June 24, 2009

Handing Primary Control of Offsets to USDA: What this Might Mean

Last night, House Energy and Commerce Chair Henry Waxman announced that he had agreed with Agriculture Committee Chair Collin Peterson that the USDA could have jurisdiction over agricultural offsets in the massive American Clean Energy and Security Act, which the House may vote on this Friday.

In agreeing to what had been one of the major sticking points to bringing farm Democrats on board, Waxman appears to believe that any concerns over USDA’s role are outweighed by the other good things in the bill. There are a lot of potential concerns with the USDA having the lead role on agricultural offsets. Most environmentalists have asserted that the EPA would be more likely to properly enforce the requirements that offsets be additional, verifiable, and not have leakage.

It is hard to make predictions about the effect of this change without specific legislative language, which is expected later today. But if we assume that most of the offset provisions of the bill otherwise remain the same, we can address some of the likely variables.

Giving the USDA primary jurisdiction over agricultural offsets essentially gives it control over most domestic offsets, since the largest categories of offsets are likely to be forestry sequestration, changes in land management, and methane capture from farms through the use of bio-digesters. The key in the legislative language will be defining “primary” jurisdiction. New legislative language could authorize USDA jurisdiction over approval and monitoring of individual offset applications or also include jurisdiction of the approval of offset categories. If only the former, the impact of putting USDA in charge is much less than if the latter. This is because the bill currently has an elaborate procedure for multi-agency review and recommendations of offset categories that allows the consideration of and creation of rules for offset sectors. With that power, it is possible that the EPA (currently the lead agency for this approval process) could adequately set out the conditions necessary for projects, such as bio-digesters, that could help insure that the individual approved projects meet the requirements of valid offsets. Leaving the EPA in charge of this section would also meet the vague indication of Waxman and Peterson that the EPA will still have some advisory role.

Even if the USDA is also tasked with being the lead agency for offset sector approval, the EPA could be given a role similar to what it occupies in the wetlands regulatory context with the U.S. Army Corps of Engineers, the right to consult and veto projects that it finds particularly objectionable. This would address many of the concerns of environmentalists that the USDA would approve weak offset categories and offsets willy-nilly.

It also seems important that the EPA remain in charge of ensuring that offsets do not cause other harm to the environment (section 732, and section 741). It is clear that even genuine offsets that reduce GHGs as intended can have other negative environmental impacts that have to be addressed and minimized. This provision, similar to provisions in the Lieberman-Warner bill and to California’s AB 32, is incredibly important to ensuring that there is a check on environmentally negative offsets. Since section 741 specifically looks at forestry sequestration offsets and is very specific about such things as native plants, the EPA and the USDA could jointly share this review.

The change in agencies could also have an effect on the secondary carbon markets. One of the most important impacts of the offset provisions of the bill is that it allows the EPA to ensure the ongoing integrity of the offset after it enters the market. I have previously argued that the risk of offset failure should be placed entirely on the offset developer in order to avoid value uncertainty which could damage the secondary market and the financial markets in general. If the USDA is in charge, it seems even more important that the legislation be specific about assigning this responsibility to the project developer and beefing up offset reserve and insurance provisions to cover shortfalls to all offset categories. The EPA could also step in here in a separate role as the agency in charge of offset monitoring. This would provide a powerful check on the validity of the original offsets themselves, as weak offsets would be penalized in an ongoing review system.

The USDA does bring more staffing to the offset issue, which is important, as well as established relationships with farmers, which is also important for ensuring the integrity of agricultural offsets. The bill just has to ensure that these existing relationships are used to enhance regulatory compliance, not undermine the rigor of regulation. If the EPA has a robust environmental review role and a strong say in the approval of offset categories, this balance can be reached. Whichever role the EPA ultimately assumes, it is important that the USDA and the EPA engage in a serious interagency discussion and reach agreement on how they can both ensure that the offset provisions are valid GHG reductions.

Victor Flatt, CPR Member Scholar, Taft Prof. Environmental Law, UNC School of Law. Bio.

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