercritical coal technology or large dams for hydropower.

3. There is a broad diversity of project types.

Since the CDM got started, project developers have come up with many ways to reduce emissions. There are over 100 different approved methodologies – or ways to reduce emissions compared to a baseline – from recovering waste heat at cement plants and using it for power generation to displacing fossil-fueled heating through use of geothermal energy systems. The lure of earning saleable credits for such innovation has gotten some high-powered companies – most of them with US offices – involved in greenhouse gas-cutting action in the developing world.

One CDM trend some environmental advocates find disturbing is that most of the program’s GHG reduction volume comes from projects involving industrial facilities, rather than renewables or energy efficiency. Projects that destroy greenhouse gases known as hydrofluorocarbons (HFCs) were popular and caused the bulk of the reduction volume the CDM has produced so far. This is because a small amount of investment (changing processes in a refrigeration plant to use different gases) can produce a huge amount reduction compared to the baseline scenario in which that process change is not made. The controversy over the legitimacy of these “HFC projects” has gotten a lot of media attention.

However, the HFC project opportunities are now largely tapped out: our data shows that most of the refrigerant plants and other facilities that could be changed to lower-GHG alternatives have been, with few such projects in the pipeline. Smaller-scale, less profitable projects are growing in number and volume. They reduce emissions through expanded use of renewable energy and increased efficiency. While the volume of emission reduced is smaller than industrial gas capture, those projects contribute more long-term sustainable solutions and can come with benefits for the local population. Currently, a large portion of the volume of CERs being issued comes from HFC destruction, but as projects of this type dwindle, more of the world’s CER supply will hail from projects involving renewable energy and other sectors.

This evidence is corroborated by the World Bank, which states that “transactions of HFC destruction projects are now virtually absent from the primary market.” So the “low-hanging fruit” of the CDM has been picked.

[Again, I think this is a key point.  There simply is no limitless supply of cheap international offsets.  If the U.S. enters this market looking for large amounts of offsets, the price will rise accordingly.]

4. Countries benefiting most from the CDM are not the ones who ‘need’ the most help.

The country with by far the most CDM projects, and the largest expected reduction volume from its projects, is China. Other CDM host countries with large numbers of projects include Brazil, South Korea, Mexico and Chile, while the entire continent of Africa hosts a few dozen projects, mostly in South Africa.

Volumes of proposed CDM project emissions reductions, through 2012, by host country. Source: Point Carbon

This is largely due to the fact that the poorest countries have very few emissions to start with, so there isn’t much to reduce.

However, reform is on the table: the CDM Executive Board, supported by European countries as buyers of CDM credits, is trying to make it easier for project developers to claim credit for aggregated quantities of small-scale reductions, at the household level. Examples of projects that this new acceptance of “programmes of activities” would promote include lighting projects in Africa, where several villages are supplied with solar-charged LED lighting to displace propane-fired lamps. The emissions avoided would be aggregated and counted as one project. Other examples include distributing hundreds of small cookers that use methane from household cattle as natural gas for families, thereby reducing the amount of the GHG that enters the atmosphere while also offering rural families an alternative to wood fuel.

Whether such proposed reforms will really go through remains to be seen – negotiators are looking at new ways of configuring the global climate regime in Copenhagen this December, and may incorporate a sectoral approach designed to get “advanced developing countries” like China to take on emission reduction commitments. Countries would commit to quantitative GHG reductions in certain high-emitting sectors of the economy (metals production, for instance) rather than on a national basis. If this is done, CDM wouldn’t work the same way it does now, and many of the project types receiving critique would not exist beyond 2012.

The CDM is not perfect, but it has generated some good projects and a non-negligible volume of reductions. Whether or not it survives the next round of negotiations in its current state, the agreement in Copenhagen this December will build on the lessons learned from the CDM so far.

[The CDM market will not go away no matter what the United States does, but I do think it important that the market gets reformed, perhaps along the lines of the quality assurance and oversight provisions in Waxman-Markey.]

… the sugar you find in specially marked packages of Domino® Sugar have been certified CarbonFree®.

I’ve never been a fan of companies who try to greenwash hawk their products with terms like Carbon Neutral for several reasons:

• There’s no meaningful way of verifying the claim.
• Lifecycle analyses are notoriously easy to fudge and/or omit key inputs.
• The “neutrality” is typically achieved with rip-offsets, which are, after all, rip-offsets (see “Question from WSJ blog: Are Bogus Carbon Offsets Really That Bad?“).

