Is It Time To Re-Think Additionality?

Posted on October 14, 2015 by Wendy B. Jacobs

Many organizations have announced voluntary greenhouse gas emission reduction goals by which they aim to reduce their emissions of greenhouse gases despite the absence of any legal requirement to do so.  Meeting these goals implicates the concept of additionality when the goals are to be met, in part, through off-site actions, such as the purchase of carbon offsets, retirement of renewable energy credits, or construction of off-site renewable energy projects.  The concept of additionality seems simple: in principle, emission reductions attributable to an organization’s actions should only be recognized or “counted” if such reductions are more than what would have been achieved absent the action.  Applying the concept of additionality in the real-world, however, is complicated. Perhaps unnecessarily so? 

First, the “proof” of additionality required by many of the certifying bodies can be confusing and conflicting.  For the faint of heart, the concern about proof discourages any action other than the purchase of “certified” paper offsets.  A second, confounding problem results from the greening of the grid itself.  Emissions have been falling for many organizations simply because the electricity they procure from the grid is becoming less carbon intensive.  How to square these emission reductions with the concept of additionality leads one to question how the concept of additionality should be applied to voluntary emission reduction goals. 

In the context of regulated organizations, the idea of additionality makes sense.  Organizations that must comply with a regulatory scheme to reduce their emissions of greenhouse gases should not be allowed to claim credit for off-site actions if such actions do not, in fact, lower emissions beyond what they would have been absent the organization’s actions.  No organization (regulated or unregulated) wants to waste money paying for off-site actions that do not in fact lower emissions.  Establishing that a particular organization’s action will, in fact, lower emissions more than would have occurred absent that organization’s action turns out to be much more difficult than it at first appears given the multiplicity of variables that come into play:   who else might be inclined to take the same action?  When?  For what reason? Is the action occurring in an area governed by a renewable portfolio standard or not?  Many different criteria are used by regulatory agencies and voluntary verification programs.  Three examples are helpful.

The California Air Resources Board treats emission reductions as “additional” if they exceed what would be required by law or regulation and if they exceed what would “otherwise occur in a conservative business-as-usual scenario.”  17 CCR § 95802(a)(4).  The American College & University Presidents' Climate Commitment (“ACUPCC”) replaces “conservative business-as-usual” with “reasonable and realistic business-as-usual.” The Verified Carbon Standard adds a requirement that the reductions are additional only if they would not have occurred “but for” the offsite organization’s investment.  These different definitions have real consequences for the types of offset projects (i.e., emission reductions) qualifying as “additional.”  Energy efficiency projects at a school in an economically disadvantaged city might count as additional under ACUPCC’s definition because the schools are unlikely to undertake the energy efficiency measures themselves.  In contrast, such measures are unlikely to count as additional under the Verified Carbon Standard definition because the schools would save money from the efficiency measures if undertaken by themselves.

For unsophisticated organizations with limited resources, using the most conservative criteria for additionality that have been developed by other parties, whether regulatory agencies or voluntary verification programs, makes sense – emission reductions are assured and at minimal transactional cost to the organization.  For more sophisticated organizations with resources to experiment and innovate, strict adherence to conservative additionality criteria can be counterproductive.  Many large municipalities, large research universities and corporations have the in-house capacity to invest in bold and innovative experiments and to assess whether a given project or investment is in fact reducing emissions. Organizations such as these could use their in-house talent and money to develop creative, bold, innovative and novel projects that could reduce emissions, but will they do so if such projects might fail a strict additionality test?  At a university, such projects have the added benefit of complementing the core mission to teach, research, and demonstrate ideas that others beyond the university could leverage.  Should an organization abstain from pursuing such projects simply because they would fail a strict additionality test, which the organization is not legally obligated to apply?  Should we re-think the circumstances in which strict observance with additionality is necessary to avoid a public relations nightmare (i.e. being accused of not really meeting the voluntary goal)?

The application of additionality in the context of voluntary goals is also complicated by the fact that the electric grid itself is becoming greener.  Most organizations include in their greenhouse gas emission calculation the emissions resulting from their electricity consumption.  Many organizations first announced their voluntary emission reduction goals five to ten years ago when few predicted that the electric grid would become significantly greener so fast.  Here in Massachusetts, largely because of the increased use of natural gas, the electric grid now emits 20% less carbon dioxide per MWh consumed than it did ten years ago.  That means that an organization in Massachusetts that has not taken any action designed to reduce its emissions will nevertheless have lowered its emissions by consuming electricity from the local grid.  Crediting such emission reductions towards a voluntary goal is in tension with the concept of additionality because the reductions occurred without the need for the organization to take any action designed to reduce its emissions.   

