At the heart of the nearly thousand page long climate change and clean energy bill being debated in the U.S. House of Representatives this week is a “cap and trade” mechanism aimed at limiting greenhouse gas emissions that contribute to global warming.
However, a provision in the bill, known as the American Clean Energy and Security Act (H.R. 2454 or “ACES”), allows polluting firms in the U.S. to finance emissions reductions overseas in lieu of reducing their own global warming pollution and may allow American emissions to continue to rise for up to twenty years, according to new analysis from the Breakthrough Institute.
The provision allows power plants, oil refiners, and other polluters regulated under the bill’s cap and trade program to use up to one billion tons of international emissions reductions, or “offsets,” to be used instead of reducing their own emissions each year. The bill also allows up to one billion tons of additional offsets each year, sourced from sectors of the U.S. economy that do not fall under the pollution cap, such as forestry and agriculture. If a suitable supply of domestic emissions offsets are unavailable, the limit on the use of international offsets may be raised to 1.5 billion tons annually at the discretion of the Administrator of the U.S. Environmental Protection Agency (EPA).
The extensive use of these international and domestic offsets would effectively allow U.S. firms in capped sectors to continue emitting global warming pollution at levels well above the reductions supposedly driven by the emissions cap. New analysis from the Breakthrough Institute reveals that if fully utilized, the offset provisions in the ACES bill would allow continued business as usual growth in U.S. greenhouse gas emissions until 2030.
While the bill intends to reduce economy-wide U.S. greenhouse gas emissions 20% below historic 2005 levels by 2020, 42% by 2030 and 83% by 2050, the use of international offsets would allow U.S. emissions to continue at up to 1.5 billion tons higher than the emissions reduction path intended by the bill. For capped sectors of the economy only, up to two billion tons of additional emissions would be permitted by full use of offsets.
The following graphics illustrate the effect of the offset provisions. Click any of them to enlarge.
This first chart illustrates the range of potential emissions across the entire U.S. economy allowed by the ACES bill if international emissions offsets are utilized at the levels permitted by the legislation (1 billion tons in normal circumstances; up to 1.5 billion tons if domestic offsets are unavailable). Because the use of domestic offsets will merely shift emissions reductions from the sectors that fall under the greenhouse gas cap and trade regulations to non-capped sectors of the U.S. economy (assuming they are credible offsets), they are not considered in this chart.
As the graphic illustrates, offsets could create a major oversupply of emissions allowances during the first nine years of the cap and trade program. This oversupply would either collapse the market value of emissions allowances or allow significant quantities of emissions permits to be banked for future compliance years (ACES allows unlimited banking of unused allowances) — or both. (Compare this graphic with this analysis from the World Resources Institute, which does not consider the impact of international offsets on U.S. emissions levels.)
The following chart illustrates emissions allowed in the sectors that fall under the greenhouse gas cap and trade regulations only. Up to two billion tons of domestic and international offsets may be used in lieu of emissions reductions in these capped sectors, resulting in the potential range of emissions levels shown below.
Again, if extensive offset provisions are utilized, the supposed “cap” on regulated sectors of the economy will essentially be lifted for more than a decade after the start of the cap and trade program. The result will be very little pressure to shift practices in capped sectors as long as affordable offsets are available for purchase.
However, the situation is even worse than the picture painted by these two charts. Because regulated polluters are allowed to bank unused emissions allowances indefinitely — and because CO2, the main greenhouse gas, persists in the atmosphere for centuries-long timescales — the cumulative greenhouse gas emissions permitted by the ACES bill are most critical to examine. The following graphic illustrates the allowed cumulative emissions for the entire U.S. economy and for capped sectors only between 2012 and 2030.
As this graphic illustrates, the offset provisions in the bill — combined with the ability to bank allowances during the major oversupply likely in early years of the program — would allow economy-wide U.S. greenhouse gas emissions to rise at projected business-as-usual rates through the year 2030. Emissions in capped sectors could exceed business-as-usual projections by nearly 9% in 2030 if the full two billion tons of offsets are routinely utilized.
This all leads one to wonder: where’s the cap in the “cap” and trade program?
Note: All of these graphics and the underlying calculations and assumptions can be downloaded here as a .xlsx file.
[Update 5/21/09]: Here’s two more graphics that show potential annual emissions in 2020 and 2030. Note that because of banking and the potential for oversupply (and therefore lots of banked allowances) in the years proceeding these, annual emissions in 2020 and/or 2030 may even exceed the levels shown here (the graph showing cumulative emissions above gets at this issue).
