California defends use of offsets in CO2 market

Reuters News
Posted: Aug 03, 2012 4:11 AM
California defends use of offsets in CO2 market

SAN FRANCISCO, Aug 3 (Reuters Point Carbon) - California's air regulator this week defended its decision to allow emitters to use offset credits in the state's forthcoming emissions trading system, refuting claims made in a lawsuit by two green groups that there is no way to ensure the environmental integrity of those projects.

The plaintiffs who brought the case, environmental groups the Citizens Climate Lobby and Our Children's Earth Foundation, argued that there is no way to accurately measure the environmental impact of carbon offset projects, and have asked the court to step in to prevent the California Air Resources Board (ARB) from issuing them carbon credits.

At the heart of the case is whether greenhouse gas emissions reductions made by the four offset project types approved by the state would have occurred even if the projects didn't exist, a term known as "additionality."

But in a brief filed with the court on Tuesday, attorneys for the ARB said the environmental groups were making up their own standard for additionality that had no basis in the existing regulation.

"Petitioners have invented an unattainable definition of 'additional' and now argue that ARB's offset protocols should be measured against that definition," attorneys representing the ARB wrote in the brief.

"Not surprisingly, petitioners conclude that the offset protocols cannot stand up to their definition, which is so impracticable as to essentially preclude the use of offset credits in the cap and trade program," they said.


The use of offset credits has been a controversial aspect of carbon cap-and-trade programs worldwide.

Opponents of offset credits argue that the projects from which they are generated don't often hold up to scrutiny, as in the case of some projects in developing countries that supplied credits to the European Union that were later found to be faulty.

There is also concern that industrial emitters may rely more on offsets rather than directly investing in the technology that will reduce their greenhouse gas emissions at their facilities, said Adrienne Alvord, California and Western States director at the Union of Concerned Scientists.

But the use of the credits is popular among the companies that face emissions limits, since offsets tend to trade at a discount to higher-priced allowances.

Some of the best-known environmental organizations in California, like Environmental Defense Fund and Natural Resources Defense Council, support their role in emissions trading systems.


In a show of support, 11 groups, including utility company Southern California Edison, offset project developer CE2 Capital Partners, and the International Emissions Trading Association (IETA) have intervened in the case on the side of the state.

California will allow covered businesses to use offset credits to meet 8 percent of their compliance obligation under the program.

The ARB has so far approved four offset project types - forestry, urban forestry, agricultural methane and ozone depleting substances (ODS) - to generate credits that can be used to comply with the program.

Additional protocols are widely expected to be added to the list at some point.

The ARB is expected to begin issuing compliance-grade credits later this year.

The lawsuit, as well as concerns about the ability of the state to revoke the credits, has sent a chill through the carbon offset market, which has seen little trading in recent months even as exchange trading of California carbon allowances (CCAs) has picked up.

A deal for 50,000 ODS credits took place last week after a large publicly-owned utility in California said it was looking to purchase 200,000 credits a year over the program's first two years of 2013-2014.

A hearing on the case at San Francisco Superior Court is scheduled for November 6.

(Reporting by Rory Carroll)