New Rules for Forest Offset Projects
We were pleased to see the extensive provisions in the House's Waxman Markey bill for foreign forest offsets generated by reducing deforestation and forest degradation projects. Today, California's Climate Action Reserve released an updated set of rules for forest offset projects, "Forest Project Protocol version 3.0." This new protocol opens the door for forest-related offset projects to be included in efforts across the US to mitigate climate change. The new protocol raises the bar for rigorous national standards for forest-related projects that sequester carbon emissions.
The Reserve believes that by adopting the new protocol, it has cleared the way for more high-quality forest-based offsets to enter the US carbon market. The protocol covers three types of forest projects: improved forest management practices, reforestation, and avoided conversion to other uses. No regulatory-quality national standard previously existed for these types of carbon offset projects.
The Reserve undertook this project because of its lead role setting rigorous standards to ensure that projects that claim to reduce or avoid greenhouse gas emissions actually do so. The Reserve develops protocols for projects that earn carbon credits for carbon market transactions. While the US carbon offsets market is currently voluntary, if and when the US adopts GHG legislation it will almost certainly include provisions for forest carbon offsets, both domestic and foreign, as does Waxman Markey. To ensure a robust and reliable forest offset market, rigorous standards for GHG offsets projects will be critical. The updated Forest Project Protocol takes an important step towards environmental integrity in this offset asset class.
The Reserve issues carbon credits equivalent to the metric tons of carbon dioxide reduced or sequestered from each registered project. These credits can then be sold or traded on the carbon market. All Reserve projects must be verified by a third party to ensure that they have met all of the Reserve's protocol requirements before being registered.
Seeing "REDD" -- International Avoided Deforestation is a Big Winner in Waxman-Markey
I have written about the eleventh-hour concessions the House agreed to in order to secure the support of farm-state lawmakers for Waxman-Markey, see here and here, but what may be overlooked in the brouhaha over domestic agriculture's clout in the House climate debate are the significant resources Waxman-Markey would devote to reducing deforestation in the developing world. As the NGO Forest Trends wrote, "advocates of using forestry offsets to Reduce Emissions from Deforestation and Degradation (REDD) have little to complain about."
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.