Originally posted at the Breakthrough Institute
I don’t want you to get me wrong on this post, I dislike offsets. However, I think the analysis is severely overdramatizing them.
One thing I am confused about in the Breakthrough analysis is how the purchase of international offsets, which the WRI analysis lists as “additional” have anything to do with the supply of the emissions allowances. As I understand it, purchasing offests supplements a certain number of allowances(which I’m not defending), but they do not add more allowances to the system. Also, don’t offsets make up about 25% of the total reductions?
The amount of emissions allowances are a fixed amount are they not? I know that there is a “strategic” reserve of allowances that the EPA can use to release more allowances into the system if they feel that there are too few, but I find it very hard to believe that we would make the same mistake the Europeans made and start the system off with too many allowances. Joe Romm has a very insightful post on what the Europeans did wrong with allowances, and how Waxman and Markey have tailored the bill to avoid this
http://climateprogress.org/2009/05/17/greenpeace-attack-waxman-markey-european-trading-scheme/
Another thing that makes me skeptical is that these offset provisions have been in the draft bill since it was first put out in late March/early April. Why wait until late May to sound the alarm on international offsets? I’ve seen two WRI analysis, as well as the EPA analysis, which do not find this problem with international offsets. Has this information been available somewhere else, but I didn’t see it?
On top of all that, even if it was true that having international offsets would undermine the entire allowance system, I don’t understand how emissions reductions in the US are going to be higher in 2030 than they are right now. Just the nationwide renewable energy standard of the bill alone(20% RES with 5% being efficiency) should achieve reductions. Add in the investments made in the stimulus, the newly announced fuel economy standards, the rapid growth of wind and solar power in the country versus no coal growth. Even with no climate bill, I don’t see emissions rising, even if they don’t drop as much as the science says they should.
Lastly, I find it hard to believe Al Gore would lend any support to the bill if it was going to let emissions rise for two decades.
I’m just raising different points of skepticism. I would really be interested in seeing an analysis of the Breakthrough Analysis by other institutes since obviously if international offsets are in fact going to ruin the cap and trade system, we should know.
While I think there are many many aspects of this bill that need strengthening and this is nowheres near what I would write, I completely reject the notion that this bill would do more harm than good. I think we need to be advocating and organizing around making it stronger, not around trying to kill it.
http://climateprogress.org/2009/05/22/waxman-markey-offsets-breakthrough-institute-shellenberger-nordhaus-media/
Our response to Romm correcting his misrepresentations: “Joe Romm Tries to Shut Down Climate Bill Debate by Attacking Breakthrough Institute” http://thebreakthrough.org/blog/2009/05/romm_attacks_breakthrough_for.shtml
‘joe romm tries to shut down climate bill debate’ . . .
Is that you senator inhofe? The words and argue are so familiar.
Matt, as for your question: offsets and emissions allowances are fungible. Every offset purchased expands the amount of pollution that can legally be emitted in capped sectors(and frees up allowances for use by some other firm). WRI’s analysis doesn’t differentiate between emissions that occur in capped sectors vs. in the U.S. vs. abroad. That’s quite a stretch, since I think we all know that if we fail to actually transform the U.S. energy economy, regardless of how many offsets are purchased that supposedly correspond to emissions reductions overseas.
Putting aside whether or not offsets are credible at all (and there’s plenty to make us question whether or not they are), I think it’s pretty apparent that while we need to reduce emissions abroad, fund clean development and stop global deforestation, those goals should be pursued in addition to our efforts to transform the U.S. energy economy into a clean, prosperous and more just system. Allowing polluters to purchase offsets instead of reduction their own emissions does exactly the opposite, pitting two necessary goals – transforming the U.S. energy system to a low-carbon system and helping spur clean global development/stop deforestation – against each other.
Also, we’ve been highly skeptical of the offset provisions not just since the draft came out (see for example, this post from April 27th about the discussion draft version), but since the Lieberman-Warner Climate Security Act – the ideological predecessor to this bill – was circulated and debate in 2008. We weren’t waiting to spring this for some particular moment. But provisions were changing quickly as this bill was negotiated, this kind of analysis takes time, and we didn’t finalize our analysis until the bill itself was finalized by the E&C Committee.
I should also note that Joe Romm was HIGHLY critical of all those same provisions in the Lieberman-Warner bill. The question really is: why is he suddenly A-OK with the provisions in the Waxman-Markey bill.
p.s. all of our analysis here is 100% transparent and we welcome any independent critique or verification (which is why we posted all our work and assumptions).