Using Offsets with a Carbon Tax? Use what works.

Posted on August 21, 2017 by Jeffrey C. Fort

Proposals to adopt a fee on emissions of greenhouse gases (also called "Carbon Taxes") have made headlines, with both "conservative Republicans" and "liberal Democrats" releasing ideas.   An elevated price on carbon -- the centerpiece of the suggestions for a federal program from both camps -- is not predicted to lower emissions, except by setting a very high price.  Such an approach is not practical, unless room is allowed for states to continue their innovations and for volunteers to also reduce emissions.   Getting the best result for the least cost - i.e. the most efficient emission reduction -- ought to be used.

EPA already has its Mandatory Reporting Rule.  It does not cover non-obvious sectors like farming who could be affected by the proposed fee.  The MRR reports provide a sound basis for any further federal program such as carbon fees.

Carbon taxes have yet to show direct evidence of any reductions in emissions of carbon equivalent greenhouse gases.  As another cost which can be passed on in many sectors, it is a clumsy way to achieve environmental benefits.

However, if a "fee" is imposed, it should recognize state programs such as the ARB and RGGI programs.  Those allowances ought to be counted and credited -- "a tonne is a tonne is a tonne" regardless of where emitted into the troposphere. 

Voluntary reductions from non-regulated sectors ought to count too.  Known as carbon offsets, they are issued by the several independent registries and have real environmental benefits and integrity. They are at least as real as monitored -- or more often estimated --emissions from AP-42 or other EPA-sanctioned sources.  Offsets can only be recognized: (1) for reductions which are not required by law and not business as usual; (2) if based on a scientific methodology to measure such which has been accepted after public comment and peer review, (3) from a project has been announced, undertaken and proven to have occurred.  Only after all such has been proven, is a credit awarded and available to be purchased and (4) then the offset credit must be chosen (i.e. purchased) for use by a regulated entity.  Thus, there are several steps at which such are scrutinized by independent parties.

The proposals for carbon taxes are well-intentioned.  But the most efficient and least disruptive approach would include not only recognizing state programs but also unlimited carbon offsets from economic sectors not under the tax.  All businesses should have a role; those who are more efficient in producing their products for lower climate impact ought to have a way to contribute.

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.  

Square Pegs in Round Holes

Posted on February 7, 2014 by Richard Glick

The Western states face two reciprocating and overarching problems in water resources policy.  First, water is an increasingly scarce resource facing sharply competitive needs. Climate change is projected to put even more strain on water supplies. Second, most streams listed as water-quality impaired in the West are designated as such for issues related to the biological integrity of the waterway. The combination of aggressive human use of waters, manipulation of stream channels, and failure to control agricultural runoff has resulted in widespread degradation of aquatic habitat.

The primary impediment to addressing these related issues arises from dated legal constructs designed to achieve different objectives in eras with markedly different economies. In other words, trying to apply these constructs to today’s problems is like attempting to fit square pegs into round holes.

The doctrine of prior appropriation governs water rights everywhere in the West.  It was developed in the 19th century to promote mining and agriculture—both water intensive enterprises—in arid climates. The doctrine provides that the first to physically take control of the water and put it to beneficial use has priority over later comers. Thus, the oldest water rights with the highest priorities are mostly agricultural, and many streams have become over-appropriated during the past century. So where does a growing community go for new water supplies? And what about maintaining sufficient high-quality flows instream for healthy fisheries?

The problem is made more acute by the formidable costs and regulatory uncertainty of developing major water storage projects. Many cities seek to acquire or share in old agricultural water rights through direct payments to water right holders or they finance irrigation system improvements for more efficient use of water. Such water marketing approaches free up water for municipal use, while reducing pressure to remove still more water from oversubscribed streams. But if a legislature could have anticipated then what we know now, might it a century ago have considered systems that allocate water based more on maximum public value and efficient use, rather than simply priority in time?

