Climate Change Insights : Climate Change Law and Policy Lawyers & Attorneys : McKenna Long & Aldridge Law Firm : Climate Change Regulation, Green Strategies, Environmental Policy

The American Clean Energy and Security Act of 2009 (ACESA) provides three major sources of funding for reducing emissions from deforestation and degradation. Over the life of the statute the package might lead to the expenditure of between a quarter and a half-trillion dollars to avoided deforestation efforts throughout the developing world, principally the tropics.

The first element, called the Supplemental Pollution Reduction Program, would be the most reliable and certain component of REDD. Its objective is to achieve emissions reductions of at least 720 million tons of CO₂ equivalent by 2020, and cumulative reductions of at least six billion tons by 2025, through the sale of allowances and the investment of the proceeds in international avoided deforestation and degradation. The EPA would allocate a portion of each year's allowances to support the program -- five percent every year from 2012 to 2025, three percent from 2026 to 2030, and two percent in from 2031 to 2050. When sold these allowances would create a fund of $49 billion to $137 billion over the life of the program, assuming the cost of one allowance to be $10-28.

A number of requirements must be met that EPA, with the help of US AID and the State Department, would develop, e. g., qualifying countries will need to enter into a bilateral or multilateral agreement with the US establishing the conditions of participation in the program. It's important to note that not only the eligible country, but also private or public groups or an international fund may receive the allowances. A wide range of activities are covered, but the House pointedly removed support for afforestation and reforestation from the draft bill.

The second source of support for avoided deforestation abroad is built into ACESA's provision for two billion in CO₂e credits for emissions that are offset by acceptable GHG reduction measures. Half of these offsets must come from international activities in developing countries, including avoided deforestation projects. Again, the host nation and the US must be parties to a bilateral or multilateral agreement, and a long list of requirements for credits apply. EPA will be in charge of the program, whereas the Department of Agriculture will administer domestic avoided deforestation offsets. EPA must ensure that the offsets are enforceable and that World Bank-style safeguard policies are in place. It must also encourage profit-sharing with local communities and indigenous peoples. EPA has the discretion to approve offsets for soil carbon losses prevented in forested wetlands or peat lands.

A third, potentially enormous source of international avoided deforestation measures might arise out of the expenditure of proceeds from the auction of allowances that Waxman-Markey directs to be skimmed off the annual allowance budgets and held back and sold if the allowances markets begin to overheat and drive prices out of reach of some covered sources. The "strategic reserve" will hold a total of 2.7 billion allowances. If auctions are necessary, any proceeds can only be used to purchase international offsets from reduced deforestation activities. These offsets would be converted back into emissions allowances and placed in the strategic reserve account (at a 5:4 conversion ratio after 2017, as with other international offsets) to “refill” the reserve to its original size, but once it is replenished any additional allowances from international offsets would be allocated and auctioned as part of the normal allowance auction in a future year. For each of the first five years EPA may auction up to five percent of the emissions allowances established for each year. Beginning in 2017, ten percent of the allowances for a year may be auctioned. For example, since the cap for 2020 is 5,056 allowances, EPA could potentially auction as many as 5.1 million allowances from the strategic reserve. At an auction price of $28 (the floor), EPA would have $142 billion to purchase international offsets from reduced deforestation activities.