Hence, the greening of the grid should cause an organization to re-think the nature of its voluntary emission reduction goal:  is the goal simply an accounting objective that can be met by actions external to the organization, such as the greening of the grid by electric utilities, or is it a a bigger, perhaps even moral, commitment to undertake a minimum level of effort to reduce emissions in addition to those resulting from the greening of the grid?  If the former, an organization committed to a voluntary goal can celebrate that the utilities have made its commitment cheaper to attain.  If the latter, perhaps an organization should make its goal even more stringent to avoid taking credit for emission reductions achieved by others.  Is this second approach more consistent with the concept of additionality?  Should we applaud an organization that is not required by law to make any emission reductions but that purchases some carbon offsets and declares it has accomplished its voluntary goal of emission reductions?  Should we applaud an organization that designs, invests in or otherwise makes an effort to create a project that actually achieves emission reductions even though it is possible that someone somewhere might also have the same idea and be willing to make the same investment?

I do not pretend to have the answers to these questions.  But, I do know that many organizations that have set voluntary goals are grappling with these questions now, and others will face them in the future.  I welcome your comments.  

GHG Offset Protocols Upheld in California

Posted on January 30, 2013 by Michael R. Barr

Four California GHG offset protocols survived an important court test last week in Citizens Climate Lobby et al vs. California Air Resources Board (Superior Court of California, County of San Francisco). 

In his January 25, 2013, Statement of Decision, Judge Goldsmith described GHG offsets:
“An offset credit represents a reduction of GHG emissions from an approved uncapped source …Each offset credit represents an emission reduction of one CO2e…  An uncapped source is an entity that is not regulated by the cap-and-trade program.  Not every reduction is eligible for offset credit.  Credits are only awarded to GHG emission reductions carried out pursuant to one of four Protocols promulgated by Respondent [CARB].”

So far, CARB has only approved GHG offset projects in four categories:
    1. Forest Projects
    2. Urban Forest Projects
    3. Livestock Projects
    4. Ozone Depleting Substance Projects

CARB also limited the locations of qualifying GHG offset projects and capped the amount of GHG offset credits entities could use to comply with the state’s GHG cap-and-trade program.

Last year, two environmental groups sued CARB in San Francisco Superior Court to block even this limited offset program, claiming that CARB’s approach to satisfying the “additionality” test for GHG offsets conflicted with the California Global Warming Solution Act of 2006 (aka “AB32”).  The court described the “additionality” test as follows:

“Additionality is the linchpin of an offset program.  A reduction is additional if it would not have occurred without the financial incentive provided by the offset credit.  Additionality is essential to the environmental integrity of an offset program because if reductions are not additional, then the cap-and-trade program will not reduce GHG emissions beyond what would have occurred anyway. . . .”

For its four GHG offset Protocols, CARB adopted a “standard-based approach,” relying on information about the additionality of categories of prospects.  The petitioners preferred that CARB evaluate each offset project’s additionality individually, project-by-project, based on site-specific data and parameters.

CARB vigorously defended its approach to additionality and its GHG offset Protocols in this case.  Several California utilities and coalitions intervened on CARB’s side.  Very significantly, the Environmental Defense Fund and the Nature Conservancy also sided with CARB in this case.

In his January 25 Statement of Decision Judge Goldsmith upheld CARB’s offset Protocols on all issues.  In particular, he found that:

    1. “… as to the Livestock Protocol, the Ozone Depleting Substances Protocol, the Urban Forests Protocol, and the U.S. Forests Protocol, that [CARB] has adequately considered all relevant factors and has demonstrated a rational connection between these factors, the policy implemented, and the purpose of the enabling statutes …the Protocols are not arbitrary and capricious.”
    2. “… Health and Safety Code section 38562, subdivision (d)(2) does not foreclose [CARB] from using standardized mechanisms [for additionality] and it is within the [CARB’s] legislatively delegated lawmaking authority to choose standardized mechanisms …”
    3. “… [CARB’s] use of standardized mechanisms is supported by evidence contained in the administrative record.”
    4. “… Petitioners have failed to demonstrate that the Legislature foreclosed the use of standardized additionality mechanisms or demonstrate that [CARB] acted arbitrarily or capriciously in promulgating additionality standards."

Prompted by CARB and the Intervenors, the court recognized the important roles that GHG offsets play in reducing the cost of GHG emission reductions and promoting innovation.  The court’s 34 page opinion thoroughly analyzes complex legal issues, including the “additionality” issue.  Along the way, the court also accepted CARB’s rejection of the Kyoto Protocols’ Clean Development Mechanism (“CDM”), finding as follows:

“The Court finds the factors which have rendered the CDM problematic in terms of administrative complexity, delay, and cost, to be highly persuasive in concluding that [CARB’s] rejection of the CDM project-by-project approach was justified programmatically and consistent with its legislative grant of discretion.” (Statement, p. 11)

This finding, and much of this court decision, may be of interest to climate practitioners here in the U.S. and overseas.