Probably the silliest and most unfortunate recent attempt to capitalize on the carbon neutrality craze is Domino’s with their “certified CarbonFree® sugar.”

Many commenters, such as our friends at Scholars and Rogues in “Chemistry: FAIL,” have mocked pointed out informatively that:

The chemical formula for sucrose, aka sugar, is C₁₂H₂₂O₁₁:

Take the carbon out of sugar and you’re pretty much left with water. Methinks Someone failed their chemistry class. Or their marketing class. Or both.

What I think is particularly unfortunate about this is that Domino has a pretty good story to tell (at least for a sugar company):

Our certification is unique because our Florida farmed products’ carbon neutrality is the result of our own production and supply of clean, renewable energy, which replaces the use of fossil fuels. Our renewable energy facility generates eco-friendly power for our sugar milling and refining operations as well as tens of thousands of homes….

Our Florida facility converts sugar cane and recycled wood waste to electricity, reducing the need for 1 million barrels of oil annually….

Our Florida facility conserves about 3.5 million cubic yards of landfill space annually…..

Our Florida facility displaces hundreds of thousands of tons of CO2 annually.

You can see their TV commercial here.  I’ll leave it to others to comment on Domino’s

… earth friendly farming.

So It may be that they aren’t using rip-offsets to make this claim, but I can’t find that out on their website or that of the organization they used for certification, Carbonfund.org, whose motto, “reduce what you can, offset what you can’t,” isn’t bad as offset mottos go.   But they appear to use renewable energy certificates, the overwhelming majority of which just aren’t good offsets (see “Schendler Part II: Good RECs vs. Bad RECs“).  And they do reforestation, which is a great thing to do, but relatively dubious as an offset (see no trees for offsets and certainly not a Northern forest — heck, even offset seller Terrapass disses trees).

The silliness of the label is evidenced by Domino’s need for this from their FAQ:

Does sugar have carbon in it?

The CarbonFree® certification refers to the product’s neutral carbon footprint, not to the sucrose molecule. Meaning it refers to the growth, production, packaging and shipping, not the physical properties of the sugar. Do all, or other sugar brands, have a CarbonFree® status? The only sugar brands in the country that have been certified CarbonFree® are Domino® Granulated Sugar in the specially marked GREEN packages and, our sister brands, Florida Crystals® Organic Sugar and Florida Crystals® Natural Cane Sugar.

If you are a sugar company that needs a FAQ to explain that your CarbonFree sugar has carbon in it, you probably need a new name for your product.

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.

The one I’d recommend is to sunset the offsets by 2030 with a steady decrease starting in 2012, allowing, say, 1 billion in 2020.  Another possibility that is weaker but probably more politically palatable is to apply the same reduction to the offsets that you are applying to emissions in the bill:

• a 20 percent cut by 2020 (to 1.6 billion)
• a 42 percent reduction by 2030 (to 1.16 billion)
• an 83% cut in 2050 (to 0.34)

This, with the emissions targets in the bill, sends a strong signal that business as usual is over.  And I’d keep the 5 for 4 exchange ratio.  And I still certainly wouldn’t let any country without a cap have access to the international offsets, particularly China — with the one exception being certified, national accounting-based strategies to reduce deforestation.

Since I haven’t seriously dissed rip-offsets in over three months, let me repeat once more, 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.

The Government Accountability Office recently ripped rip-offsets: “The use of carbon offsets in a cap-and-trade system can undermine the system’s integrity.”

Also, the CDM is filled with fraud (see “You can call a rip-offset a CDM project, but it’s still a rip-offset“). Let’s remember that the West got suckered into giving China some $6 billion to destroy greenhouse gas refrigerants that probably cost Chinese companies $100 million to capture and destroy (for more details, see “Kyoto’s Great Carbon Offset Swindle“). Let’s remember that

U.N. regulators are also concerned that some independent auditors of these projects, who are responsible for vetting their environmental legitimacy, have been letting project developers push through ventures of questionable environmental value….

In a presentation to U.N. officials last fall, the head of Tüv Süd’s carbon business told U.N. officials that the quality of projects the auditors are receiving from carbon brokers is “going down,” according to the U.N. panel’s Mr. Schmidt, who was at the meeting….

