The Australian ETS and U.S. Cap and Trade should include soil carbon and energy efficiency offsets

In Australia, Malcolm Turnbull announced the Opposition Government’s Green Carbon Initiative on Saturday 24^th of January at the young Liberals Convention in Canberra.The Turnbull plan for combating climate change is basically a two pronged approach to reducing greenhouse gas emissions (GHG). Firstly it involves “a comprehensive bio-carbon strategy investing in the health of our landscape, restoring soil carbon by reversing over-grazing and excessive tillage, embedding CO2 in bio-char (charcoal fertilizer), tree planting, and re-vegetation” and the second prong is to “dramatically increase energy efficiency, especially in buildings”. This plan has the support of globally renowned Scientist Tim Flannery on the use of soil carbon as a major way to draw down existing carbon from the atmosphere.

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At a press conference Friday January 16th, President-elect Barack Obama, said he was pleased, “that Congress “has moved quickly to consider his plan”, which “stresses the urgency of a renewable-energy economy”, a key measure that he believes will drive the stimulus package.

The Senate handed Obama a big political victory on Thursday 15th of January by voting to release the second half of the $700 billion bailout package. The Senate voted 52-42 against a resolution that would have barred Obama from using the roughly $350 billion remaining in the program. Obama has called on Congress to take “dramatic action” on his economic aid package as soon as possible, warning that a failure to do so would have devastating long-term consequences for the nation”.

His plan involves creating jobs in the green energy sector as a key part of his platform to jump-start the economy. He talked of companies hiring staff during the melt-down in the wind and solar industry. This was not picked up in the transcripts but I heard him stress, the importance of the private sector creating jobs in green businesses and noted that this sector is growing, whilst jobs are declining in just about all other sectors. He also indicated that government can only do so much and the private sector, the clean tech sector needed to move into the vacuum created by the melt-down.

Obama said, “we’re looking to create good jobs that pay well and can’t be shipped overseas. Jobs that don’t just put people to work in the short term, but position our economy to be on the cutting edge in the long term”.  Obama plans to “double the production of alternative energy within three years improve the efficiency of federal buildings and homes”.

It was mentioned only briefly but the green jobs agenda serves many political objectives from reducing dependence on foreign oil, to bailing out the economy and simultaneously reducing greenhouse gases that contribute to global warming. We will see what how congress reacts to the plan.

Vacant suburban areas are emerging all over the U.S. due to the credit crunch. Houses are either being abandoned or areas that were in the process of development have been left undeveloped at  the subdivision level.. So what do you do with these vacant houses and abandoned sub-divided lands?

In an article “What will save the suburbs“, by Allison Arieff, there is the prospect that “The problem now isn’t really how to better design homes and communities, but rather what are we going to do with all the homes and communities we’re left with”. I recommend you read this article.

These suburban lands could be redeveloped in a number of different ways, which is not dissimilar to the way traditionally urban areas have been turned over, old warehouses become loft apartments, industrial lands become parks in cities.

Suburbia  could be redeveloped in a way that generates carbon credits, if the change of land-use included multiple projects that could earn carbon credits. Out on the wind-swept urban moors, and not so windy urban areas all over the USA a variety of voluntary carbon offsets projects could be generated, which have additional  social benefits in terms of job creation, food production and reduced greenhouse gases. Eventually all the displaced persons have to be re-housed somewhere. Some of the land could be re-released as housing in a compact urban settlement.

An area now abandoned could under the  Voluntary Carbon Standard be re-modelled as a mixed development, with areas set aside for wind farming, compact urban housing developments, with higher densities that are energy efficient and use renewable energy.  The use of electric cars powered by PV cells on the roofs could be another additional carbon credit.

If the U.S Cap and Trade Emissions Trading Scheme were to include energy efficiency and agricultural offsets, then aspects of sustainable community development would also be eligible for credits.

Urban gardens could provide some of the produce for local populations under the ‘Locally Grown’ initiatives, which aim to reduce food miles and greenhouse gas emissions.  Many aspects of the redevelopment of vacant and abandoned houses could be converted to carbon offset projects. All it requires is a developer with some vision to work out the financing of such a development.

In other words a transformation of the suburbs into sustainable communities, providing local energy,  growing food locally may well be the way to revive these communities. The carbon credits earned every year from these communities would be able to assist with the management of the community owned environmental initiatives. Just a thought, but why not!

One key difference according to Point Carbon in the “Progress So Far”, article is that the U.S proposed Cap and Trade compared to the EU-ETS (European Union Emissions Trading Scheme), will include, “more aggressive auction schedules than in the 1^st phase of the EU-ETS”.  ”The EU-ETS allowed an over-allocation of free allowances that took place in phase one giving ‘windfall profits’ to companies. The U.S. will advocate aggressive auctioning at the beginning of a US program in order to avoid what occurred in Europe”. Social justice advocates and environmental groups have complained about this aspect of the EU-ETS in California.

The other approach that may be different is the clean development mechanism (CDM) one of the Kyoto protocol’s project-based flexible mechanisms that allows carbon credits to be generated from emissions reductions projects in developing countries. The U.S. has indicated that it will pursue transparency and rigor around criteria for “additionality” for CDM offset projects.