Defining Additionality: Why the Challenge to California’s Cap-and-Trade Program Fails

Posted on August 20, 2012 by Patrick Dennis

Co-Authored by: Beth A. Coombs, Gibson Dunn & Crutcher LLP

California’s recently approved regulations establishing a Cap-and-Trade Program for the reduction of greenhouse gas (“GHG”) emissions are already under attack in California court.  In March 2012, two citizen groups filed a petition challenging the California Air Resources Board’s (“CARB’s”) regulations that allow entities to quantify GHG emission reductions and take credit for those reductions while, at the same time, making such reductions available to other GHG emitters to purchase as an “offset” to their own greenhouse gas emissions.  The case, Citizens Climate Lobby and Our Children’s Earth Foundation v. California Air Resources Board, Case No. CGC-12-519554, filed in San Francisco County Superior Court, represents the first major legal challenge to California’s landmark Cap-and-Trade Program.

The Cap-and-Trade program is part of the Global Warming Solutions Act of 2006, which the California legislature adopted in 2006 under Assembly Bill 32.  The bill required statewide GHG emissions to be reduced to their prior 1990 levels by 2020.  Cal. Health & Saf. Code § 38550.  As part of its overall statutory scheme, AB 32 vested the CARB with the discretion to decide whether to adopt regulations employing “market based compliance mechanisms.”  Health & Safety Code §38570.  Exercising that discretion,  CARB, through a multi-year process involving extensive public comment, promulgated regulations establishing offset credits through protocols specific to certain industries or business operations.  It is these offset protocols that are now under attack.

Petitioners claim that the protocols adopted by the CARB allow GHG emission reductions that are not “additional.” This, they say, violates AB 32’s mandate that offsets must be “in addition to any greenhouse gas emission reduction otherwise required by law or regulation, and any other greenhouse gas emission reduction that otherwise would occur.”  Cal. Health & Saf. Code § 38562(d)(emphasis supplied).  However, Petitioners’ interpretation of “additionality” is inappropriately and prohibitively narrow.  For example, under Petitioners’ view of AB 32’s requirements, the offset protocol for the use of anaerobic digesters that reduce GHG emissions (primarily methane) by treating manure at dairies and hog farms allows in “non-additional” projects because some farms within the United States already use digesters—despite the fact that (1) farms currently using digesters would not be credited under the program, (2) the use of digesters on farms is still rare, and (3) most digesters currently in use were installed under grants for increasing energy efficiency.  As another example, Petitioners argue that the offset protocol for the destruction of ozone depleting substances (“ODS”) allows crediting for projects that otherwise would occur because while less than 1.5% of recoverable U.S. sourced ODS is currently being destroyed, there are still ‘business reasons” aside from offset incentives for destroying ODS.  And they point to the General Electric Company as an example of a company that gains “goodwill” with the consumer public by voluntarily destroying ODS.

This prohibitively narrow view of AB 32’s offset requirements for “additionality” effectively nullifies the California legislature’s grant of regulatory authority to CARB to create an offset program, because no such program could comply with the strictures laid out by Petitioners.  Indeed, it is Petitioners’ philosophical disagreement with the legislature’s decision to allow an offset program that underlies this litigation.  Two members of one of the groups challenging the offsets long ago advised CARB that, “[i]t is critically important for ARB to resist the temptation to make offsets part of California’s cap-and-trade program.”  Laurie Williams & Allan Zabel, Comment on Proposed GHG Offset Protocols, 9, Dec. 13, 2010, Comment 521 for California Cap-and-Trade Program.  But this fundamental disagreement about whether offsets should be part of a government greenhouse gas reduction program is necessarily a policy decision – not one that should be decided by the courts – and the legislature clearly gave CARB the discretion to adopt the protocols.  

The legal problem with Petitioners’ attack is that they sidestep the critical definition of “additional” that CARB adopted as part of the same regulatory package that contains the offset protocols.  That definition provides that:

"in the context of offset credits, [GHG] emission reductions or removals that exceed any [GHG] reduction or removals otherwise required by law, regulation or legally binding mandate, and that exceed any [GHG] reductions or removals that would otherwise occur in a conservative business-as-usual scenario.”  Cal. Code of Regs. tit. 17, Section 95802(a)(3). 