“There is a high incentive” for companies to put together environmentally questionable carbon-credit projects, “because there is a lot of money that can be earned,” he said. “People are getting more inventive, so it’s getting harder to detect the black sheep.”

Let’s remember that instead of using the money to fund the transition to a sustainable economy, the World Bank “has loaned $1.5 billion to fossil-fuel companies to make minor greenhouse-gas reductions,” and “then sells carbon credits for those reductions,” and “takes its 13 percent cut”?

Let’s remember that “The vast majority of schemes that sell carbon credits to offset pollution are delivering 30% less than they promise“?

Now, the EPA can you probably weed out the worst of the domestic rip-offsets (as long as the agency is run by people who actually care about science and averting catastrophic climate impacts).  And for now, Waxman-Markey doesn’t buy into CDM.

So if we were to combine those Waxman-Markey offset provisions with sunsetting, then the bill would be much more palatable.

And, besides, aren’t sunsets beautiful?

UPDATE: Victor Flatt, Professor of Environmental Law, University of Houston Law Center, has an important related post: “Proposed Amendments to Waxman-Markey Could Diminish Integrity of Offset Provisions.”

Related Posts:

• House abandons rip-offset purchase. Now can it abandon them in a climate bill?
• Q: What is the difference between carbon offsets and mortgage-backed securites?
• No-till farming does NOT save carbon and is NOT a carbon offset

I didn’t learn the stunning story about what Chicago is trying to get away with until I was interviewed by a Chicago Tribune reporter. His story “Chicago’s ‘green’ promise fades: Chicago taxpayers on hook for carbon credits that do little to fight global warming,” was published yesterday:

Mayor Richard Daley promised long ago that his administration would start fighting global warming by buying 20 percent of its electricity from wind farms and other sources of green energy.

But more than two years after the deadline he set, the city continues to get nearly all of its power from coal, natural gas and nuclear plants, according to records obtained by the Tribune.

Daley administration officials contend they have kept the mayor’s promise by buying carbon credits, a controversial way of offsetting pollution by paying money to producers of green energy. The credits are supposed to lower the amount of heat-trapping carbon dioxide sent into the atmosphere.

But most of the credits Chicago has bought over the last two years didn’t reduce carbon emissions at all, energy experts and the city’s own broker on the deal said.

So what exactly is the city of Chicago wasting its citizens’ money on? Good old-fashioned rip-offsets — in this case, emphasis on the word “old”:

As a result, taxpayers paid the full bill for the city’s normal electricity usage, then the city paid again–more than half a million dollars in all–for credits with questionable environmental benefits. Buying carbon credits fights global warming only if they help finance new sources of renewable energy, such as new wind turbines, energy experts said. Yet 87 percent of the credits Chicago has purchased sent money to a wood-burning power plant that has been operating for nearly two decades.

“This is very misleading to the public,” said Joseph Romm, a senior fellow at the Center for American Progress who has sharply criticized the carbon offset market. “A city with the clout of Chicago should be able to do this right.”

Chicago is, after all, quite close to the countries massive Midwestern wind resource. It really has no excuse for this greenwashing. Heck, even the U.S. Congress has gotten wise to rip offsets (see “House abandons rip-offset purchase. Now can it abandon them in a climate bill?“), as the story notes:

Acting on similar concerns, the U.S. House of Representatives decided last month to stop using carbon credits to offset the chamber’s emissions. Like Chicago, the House had been buying credits that supported established energy projects.

This story has Chicago’s whole sordid history, which is well worth reading:

It was 2001 when Daley promised that city government would be getting a fifth of its electricity from renewable energy sources by the end of 2006. In November of that year, the Tribune reported that the city had not bought any green energy since 2004. Chicago started buying carbon credits in 2007. In response to Tribune questions, the city provided a certificate from an Iowa-based power company stating the carbon credits that Chicago purchased that year were equivalent to planting 9,317 acres of trees and offset about 35,000 tons of carbon dioxide.

“This is about leadership and trying to demonstrate that we can have an impact on a global issue with local action,” Sadhu Johnston, Daley’s deputy chief of staff for environmental issues, said in an interview.

While the numbers look good on paper, city records show that only 5 percent of the electricity used by city government in 2007 was offset by credits supporting the construction of wind turbines and geothermal plants. The following year, the figure fell to 1 percent.

