Monday, April 28, 2008
[IWS] CRS: THE ROLE of OFFSETS in a GREENHOUSE GAS EMISSIONS CAP-and-TRADE PROGRAM: POTENTIAL BENEFITS & CONCERNS [4 April 2008]
IWS Documented News Service
_______________________________
Institute for Workplace Studies----------------- Professor Samuel B. Bacharach
School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies
Cornell University
16 East 34th Street, 4th floor---------------------- Stuart Basefsky
New York, NY 10016 -------------------------------Director, IWS News Bureau
________________________________________________________________________
Congressional Research Service (CRS)
Order Code RL34436
The Role of Offsets in a Greenhouse Gas Emissions Cap-and-Trade Program: Potential Benefits and Concerns April 4, 2008
Jonathan L. Ramseur, Analyst in Environmental Policy Resources, Science, and Industry Division
http://assets.opencrs.com/rpts/RL34436_20080404.pdf
[full-text, 39 pages]
Summary
If Congress establishes a greenhouse gas (GHG) emissions reduction program
(e.g., cap-and-trade system), the treatment of GHG emission offsets would likely be
a critical design element. If allowed as part of an emissions program, offsets could
provide cost savings and other benefits. However, offsets have generated concern.
An offset is a measurable reduction, avoidance, or sequestration of GHG
emissions from a source not covered by an emission reduction program. If allowed,
offset projects could generate "emission credits," which could be used by a regulated
entity (e.g., power plant) to comply with its reduction requirement. Offsets could
include various activities:
by (1) providing an incentive for non-regulated sources to generate emission
reductions and (2) expanding emission compliance opportunities for regulated
entities. Some offset projects may provide other benefits, such as improvements in
air or water quality. In addition, the offset market may create new economic
opportunities and spur innovation as parties seek new methods of generating offsets.
The main concern with offset projects is whether or not they represent real
emission reductions. For offsets to be credible, a ton of CO2-equivalent emissions
from an offset project should equate to a ton reduced from a covered emission source,
such as a smokestack or exhaust pipe. This objective presents challenges, because
many offsets are difficult to measure. If illegitimate offset credits flow into an
emissions trading program, the program would fail to reduce GHG emissions.
Another concern is whether the inclusion of offsets would send the appropriate
price signal to encourage the development of long-term mitigation technologies.
Policymakers may consider a balance between price signal and program costs.
If eligible in a U.S. program, international offsets are expected to dominate in
early decades, because they would likely offer the lowest-cost options. Domestic
sectors, such as agriculture and forestry, might benefit if international offsets are
excluded. Some object to the use of international offsets due to concerns of fairness:
the low-cost options would be unavailable to developing nations if and when they
establish GHG emission targets. However, some offset projects may promote
sustainable development. On the other hand, international offsets may serve as a
disincentive for developing nations to enact laws or regulations controlling GHG
emissions, because many projects would no longer qualify as offsets.
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Offsets: An Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Offset Types and Examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Biological Sequestration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Renewable Energy Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Energy Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Non-CO2 Emissions Reduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Potential Supply of Offsets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Potential Benefits of Offsets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Cost-Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Potential Co-Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Potential Benefits to Developing Nations . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Other Potential Domestic Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Potential Concerns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Integrity Concerns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Additionality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Measurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Double-Counting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Permanence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Leakage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Delay of Technology Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Transaction Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Concerns in Developing Nations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Considerations for Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
List of Figures
Figure 1. Estimated Annual Supply of Offsets from U.S. Agriculture and Forestry Sectors at Different Carbon Prices (in 2015) . . . . . . . . . . . . . 10
Figure 2. Estimated Annual Supply of Offsets from U.S. Methane and Nitrous Oxide Reduction Projects at Different Carbon Prices (in 2015) . . . . . . . . . . 11
Figure 3. Effect of Three Offset Scenarios on Carbon Price Under Framework of S. 280 . . . . . . . . . . . . . . . . . . . . . . . 13
Figure 4. Estimated Contribution from Offsets by Type Under S. 280 . . . . . . . . 15
Figure 5. CERs Issued by Offset Type (as of February 2008) . . . . . . . . . . . . . . . 16
Figure 6. Projected CERs Issued by 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
______________________________
This information is provided to subscribers, friends, faculty, students and alumni of the School of Industrial & Labor Relations (ILR). It is a service of the Institute for Workplace Studies (IWS) in New York City. Stuart Basefsky is responsible for the selection of the contents which is intended to keep researchers, companies, workers, and governments aware of the latest information related to ILR disciplines as it becomes available for the purposes of research, understanding and debate. The content does not reflect the opinions or positions of Cornell University, the School of Industrial & Labor Relations, or that of Mr. Basefsky and should not be construed as such. The service is unique in that it provides the original source documentation, via links, behind the news and research of the day. Use of the information provided is unrestricted. However, it is requested that users acknowledge that the information was found via the IWS Documented News Service.