Neal Dikeman, CEO of Carbonflow based in San Francisco supports this view of greater industry transparency in the carbon offset market. Our objective is “to provide validation, verification and on-going monitoring automation software for project developers, validators, verifiers throughout the entire chain of the multi-party process for the creation of carbon credits in CDM and any market that uses carbon offsets” and, “this also applies to domestic national Emissions Trading Schemes that use offsets, such as energy efficiency and agricultural offsets”. he concluded.

The Point Carbon article further recommends that “industry will need to aggressively communicate the benefits of markets in achieving climate policy objectives in order to ensure that legislation authorizes the use of offsets to the greatest extent practicable”.

The EU-ETS, Phase 1 did not include domestic offsets such as energy efficiency and transport. U.S. Green groups and social justice campaigners criticized the EU-ETS on the basis that big companies only benefited from Emissions Trading and not the community, local and regional city governments, missing out on opportunities to do renewable energy projects, green building projects, public transport, alternative fuels and other small-scale projects to reduce GHG emissions, which ironically could be done in developing countries under CDM.

Due to the criticism of the EU-ETS, which did not allow offsets, resulting in a lack of participation by the general community, the earlier proposed U.S. bills did offer detailed offset provisions and will act as the starting point for the final U.S. Cap and Trade scheme. The Lieberman-Warner and Bingaman­Specter bills included detailed offset provisions.

For example The Bingaman-Specter includes domestic offsets including 5% of offsets from agricultural sequestration. The limit for total domestic offsets was nominated at 15% with a further 15% of offsets coming internationally, a campaign commitment that still seems to be holding. (GHGBlog)

The argument for domestic offsets is that it reduces the cost of abatement of compliance with Climate Change legislation. Recent economic modelling cited in the “Progress so Far” by the EPA of the Lieberman-Warner bill concluded that access to offsets can result in significant economic savings. If limits on the use of domestic and international offsets in the Lieberman-Warner proposal were removed, allowance prices would fall by 71 per cent, from $51/t to $15/t in 2020, compared to the bill as written*. This translates into GDP savings of $333 billion in 2020.

The types of offset projects that could be included are:

Landfill methane use;

animal waste & wastewater methane use;

coal-mine methane use;

agricultural and rangeland sequestration and management projects;

land-use and forestry projects;

reduction of sulphur hexafloride from electric transmissions and distribution transformers; and

other activities, approved by either the President or the US Environmental Protection Agency (EPA) administrator, respectively.

The other activities should include energy efficiency if we are to achieve these ambitious targets. Energy efficiency has to be in the mix as 40% of global emissions come from electricity generation. It is well known that renewable energy can’t be deployed faster enough to the existing grid.

Mr Dikeman, has indicated that any U.S. scheme that includes domestic offsets such as energy efficiency can be included provided the transparency and the auditability is there, which he believes the software can provide. (Declaring my interest, I am a co-founder with Neal of Carbonflow). Carbonflow has solved the double-counting issue, which to date has precluded energy efficiency from being included.

In terms of domestic harmonization to my mind there are already many initiatives in the U.S which will have to be either seriously streamlined in line with the federal policy or dropped altogether.

The two programs of significance include the Regional Greenhouse Gas Initiative in the North East comprised of 11 U.S. states and the Western Climate initiative. These initiatives basically follow the electricity grid on the east and west coast and reach across border into Canada and South to Mexico. There are other many other state programs, city ordinances, building codes on energy efficiency, renewable energy and so forth, too many to be documented in detail. Suffice to say the U.S. has been doing many things whilst not officially part of the global consensus on Climate Change.  These regional programs have much lower caps than the national proposal and the sectors are narrow in the case of RGGI, much broader in the case of the WCI.

To add to this the Voluntary carbon markets have been very active in the U.S. more than any other developed nation. Prior to the U.S. election as late as October 20^th 2008, California was leading the way using voluntary programs as the mainstay of U.S participation in global carbon trading.  “The Voluntary Carbon Standard Association (VCSA) approved the California Climate Action Registry as the first independent greenhouse gas (GHG) offset program.

Linda Adams, Secretary, California Environmental Protection Agency and Chair of the California Climate Action Registry said that, “Recognition by VCS provides the foundation for the establishment of common global standards for voluntary GHG emission reduction projects and their offsets. This is significant in unifying international carbon markets and providing a platform that global investors can participate in with confidence, un-precedent-opening a new gateway for trading between the U.S. and international voluntary offset markets.

Not with-standing the U.S Cap and Trade legislation, which is now advocating targets greater than any country in the world, the question is will the U.S. lead the international negotiations in Copenhagen. I certainly hope so and maybe they will be able to advocate stronger targets and changes, which based on the review of the success of the EU to date could come along with U.S. ratification of Kyoto Mark 11.

The potential for consensus building around this Bill is historic with a coalition of agricultural / industrial states, green groups, energy efficiency advocates and social justice groups supporting a passage of the U.S cap-and-trade scheme.