Most of the city’s credits went to a North Carolina power plant that opened in 1990 to burn wood waste, or biomass, from the lumber industry. Though biomass plants are viewed as a source of renewable energy, the credits amount to little more than a financial bonus for a facility that had been operating long before Chicago paid a dime.

In a September e-mail to city officials, obtained by the Tribune through the Freedom of Information Act, the broker that handled the deal said most of Chicago’s credits “do not have a value in offsetting” carbon dioxide because they came from an existing energy source, not a new one.

Duh.

Among other things, the credits helped city government meet pledges it made six years ago to the Chicago Climate Exchange, a commodities market where greenhouse gases are traded like pork bellies or cattle futures.

Ah, yes, the notorious CCX (see CCX sells rip-offsets: “It seemed a little suspicious that we could get money for doing nothing”).

When Daley joined the exchange and became its honorary chairman, the city promised to cut its heat-trapping emissions by 4 percent between 2003 and 2006 and another 6 percent between 2007 and 2010. City officials have had some success in reducing demand for energy–electricity usage by city government fell slightly last year–but they needed carbon credits to meet the exchange’s targets.

“Our preference would be to reduce energy use and generate our own green energy,” Johnston said. “We’re trying to be realistic about doing this in a way that is the most cost-effective.”

The credits also made the city eligible for a U.S. Environmental Protection Agency list that promotes the nation’s top purchasers of renewable energy.

To join the EPA’s Green Power Partnership, buyers need to get at least 2 percent of their electricity from new sources of renewable energy. Older sources, like the wood-burning plant that sold credits to Chicago, don’t count but are recognized as additional purchases.

In September, Daley nudged businesses and residents to start reducing their own contributions to climate change, and vowed the city would lead by example. By working harder to conserve electricity and investing in green energy, he said, Chicago could reduce carbon dioxide emissions by 25 percent from 1990 levels within the next 12 years.

The mayor cited the city’s renewable energy purchases as part of his ambitious plan–a point that was repeated in several gushing stories about Daley in national magazines and newspapers.

Daley didn’t mention the carbon credits, which have become a popular but controversial way for corporations, governments and individuals to offset their contributions to global warming pollution.

Working in a growing but largely unregulated market, carbon brokers estimate how much climate change pollution a buyer generates, then sell offsets that help finance tree-plantings, renewable energy sources or other projects that supposedly cancel out an equal amount of emissions.

This month the federal Government Accountability Office joined energy experts and environmental groups in criticizing the lack of standards for carbon offsets.

See GAO rips rip-offsets: “The use of carbon offsets in a cap-and-trade system can undermine the system’s integrity.”

The Federal Trade Commission also is investigating whether the environmentally friendly claims of credit brokers amount to false advertising, or “greenwashing.”

Critics say tougher rules are needed if carbon credits are included in President Barack Obama’s sweeping plans to fight climate change.

“If the money is just gravy for some energy provider,” said Mark Trexler, a Portland, Ore., consultant who advises corporations about the carbon offset market, “how does that benefit the environment? It doesn’t.”

Precisely.

Jeers to Chicago — and here’s hoping this news story jolts them into making things right.

Related Post:

• Schendler Part II: Good RECs vs. Bad RECs

In a preview of a likely GOP strategy in the coming congressional battle over global warming legislation, Republican members of the House subcommittee charged with crafting the legislation last week blasted the use of greenhouse gas emissions offsets–a controversial mechanism for reducing compliance costs that is strongly supported by utilities and other U.S. industry sectors.

Now you know something is fishy when House Republicans have the exact same position as Climate Progress (see “You can call a rip-offset a CDM project, but it’s still a rip-offset“).

So what is their gambit in opposing the cost containment measure that is most popular among their own big-polluting constituents? Energy Daily explains:

The strategy may be aimed at sowing doubt about offsets among Democrats to build support for trimming the role of such cost-saving mechanisms in a climate change bill; that, in turn, could reduce industry’s support for greenhouse cap-and-trade legislation.

At a March 5 hearing on offsets before the House Energy and Environment Subcommittee, key Republicans questioned the legitimacy of offsets, which represent emission reductions taken in sectors outside of a cap and can be significantly cheaper than reductions taken in sectors covered by a cap. The GOP members charged offsets are a boondoggle that could produce billions of dollars in revenues for China and other developing nations with little or no resulting global warming benefits.

