Offsets in the USDA – The Bad, the OK, and the Unknown

by Victor Flatt

Wednesday, I explored the various ways that the USDA takeover of bio-sequestration offsets could affect how well the offsets provision of the Waxman-Markey Climate Security Act would work. Today, we have legislative language in the form of an amendment offered by Rep. Collin Peterson (D-MN), which fills in some of the details.  While some of the changes may be helpful, others are cause for worry.

The amendment gives all offset authority over bio-sequestration and agricultural activities to the USDA – the authority to initially approve offset rules; to create rules for “additionality,” leakage, and permanence; to approve offsets themselves; and to account for reversals. The language does remain specific about what must guide the rulemaking, and is also specific about accounting for reversals and holding offset credits in reserve for reversals. The offset reversal part of the law does expand the list of offsets eligible for requirements of insurance or reserve, but it also gives the USDA unilateral power to not require that reserves be replenished for unintentional failure of offsets if it was because of a “natural disaster.” (Sec. 504(c)(3)(B)(iii)).

Besides these changes, the effect of the change from the EPA to the USDA over the majority of domestic offsets depends on whether or not one thinks that the USDA can do as good a job or not at coming up with genuine rules and adequately policing these rules. Because the USDA is not primarily an enforcement and compliance body (unlike the EPA), environmentalists have their worries.

Far more problematic is that the new amendment offers no general requirement that the USDA (or any other agency) consider the negative environmental impacts of offsets generally. While the provision for native plants and species for forestry sequestration remains (Sec. 510), there is now no authority for general environmental consideration of offsets. Since the EPA is still to have some role in the domestic bio-sequestration offsets, one can only hope that the statutory language will retain the prior Sec. 741, giving the EPA the authority to review and disapprove environmentally negative offsets. While the Offset advisory committee has the power to ascertain environmental impacts and make recommendations within five years, this is not real power to control environmental harms. This will also complicate the arguments with states about program pre-emption as California has made it abundantly clear that the co-environmental effects of offsets is an important consideration.

One possible positive of the new amendment is that it sets out an initial list of offsets in the bill itself. While this may short-circuit the review process (and blunt any consideration the old advisory committee would have had over environmental effects), it does mean that offsets will arrive in the market sooner, and this will make the initial trading market more liquid and less volatile. But the problem with this list is that it goes further than prior lists and allows things such as “agroforestry” as an offset without studying the habitat implications.

Does this mean that the new offset program will be terrible, or as people feared, not represent real reductions? Not necessarily. The amendment does retain very specific language about how leakage, additionality, and permanence are defined, and this provides some protection against fake offset reductions, but the offset program does need a way to have environmental review of offsets, either in general sectors at the beginning or by the EPA (or another agency). The lack of this consideration is dangerous. It could lead to offsets that do actually sequester GHGs, but come with an otherwise high environmental or social cost.

© 2016 The Center for Progressive Reform