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California Will not Repeat UN Offset Design Flaw

Last week, the New York Times highlighted a specific design flaw in the UN carbon offsets program that the EU has allowed entities subject to its emissions trading system to utilize. In particular, the article highlighted a poorly designed offset that encouraged select companies to increase pollution – only to reduce it and then sell the offset credits.  (EDF’s response to this article was recently published in a Letter to the Editor.)

While the article does acknowledge that the EU has taken significant measures to resolve this problem – including the already planned ban of such bogus credits from entering its carbon trading system in the future – it fails on two critical points.

First, the article fails to point out that while Europe’s carbon reduction program — the first ever regulatory program of its kind– has encountered challenges, it has also significantly reduced pollution, independent of the recession and with negligible impact on the economy, a point further substantiated in an upcoming EDF report.

Second, the article fails to note that this issue, which EDF and others have been warning about since the development of the offset program, can easily be addressed through proper program design.  In fact, California, which is working to implement a similar system of its own, has put in place three mechanisms to guard against problems of this nature:

  • First, instead of taking a project-by-project approach (as Europe has), California has adopted strict protocols with performance standards to guide approval of carbon-offset credits within designated activity areas, like forestry. The performance standards approach used in CA is more transparent, more administrable, more enforceable, and has greater objectivity and environmental integrity than the ad hoc approach used in Europe.
  • Second, California will not award offset credits to projects in other states that reduce emissions of gases that California state law already restricts. For example, California law mandates that methane gas be captured from large landfills, so California will not be awarding offset credits to projects that reduce methane emissions in states that do not already regulate landfill emissions. Without this safeguard, other states might have a perverse incentive to not pass regulation restricting methane emissions.
  • Finally, California has put in place a program to address the very challenge highlighted in the NTY article: offsets that reward the destruction of coolants and other high warming potential gases.  Unlike Europe’s program, California only allows destruction of gases that have already been used and are slated for recycling (destroying these gases is actually better than recycling them because newer materials with lower GHG potential are available),or were from a domestic source stockpiles originating before the U.S. production phase-out.  And California will only accept these offsets from domestic sources.

It is critical that we not allow learning opportunities to be squandered in the name of poor excuses to avoid or delay action to address climate change, especially as dangerous emissions of greenhouse gases continue to rise. Instead, it’s crucial that we examine – and address – specific policy flaws with the overall goal of strengthening already successful programs.

Such will be the subject of a forthcoming report by EDF. We hope the report (expected for release in the next month) will spark discussion needed to propel effective, market-based solutions forward – not backward.

Posted in Cap and trade, Climate, Global Warming Solutions Act: AB 32, Offsets / Also tagged | Comments are closed

New study confirms cap-and-trade leads to low-cost pollution reductions

After hearing that his obituary was published in the New York Journal, Mark Twain was quoted as saying, “The reports of my death are greatly exaggerated.” 

A similar retort applies to media coverage of a recently released report that questioned the effectiveness of cap-and-trade policy, since the study actually found that federal programs to control sulfur oxides (SOx) and nitrogen oxides (NOx) achieved goals at lower than expected costs. 

In the study, Lawrence Berkeley National Lab (LBNL) researcher Margaret Taylor found that greenhouse gas cap-and-trade programs do not necessarily induce the private sector to develop patents for innovative technologies to address climate change.  

Unfortunately for the study, the finding has been woefully misinterpreted and seized upon by those looking to undermine California’s plan to use cap-and-trade to cut climate pollution. David Roberts of Grist called the report’s announcement “a classic example of a press release overhyping and oversimplifying.” 

Published in the Proceedings of the National Academy of Sciences, the paper reaffirms the well-documented idea that cap-and-trade programs help companies meet emissions targets more cheaply than anticipated. The consequence, observed Taylor, was low allowance prices and a consequent decline in related patents.   

The key point of the paper though—and the main reason that this is a positive—is that cap-and-trade regulations keep pollution abatement costs low by encouraging program participants to find and adopt an unexpected range of approaches for reducing emissions.

Here are two key takeaways from Taylor’s paper:

  1. Reducing emissions more cheaply than expected goes hand-in-hand with faster-than-expected deployment of clean technologies and strategies.
  2. The flipside of low costs and rapid deployment means fewer new inventions and patents (a point Taylor emphasizes).

Overall, the report should be read as good news for California. As Taylor found, these approaches may not result in an onslaught of new patents but they are likely to cut pollution quickly and efficiently. Companies that are capped under California’s program can use industrial energy efficiency, building weatherization and fuel switching efforts to cut emissions.

We appreciate the spirit of Taylor’s inquiry. Yet, the question being asked isn’t the right one.  Rather than asking if a policy spurs measurable innovation in the face of climate change where action is unquestionably needed, the right question is, “does cap-and-trade show greater promise to spur low-cost solutions better than the alternatives?” 

The answer is a definitive “yes” when the cap-and-trade policy creates expectations of a nontrivial, persistent price on pollution. A recent story in Reuters stated that global warming is close to becoming irreversible if we don’t act now. California and economies around the world are acting by putting a price on carbon. This is the most environmentally and economically sensible approach to cutting emissions, which is key to helping us avoid the worst consequences of climate change.

Posted in Cap and trade, Clean Energy, Climate, Global Warming Solutions Act: AB 32 / Also tagged , | Comments are closed