Stuart Basefsky
Director, IWS News Bureau
Institute for Workplace Studies
Cornell/ILR School
16 E. 34th Street, 4th Floor
New York, NY 10016
Telephone: (607) 255-2703
Fax: (607) 255-9641
E-mail: smb6@cornell.edu
****************************************
_______________________________
Institute for Workplace Studies----------------- Professor Samuel B. Bacharach
School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies
Cornell University
16 East 34th Street, 4th floor---------------------- Stuart Basefsky
New York, NY 10016 -------------------------------Director, IWS News Bureau
________________________________________________________________________
Congressional Research Service (CRS)
Order Code RL34436
The Role of Offsets in a Greenhouse Gas Emissions Cap-and-Trade Program: Potential Benefits and Concerns April 4, 2008
Jonathan L. Ramseur, Analyst in Environmental Policy Resources, Science, and Industry Division
http://assets.opencrs.com/rpts/RL34436_20080404.pdf
[full-text, 39 pages]
Summary
If Congress establishes a greenhouse gas (GHG) emissions reduction program
(e.g., cap-and-trade system), the treatment of GHG emission offsets would likely be
a critical design element. If allowed as part of an emissions program, offsets could
provide cost savings and other benefits. However, offsets have generated concern.
An offset is a measurable reduction, avoidance, or sequestration of GHG
emissions from a source not covered by an emission reduction program. If allowed,
offset projects could generate "emission credits," which could be used by a regulated
entity (e.g., power plant) to comply with its reduction requirement. Offsets could
include various activities:
- *agriculture or forestry projects: e.g., conservation tillage or planting trees on previously non-forested lands;
- *enewable energy projects: e.g., wind farms;
- *energy efficiency projects: e.g., equipment upgrades;
- *non-CO2 emissions reduction projects: e.g., methane from landfills
- *enewable energy projects: e.g., wind farms;
by (1) providing an incentive for non-regulated sources to generate emission
reductions and (2) expanding emission compliance opportunities for regulated
entities. Some offset projects may provide other benefits, such as improvements in
air or water quality. In addition, the offset market may create new economic
opportunities and spur innovation as parties seek new methods of generating offsets.
The main concern with offset projects is whether or not they represent real
emission reductions. For offsets to be credible, a ton of CO2-equivalent emissions
from an offset project should equate to a ton reduced from a covered emission source,
such as a smokestack or exhaust pipe. This objective presents challenges, because
many offsets are difficult to measure. If illegitimate offset credits flow into an
emissions trading program, the program would fail to reduce GHG emissions.
Another concern is whether the inclusion of offsets would send the appropriate
price signal to encourage the development of long-term mitigation technologies.
Policymakers may consider a balance between price signal and program costs.
If eligible in a U.S. program, international offsets are expected to dominate in
early decades, because they would likely offer the lowest-cost options. Domestic
sectors, such as agriculture and forestry, might benefit if international offsets are
excluded. Some object to the use of international offsets due to concerns of fairness:
the low-cost options would be unavailable to developing nations if and when they
establish GHG emission targets. However, some offset projects may promote
sustainable development. On the other hand, international offsets may serve as a
disincentive for developing nations to enact laws or regulations controlling GHG
emissions, because many projects would no longer qualify as offsets.
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Offsets: An Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Offset Types and Examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Biological Sequestration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Renewable Energy Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Energy Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Non-CO2 Emissions Reduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Potential Supply of Offsets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Potential Benefits of Offsets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Cost-Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Potential Co-Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Potential Benefits to Developing Nations . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Other Potential Domestic Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Potential Concerns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Integrity Concerns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Additionality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Measurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Double-Counting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Permanence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Leakage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Delay of Technology Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Transaction Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Concerns in Developing Nations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Considerations for Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
List of Figures
Figure 1. Estimated Annual Supply of Offsets from U.S. Agriculture and Forestry Sectors at Different Carbon Prices (in 2015) . . . . . . . . . . . . . 10
Figure 2. Estimated Annual Supply of Offsets from U.S. Methane and Nitrous Oxide Reduction Projects at Different Carbon Prices (in 2015) . . . . . . . . . . 11
Figure 3. Effect of Three Offset Scenarios on Carbon Price Under Framework of S. 280 . . . . . . . . . . . . . . . . . . . . . . . 13
Figure 4. Estimated Contribution from Offsets by Type Under S. 280 . . . . . . . . 15
Figure 5. CERs Issued by Offset Type (as of February 2008) . . . . . . . . . . . . . . . 16
Figure 6. Projected CERs Issued by 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
______________________________
This information is provided to subscribers, friends, faculty, students and alumni of the School of Industrial & Labor Relations (ILR). It is a service of the Institute for Workplace Studies (IWS) in New York City. Stuart Basefsky is responsible for the selection of the contents which is intended to keep researchers, companies, workers, and governments aware of the latest information related to ILR disciplines as it becomes available for the purposes of research, understanding and debate. The content does not reflect the opinions or positions of Cornell University, the School of Industrial & Labor Relations, or that of Mr. Basefsky and should not be construed as such. The service is unique in that it provides the original source documentation, via links, behind the news and research of the day. Use of the information provided is unrestricted. However, it is requested that users acknowledge that the information was found via the IWS Documented News Service.
Stuart Basefsky
Director, IWS News Bureau
Institute for Workplace Studies
Cornell/ILR School
16 E. 34th Street, 4th Floor
New York, NY 10016
Telephone: (607) 255-2703
Fax: (607) 255-9641
E-mail: smb6@cornell.edu
****************************************
# posted by SBasefsky : 7:35 AM