The four protocols challenged by the litigation – livestock (digestors), ozone depleting substances, forests and urban forests – were all developed through a lengthy and thorough public process involving stakeholders from all perspectives on the political spectrum.  In each case, data and research were devoted to determining what “business as usual” meant with respect to GHG emissions reductions.  And where there were clear additional steps that very few, or almost none, of the industry was taking regarding GHG emissions reductions, then protocols were developed to recognize such steps as potentially qualifying for offsets.  There seems little doubt that the protocols easily meet the CARB definition of “additional” and that may be why Petitioners chose to avoid a challenge of the regulatory definition, and instead simply to claim that the protocols violate the statute.  But their failure to challenge the definition in the same regulatory package seems like a transparent attempt to avoid the more lenient “arbitrary and capricious” standard of review for the adoption of most regulatory programs in California, and to try for the more rigorous “de novo” standard of review.

All of these issues are laid out in the briefs that have been filed by Petitioners, CARB, and the interveners which include the Climate Action Registry (the original developer of the protocols), a business interveners group which includes many of the large utilities (Southern California Edison, for example, is a member), and the Environmental Defense Fund.  The Nature Conservancy has also submitted an amicus brief. It is certainly telling that a coalition of major utilities, the Environmental Defense Fund, and The Nature Conservancy have all lined up to take the same position of defending CARB’s adoption of the four offset protocols. 

The Court has scheduled November 6, 2012 as the date to hear the matter.

"No More Business as Usual": A Preview of Climate Change and the California Environmental Quality Act in 2011

Posted on January 5, 2011 by Patrick Dennis

As goes California, so goes the rest of the nation? That could be the case with respect to climate change and the regulation of greenhouse gas (GHG) emissions. Climate change and the implications of California’s Global Warming Solutions Act of 2006 (also known as AB 32) continue to remain a topic of great debate and speculation nationwide, as well as in California. AB 32 recently survived an initiative challenge during California’s November 2010 election cycle, and deadlines established in AB 32 to meet greenhouse gas reduction goals continue to loom. Recently, Governor Arnold Schwarzenegger, who just left office a few days ago, gave remarks at a California Air Resources Board meeting and acknowledged the “great, great benefits” from the creation of green jobs and venture capital being provided to GHG reduction projects. However, the Governor’s excitement for the benefits of AB 32 and climate change initiatives were tempered by California’s economic reality. According to the Governor:

 


We have to be sensitive because it is an economic downturn and this Air Resources Board knows that they have to be sensitive. But we have to reach our goal by 2020, our reductions of 25 percent and we’ve got to go and have our 33 percent of renewables by 2020. There are no two ways about that.

 


So what does this mean as we look forward to 2011 with a new Governor and lingering fiscal issues?
 

One area of law where climate change is bound to remain an active topic of discussion, and likely litigation and regulatory development, is with respect to the California Environmental Quality Act (CEQA). At the time AB 32 was adopted, there was uncertainty about the type of greenhouse gas emissions analysis that would be required under CEQA, and opponents of development projects filed several lawsuits to challenge projects on that basis. The early California State superior court decisions after passage of AB 32 ran the gamut from not requiring climate change analysis or a discussion of AB 32 , to finding an environmental impact report inadequate for failing to make a meaningful attempt to determine the project’s effect on global warming simply because it was “speculative”. In 2007, California adopted SB 97, which directed the Governor’s Office of Planning and Research (OPR) to develop recommended amendments to the State CEQA Guidelines for addressing greenhouse gas emissions , with the goal of creating a coordinated policy – instead of a “piecemeal approach dictated by litigation .” The amendments became effective in March 2010.

 


Despite the adoption of the CEQA guidelines amendments, how state and local agencies should analyze and, when necessary, mitigate greenhouse gas emissions still remain somewhat of a mystery, because the amended guidelines and most local governing bodies have fallen short of providing a clear threshold as to what constitutes a significant impact under CEQA, and what should be done to mitigate the impact. However, what we can anticipate for 2011 is that project applicants must “do something” – business as usual (i.e. developing projects without evaluating and, as necessary, reducing GHG emissions) will likely not suffice. The amended guidelines have been adopted, models for quantifying GHG emissions are available, and state and local agencies such as the Attorney General’s Office ) and various air quality management districts have provided recommended mitigation measures and performance-based and numeric thresholds related to climate change. The California Court of Appeal also weighed in on the “do something” mantra in April 2010 in concluding that an environmental impact report was inadequate because it improperly deferred an evaluation of GHG mitigation measures. It held that, “[d]ifficulties caused by evolving technologies and scientific protocols do not justify a lead agency’s failure to meet its responsibilities under CEQA by not even attempting to formulate a legally adequate mitigation plan.”

 


All in all, with AB 32 left intact, the adoption of the new CEQA Guidelines, and the CARB regulatory package for implementation of AB 32 likely to be put in place, 2011 promises to be an active year in California’s legal and regulatory environment – one that the nation will continue to closely monitor as California takes the lead.