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US Compliance
they provided a sensitivity analysis of
Figure2: EPAOffsetSensitivityAnalysis,US$/tonneCO
2
alternative limits on the use of offsets.
LiebermanWarnerClimateSecurityAct
As portrayed in Figure 2, carbon prices
in 2020 would vary from US$15 to
US$98 dollars per tonne assuming no
access to the use of offsets to assuming
no limits on the use of offsets.
As evidenced by political
deliberations in Europe, offset
eligibility rules can be viewed as a
‘safety valve’ allowing legislators to
fine tune compliance cost levels. The
final choice of offset eligibility and
sourcing rules becomes a delicate
balancing act weighing several issues
such as trade policies, export of capital
and domestic reduction incentives
against the need to contain costs for
emitters and consumers. Not
surprisingly, promoters of renewable
Source: EPA
energy do not feel served by generous
offsets rules as they could undermine
Offsets are verified reductions of emissions of GHGs from the power price environment required to support investments.
projects taking place outside the coverage of the cap-and-trade
programme. This essentially means that emitters, instead of SupplyofUSOffsets–NotintheBillions
reducing their own emissions or buying allowances within the Experience from global Kyoto markets (CDM and JI) shows
programme, can reach outside the covered sectors of the that the supply of verified GHG reductions is lower and comes
programme and invest in or purchase emissions reductions more slowly to the market than anticipated in early analyses.
that are real, additional, permanent and verifiable. For every Despite the vast availability of reduction opportunities at a
credit (tonne of reductions) imported into the programme, the global level, regulatory and financial constraints, as well as
cap is effectively increased with that project performance, limit the extent
tonne. This allows emitters to continue
emitting because they have complied by
Use of offsets is one of the
and the speed at which reductions can
be monetised.
reducing emissions elsewhere. The
most important cost
The availability of US sourced offsets
ability to use offsets is normally limited
containment mechanisms
will be limited because lawmakers aim
by legislation. Lawmakers wish to
available in the design of a
to include a large share of US GHG
balance incentives in such a way that
real emissions reductions also take place
cap-and-trade programme
emissions under what is referred to as
an ‘economy-wide’ cap. That will limit
within the capped sectors. the number of sectors from which offsets
Use of offsets is one of the most important cost containment can be sourced. Recent cap-and-trade proposals have confined
mechanisms available in the design of a cap-and-trade offset supply from the US to methane fugitives and bio-
programme. Developing countries and sectors outside the cap- sequestration activities. Industrial and high global warming
and-trade area typically deliver very low cost reductions. This potential gases (HGWP) seem to be intended for other
effect can be evidenced by the EU ETS where investments in the regulatory programmes.
CDM programme have kept an important check on carbon Even with these restrictions, most published offset forecasts
prices in the first years of the programme. exaggerate the supply of domestic offsets both in absolute
When the Environmental Protection Agency (EPA) modelled numbers and in terms of the speed at which they will come to
the Lieberman Warner Climate Security Act in April last year market. This has several very important implications
102 worldPower2009
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