Proposed Amendments to Waxman-Markey Could Diminish Integrity of Offset Provisions

by Victor Flatt

April 27, 2009

Two weeks ago, Representatives Waxman and Markey put forth a 648-page legislative draft for dealing with climate change. That draft had proposals for the use of offsets, some good and some not so good (see my earlier post). Moderate and conservative Democrats on the Energy and Commerce Committee have now put forward suggested changes (as reported by ClimateWire) that they say are necessary to make the proposed bill less onerous. In general, these provisions would more or less weaken the targets and enforcement mechanism in the proposed bill, and that is not a positive thing. We already know that climate change is serious and that the U.S. is going to have to take a leading role in addressing it, or we will never reach the international consensus necessary to address the problem. Yes, it will be hard, but instead of shirking our responsibility to ourselves and the future, we should try to make real changes, but do them in the most economic way possible.

This is where offsets come in. Offsets allow a regulated greenhouse gas source to meet some of its target by finding another way to eliminate greenhouse gases that would not otherwise be addressed. The main problem with offsets is making sure they really do the job, and also don’t cause any other negative consequences (i.e. simply awarding offset credit for planting trees might encourage destruction of animal and plant habitat if the forest doesn’t meet other requirements).

The moderate and conservative Democratic approach seeks to weaken the Waxman-Markey provisions on ensuring that offsets are real by taking out the requirement that offset providers create a reserve of offsets in case they don’t work as advertised. It also seeks to give broader credit for offsets, such as from the Chicago Climate Exchange and from foreign offset sources, by simply allowing such offsets into the system without requiring a finding that these offsets meet the criteria necessary to ensure that they are real, viable, and non-harmful. Though this might seem like a small change at first glance, it could completely destroy the integrity of the offset projects. By not having an offset standard that all offsets must meet, offset providers would simply shop for the lowest offset regulation that they can find, and create offsets there to use in the U.S. system. These offsets might not be real or additional and may mean that no real reductions in greenhouse gases take place. We know this is already a problem and the Waxman-Markey bill tries to put in safeguards to protect against that.

On the other hand, all of the offset ideas in the counter-proposal aren’t bad ones. The Representatives suggest that the bill be altered to set out categories of offsets which will be accepted, and to direct the EPA on which offsets to evaluate. This is a sensible proposal that will ease the integrity of offset markets. As long as the offsets recognized in the bill are generally good, and allow for review before being accepted, the up-front recognition of offset categories will stimulate real reductions sooner. The current Waxman-Markey proposal, which requires the EPA to initially determine all offset categories, might discourage offset developers from coming forward and beginning the process because they are unsure how many categories of offsets will ultimately be approved, meaning they cannot estimate the profit structure necessary to engage in providing offsets.

Offsets are complicated, but provide much needed flexibility to assist in real reductions in greenhouse gases. We need to get it right. Dialogue is good, and it is important to flesh out why certain offset requirements are good and bad. While the proposed amendments are right to suggest specifying offsets upfront, they mostly weaken real greenhouse gas reductions in offsets by weakening approval and review.

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Also from Victor Flatt

Victor B. Flatt is the Taft Distinguished Professor of Environmental Law at the University of North Carolina, Chapel Hill School of Law, and the Distinguished Scholar of Carbon Trading and Carbon Markets, Global Energy Management Institute, University of Houston, Bauer College of Business.

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