US Compliance
including how carbon prices will develop and how legislation issues related to carbon leakage, non permanence and
should be drafted. monitoring and measurement standards that all require
At the outset, it needs to be recognised that general political serious regulatory attention. Inadequate solutions to these
perceptions of carbon offsets are reserved, if not negative. issues have so far prevented bio-sequestration projects from
Experiences from the voluntary carbon offsets markets in the being eligible under the EU ETS. While the supply of offsets
US, as well as the poor reputation of the CDM programme frombio-sequestrationcanpotentiallybeimportant,theircost
among some US stakeholders have affected the general is likely to be significantly higher and their supply will be
political sentiment towards offsets. While the overall ‘business significantly lower and slower than official predictions.
proposal’ofoffsetsistooattractivetobeignored,Congresswill
require stringent regulation of the use of them. This is likely to Pre-Compliance Actions
curtail supply and exclude potentials that are currently being Limits on the availability of domestic offsets will lead to
monetisedinoffsetmarkets.Thetimeandresourcesrequiredto higher US carbon prices. This may call for relaxed access to
develop a reliable regulatory framework will furthermore internationaloffsetsinpendinglegislation.Forthattohappen,
curtail how quickly supply will come to market. Congress needs to be assured that imported offsets meet
Current economic modelling of offset supply is based on stringent environmental integrity standards. This requires
engineering type Marginal Abatement Cost curves that are unbiasedinformationaboutthemeritsofglobaloffsetsaswell
unsuitabletoportraytheinvestmentbehaviourthatdrivesthe as continued reforms of the CDM programme.
monetisation of emissions reductions in a market based Point Carbon spends a considerable amount of resources on
environment. The economics of emission reduction projects modelling the supply of offsets both on an international and
need to reflect that offset revenue streams are limited to a US level. The issues surrounding offset supply are some of the
crediting period, that investors will use rate of return least well understood, despite being one of the most important
requirements consistent with drivers of carbon prices in
risks of carbon markets, that
transaction costs incur and
... any venture into offset markets for the
cap-and-trade programmes.
History from Kyoto markets
that quality standards and
purpose of compliance under a cap-and-
and the EU ETS proves that
protocols curtail eligible trade programme should be managed with early movers can gain
reductions, together with
the highest attentiveness to legislative
advantages and lower their
many other issues.
Current economic models
developments and environmental integrity
cost of compliance through
careful investments in
whichassumethatoffsetswill emission reduction projects.
be readily available for compliance in the first year of a cap- HistorywillberepeatedinaUScap-and-trademarket,butany
and-trade programme need to be revised to accommodate the venture into offset markets for the purpose of compliance
relevant experiences from other offset markets e.g., the CDM under a cap-and-trade programme should be managed with
programme. Offsets in large numbers require a streamlined the highest attentiveness to legislative developments and
regulatoryapparatus,welldevelopedprotocolsandstandards, environmental integrity. Many emitters find that the political
industry capacity to monitor and verify projects and realistic and regulatory risk surrounding the future use of offsets
project lead times and so on. warrants restraint. However, a thorough understanding of
The EPA analysis of the Lieberman Warner Climate Security offsets and legislative developments coupled with sound risk
Act has a base-case forecast of over 600 mt of reductions from management may put industries in a good position to benefit
methane fugitives, agriculture and forestry in 2012. Point from early actions.
•
Carbon is tracking current US offset projects in these sectors
and current estimates of supply from projects on the ground is
Kjell Olav Kristiansen is Director of Advisory,
approximately 10 mt in 2012.
Point Carbon, North America.
A large chunk of offsets are assumed to be generated by
carbon sequestration projects in the agricultural and forestry
Point Carbon is a world leading provider of independent
sectors. A tonne of carbon sequestered carries the same
news, analysis and consulting services for European and
environmental value as a tonne of carbon emissions reduced.
global power, gas and carbon markets.
Bio-sequestration, however, involves a series of very difficult
www.pointcarbon.com
worldPower2009 103
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