That’s one reason I now think China should be largely excluded from the CDM market except under very carefully constrained and limited circumstances. I’ll do a separate blog post on this later.

Supporters of offsets argue that if they are carefully monitored and verified to ensure they represent “additional” emission-reduction actions beyond business as usual, offsets can help keep compliance costs low while working to slow the concentration of carbon dioxide and other heat-trapping gases in the atmosphere.

In particular, supporters say, offsets earned by rewarding tropical forest countries for slowing or stopping deforestation can provide a substantial, cost-effective climate-change benefit. Deforestation currently accounts for as much as one-fifth of global emissions, according to government and independent estimates.

But Republicans pointed to well-regarded research that questions the value of the Kyoto Protocol’s Clean Development Mechanism (CDM), a program that allows developed countries that fund clean energy projects in developing countries to earn credits against their emission-reduction obligations under that treaty.

Credits earned by the CDM–by far the world’s largest offset program–are used in the European Union’s Emissions Trading Scheme (ETS) to help EU countries meet their emission reduction commitments under the protocol.

A November report by the Government Accountability Office (GAO) found that “[w]hile the CDM has provided cost containment in a mandatory emissions reduction program, its effects on emissions are uncertain, largely because it is nearly impossible to determine the level of emissions that would have occurred in the absence of each project.”

Separate research led by Stanford University professor Michael Wara concluded that “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….”

Can’t argue with that (see “Question from WSJ blog: Are Bogus Carbon Offsets Really That Bad?“)

Rep. Joe Barton (R-Texas), a member of the subcommittee and the senior Republican on the House Energy and Commerce Committee, said that the EU’s use of CDM credits has cost jobs and damaged the credibility of the ETS.

Barton, who with Rep. Ed Whitfield (R-Ky.) commissioned the GAO report, said it “raises serious doubts about the effectiveness of any carbon emissions reduction scheme. If nothing else, the failure of the ETS and CDM shows that the federal government shouldn’t spend taxpayer dollars on uncertain and unverified benefits.”

Ironically, the Republican arguments echo criticisms made by some grassroots environmental groups, who assert that including broad offset use in a U.S. cap-and-trade program would delay direct emissions reductions by utilities and manufacturers.

“The bottom line is that ensuring offsets deliver emissions reductions that are of the same quality as those achieved within the bounds of a cap-and-trade program is extremely difficult, if not impossible,” Emily Figdor, federal global warming program director for Environment America, told the subcommittee.

Other environmental groups, notably the Environmental Defense Fund and Natural Resources Defense Council, support the use of offsets if they are subject to rigorous monitoring and verification protocols to ensure they reflect real emissions cuts.

It seems to me that more and more conservatives are trying to figure out how to kill a climate deal with whatever means they can — even if that requires advancing positions that are in fact counter to what they really believe (see Sen. Corker on CCS: “It seems like when donkeys fly they’ll do it on a commercial basis. Secondly, a lot of water is used in that process.” and Sen. Corker agrees with Climate Progress on rip-offsets).

Related Posts:

• House abandons rip-offset purchase. Now can it abandon them in a climate bill?
• Q: What is the difference between carbon offsets and mortgage-backed securites?
• No-till farming does NOT save carbon and is NOT a carbon offset

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.

I don’t see how abandoning a bad idea “highlights Congress’s Green Struggle.” I also don’t see how the relatively pointless purchase of rip-offsets, especially from the CCX, could be called the centerpiece of a “Green the Capitol … national demonstration project.”

After all, you don’t need the House of Representatives to demonstrate to anybody how to buy rip-offsets. Quite the reverse, you need them to demonstrate that buying rip-offsets just doesn’t make economic or environmental sense.

Indeed, the 2008 story tracked down the rip-offset projects the taxpayer money went to and showed how dubious they were. It also quoted the amazing words of CCX CEO Richard Sandor:

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.

Rewarding people for past environmental behavior may be a great thing — “pin a rose on them,” as my mother says — but it ain’t offsetting pollution. It is rip-offsetting it.

So kudos to the House for this move.

Now that the House leadership seems to understand what a pointless investment rip-offsets are, they need to make sure that rip-offsets don’t become the basis of the big climate bill leaders are starting to put together (see “You can call a rip-offset a CDM project, but it’s still a rip-offset“).

