EnergyRisk.com

June 17, 2009

Industry commentators have spoken out about the provisions for early adoption of carbon emission reduction strategies in the cap-and-trade legislation currently going through the US House of Representatives.

The American Clean Energy and Security Act, drafted by Representatives Henry Waxman and Edward Markey, was approved by the House Energy and Commerce committee on May 21, 2009 and is now awaiting full House approval.

While the bill has garnered broad industry support, concerned have been raised about provisions for early adoption of carbon reduction strategies under the bill’s cap-and-trade scheme. In particular, it recognizes state-established offset programmes only, meaning any projects not registered with state-sponsored programmes, such as the California-based Climate Action Registry (CAR) or the Regional Greenhouse Gas Initiative (RGGI), would not qualify for offsetting purposes at present.

This could cause problems for early adopters who have already started to work with other programmes, such as the American Carbon Registry (ACR) or the Voluntary Carbon Standard, according to John Kadyszewski, director of the ACR. “If [legislators are] trying to send a clear market signal to motivate a broad range of organisations, why then restrict the ability to move forward to a very small window that’s been set up in one state, with a very limited number of methodologies?”

William Bumpers, a partner specializing environmental issues at law firm Baker Botts, added that the proposed rules could also affect the types of projects that are developed under the offset scheme. “Whether it’s CAR or ACR or even the Chicago Climate Exchange (CCX), each have approved methodologies and there is not 100% overlap.”

However, Andrew Kruger, director of carbon markets at Evolution Markets, pointed out that there is a clause to consider other registries on a case-by-case basis. “This is not the full stop of the programme,” he said. “This is just the beginning, the broad language. The typical process in the US is that Congress authorizes the Environmental Protection Agency to act. The more broad the language used, the more authority EPA has. [Under this legislation] the EPA administrator has discretion to allow other projects in.”

In addition, the legislation allows for the use of up to 2 billion tons of offsets annually, a volume CAR and RGGI would not be able to meet alone, according to Kruger. “Lots of project types will have to be allowed in to facilitate that quantity,” he added.

Although he supports the bill in general, Bumpers argued several additional aspects to the early action portion should be reconsidered. Firstly, only offsets generated after January 1, 2009 will count towards efforts to reduce carbon emissions under the scheme.

“Also, there is no incentive for companies that will be subject to a cap in 2014 or 2016, to reduce their incentives today,” he continued. “In fact, there is a risk that early actors will be penalized. The legislation isn’t clear about the baseline that will be assigned for allocation purposes. So a company that reduces their emissions early could end up with an allocation that’s less than a competitor who didn’t move at all to reduce emissions early.”

The American Clean Energy and Security Act aims to reduce US carbon emissions by 17% by 2020 and 83% by 2050 compared to 2005 levels, using a carbon cap-and-trade scheme to limit emissions from large sources such as electric utilities and oil refineries.