The Clean Water Act was enacted over 40 years ago to address toxic discharges of industrial and sewage wastewater to rivers and lakes.  Dramatic events like the spontaneous ignition of the Cuyahoga River drove public demand for government intervention, leading to the new law. The Act has done a remarkable job of cleaning up end-of-pipe discharges (point sources), but has largely failed at controlling more diffuse sources of pollution (nonpoint sources) from stream channelization, devegetation of riparian habitat and agricultural runoff. Thus, many streams today are impaired by turbidity, nutrient loading, and higher temperatures.

Since the Act does not provide enforcement tools for nonpoint sources, regulatory agencies use the authority available to them to ratchet up controls on point sources. One solution to this problem is water-quality trading, in which a point source permittee can take watershed-restorative action upstream to correct a nonpoint pollution problem in order to meet escalating permit requirements. This approach can yield better ecological outcomes at lower cost. But if Congress were drafting the Clean Water Act today, any rational approach would address the problem of diffuse sources of pollution.

It seems unrealistic to expect substantive changes to either the law of prior appropriation or the Clean Water Act any time soon. Aside from the politics, changes to prior appropriation raise significant constitutional questions to the extent property rights are affected. In the meantime, we’ll have to continue looking for creative workarounds. This circumstance makes interesting work for lawyers, but is hardly the optimal approach to effective water resource use and protection.

EPA Tries to Silence Employees Who (Weakly) Criticize Cap-And-Trade

Posted on November 11, 2009 by Rodney Brown, Jr.

Obama’s EPA finds itself embroiled in a controversy that recalls the Bush Administration: trying to control what the agency’s employees can say about climate change. Today’s controversy is more limited, and more nuanced, than earlier ones. EPA is no longer asking its employees to deny that climate change exists. Instead, EPA has asked two of its attorneys to stop identifying themselves as EPA experts when they publicly criticize a cap-and-trade system for regulating greenhouse gases. Still, I wonder why EPA cares.

EPA previously allowed the attorneys to criticize cap-and-trade as private citizens. The two wrote letters and opinion pieces claiming cap-and-trade doesn’t work, primarily because companies can buy “offsets” that allow them to continue operations without reducing their emissions. They claim a carbon tax would work better than cap-and-trade.

Their writings have not had much effect on the debate in Congress and elsewhere. So the two recently switched from the written word to YouTube, posting a carefully produced video in which they more assertively cite their EPA credentials and experience to justify their critique of cap-and-trade. And as Grist recently noted, EPA took the bait.

EPA should stop worrying about the two attorneys. The two fail to recognize that cap-and-trade works fine when it’s done right. In fact, EPA itself runs one of the most successful cap-and-trade programs in the world. Several years ago, EPA needed to reduce smog in the eastern US. Instead of using typical command-and-control regulations, EPA created the NOx Budget Trading Program. Just last month, EPA released a report on the results achieved by that program. According to EPA, “summertime NOx emissions from power plants and large industrial sources were down by 62 percent compared to year 2000 levels and 75 percent lower than in 1990.”

And the emitters were able to achieve these reductions at a lower cost by trading with other emitters who had cheaper options for compliance. Smithsonian magazine reported a recent estimate that businesses paid only $3 billion to achieve emission reductions that would have cost them $25 billion under traditional command-and-control regulation.

The two attorneys don’t even need to worry about companies finding ways to avoid compliance with the system. Last year, only two emitters failed to comply out of 2,568, even then by only a modest amount. This is not a system full of loopholes.

Finally, the two attorneys ignore the fact that their own agency, under the Obama administration, will get to write the rules for how companies comply with a carbon cap-and-trade system. Both the Waxman-Markey and Boxer-Kerry bills require EPA to write rules regulating how companies can use “offsets” to comply with the system. Surely the agency can write rules that make this cap-and-trade system work as well as the NOx system the agency already runs.

And one more thing: As Grist reports, many experts think that the alternative — a carbon tax — may not achieve the emission reductions we need. We can only guess what carbon price might lead to the right amount of emission reductions. We’ll get the tax revenues we predict, but not necessarily the carbon reductions.

So the two attorneys should lighten up on their criticisms. But even if they don’t, EPA should stop worrying about them so much.