Even Congress’s own Government Accountability Office — hardly a bastion of progressive eco-analysis — has studied them and concluded “The use of carbon offsets in a cap-and-trade system can undermine the system’s integrity.”

You don’t want to end up with — and you certainly don’t want to start with — the USCAP proposal (see “NRDC and EDF endorse the weak, coal-friendly, rip-offset-heavy USCAP climate plan“). Same for Boxer-Lieberman-Warner (Boxer bill update: Probably no U.S. CO2 emissions cut until after 2025).

So the big question now is, can the House preach what it practices?

Related Posts:

• Q: What is the difference between carbon offsets and mortgage-backed securites?
• Question from WSJ blog: Are Bogus Carbon Offsets Really That Bad?
• No-till farming does NOT save carbon and is NOT a carbon offset

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:

One, Joseph Romm, a senior fellow at the Center for American Progress and author of the book Hell and High Water: Global Warming — the Solution and the Politics — and What We Should Do, calls them carbon “rip-offsets.”

He doesn’t like that the Chicago Climate Exchange rewards companies or governmental agencies for past greenhouse-gas reductions.

“If I’m going to put up money, I want my money to go to a project that wouldn’t otherwise happen,” Romm said.

He also believes there isn’t enough scrutiny of the projects that earn the credits, likens the market to the mortgage-backed securities market now in shambles.

“The offset business is unregulated and voluntary, and it doesn’t take a genius to see unregulated markets tend to attract a lot of dubious players,” said Romm, who is also editor of the Web site www.climateprogress.org.

Always a nice thing when the media quotes you at length and accurately.

Still Wasatch’s Executive Director Nathan Rich defends the way CCX does business:

Rich also defended the market’s practice of rewarding credits for past good work.

“What’s wrong with rewarding people for good behavior?” he said.

There’s nothing wrong at all with rewarding people for good behavior, Rich. But there is something wrong with calling that an offset and taking money from people who think that their money is going to something new, something additional. For an excellent piece on this subject, see Mark Trelxer’s, “Why Do You Focus So Much on Additionality in [your] Report for Clean Air-Cool Planet on Retail Offset Providers?”

In fairness, Gary Laird, the county’s solid-waste manager, did claim the project was additional:

Although Wasatch didn’t expect to make a bundle of money, selling carbon offset credits can help new green projects pencil out, he said.

Laird said the sale of carbon credits was part of Weber County’s calculation all along.

“This was what made our project feasible,” he said.

Very easy to say after the fact, especially since, after all the bad press, I have little doubt CCX project developers know they ought to say that. Maybe it’s true, maybe not. Like I always say about rip-offsets, caveat emptor. Or is that, caveat empty?

Interestingly, the rip-offset market price has collapsed:

Laird sold at the top of the market, when carbon credits were worth $6.30 to $7 each. Friday on the Chicago Climate Exchange, the credits were down to $1.95 each….

So now, finally, you can get something nothing for nothing.

Related Posts:

• CCX sells rip-offsets: “It seemed a little suspicious that we could get money for doing nothing”
• Is the Chicago Climate Exchange selling “rip-offsets”?
• GAO rips rip-offsets: “The use of carbon offsets in a cap-and-trade system can undermine the system’s integrity.”
• 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:

Congress may wish to consider the following lessons from the CDM: (1) that it may be possible to achieve the CDM’s sustainable development goals and emissions cuts in developing countries more directly and cost-effectively through a means other than the existing mechanism; (2) that the use of carbon offsets in a cap-and-trade system can undermine the system’s integrity, given that it is not possible to ensure that every credit represents a real, measurable, and long-term reduction in emissions; and (3) that while proposed reforms may significantly improve the CDM’s effectiveness, carbon offsets involve fundamental tradeoffs and may not be a reliable long-term approach to climate change mitigation.

Duh.

Let’s hope Congress actually listens to GAO and sharply scales back the use of offsets in future climate bills. After all, GAO isan investigative arm of Congress.

Related Reuters article: “U.S. report questions value of carbon-offset deals”

Related Posts:

• Q: What is the difference between carbon offsets and mortgage-backed securites?
• Question from WSJ blog: Are Bogus Carbon Offsets Really That Bad?
• Boxer bill update: Probably no U.S. CO2 emissions cut until after 2025
• No-till farming does NOT save carbon and is NOT a carbon offset