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TABLE C.6 Summary of Key Offset Provisions

 

H.R. 2454

S. 1733

Overall offset limits

2 billion tonsa

2 billion tons

Source level offset limits

Does not aggregate to the overall limit

Aggregates to the overall limit

Domestic and international offset limits

International: 1 billion tons

Domestic: 1 billion tons

International: 0.5 billion tons

Domestic: 1.5 billion tons

Criteria for adjusting international offset limit

Domestic offset usage below

0.9 billion tons

Domestic offset usage below

0.9 billion tons

Revised international offset limit

1.5 billion tons

1.25 billion tons

Performance standards

Landfill and coal mine CH4 covered by performance standards, reducing their ability to supply offsets.

Landfill and coal mine CH4 are not covered by performance standards.

a Note that all references to tons in this paper refer to metric tons.

offsets under H.R. 2454. Finally, this section describes how post-2050 caps can be modeled by assuming a terminal bank of emission allowances must be held at the end of a model run in 2050.

The final section of this paper describes EPA modeling of the market for international GHG abatement that supplies international offsets to the United States. This section quantifies the sources of international GHG abatement supply by region and type, and describes demand for abatement by region. This section then examines the effects of alternative reference emissions projections and alternative cap levels for other countries. Finally this section explores how the availability of reduced emissions from deforestation and degradation (REDD) affect the international GHG abatement market.

International Offsets in Proposed U.S. Climate Legislation

H.R. 2454 and S. 1733 both establish offsets credits as an additional method for entities to comply with the requirement to hold an emissions allowance for each ton of greenhouse gas emissions (see Table C.6).66 Instead of purchasing an emissions allowance for each ton of emissions, entities may also demonstrate compliance by purchasing an offset credit that represents reductions in greenhouse gas emissions (or increased sequestration of greenhouse gases) from a non-covered source (e.g., reduced emissions from landfill CH4, increased CO2 sequestration from changed agricultural tillage practices, or increased CO2 sequestration from afforestation). The non-covered sources providing offset credits can either be domestic or international.

Both H.R. 2454 and S. 1733 limit annual offset usage to 2 billion tons, 67 and then specify how the overall offset limit should be calculated on a per covered source basis to generate source level limits on the use of offsets.68 The formula for establishing the source level offset limit in H.R. 2454 does not add up to the overall 2 billion ton limit.69 S. 1733 corrects this problem so the source level limit is now consistent with the overall 2 billion ton limit

66

This section is largely drawn from the author’s work on the EPA’s assessment of the economic impacts of S. 1733 (U.S. EPA, 2009c).

67

H.R. 2454 sec. 722 (d)(1)(A) and S. 1733 sec. 722 (d)(1)(A).

68

H.R. 2454 sec. 722 (d)(1)(B) and S. 1733 sec. 722 (d)(1)(B).

69

H.R. 2454 Sec 722 (d) (1) (A) allows covered entities to satisfy a specified percentage of the number of allowances required to be held for compliance with offsets credits. H.R. 2454 Sec 722 (d) (1) (B) states that for each year, the specified percentage is calculated by dividing two billion by the sum of two billion and the annual tonnage limit for that year. For example, in 2012, when the cap level is 4.627 GtCO2e, the percentage would be 30.20%; and in 2050, when the cap level is 1.035 GtCO2e the percentage would be 65.90%. The number of allowances required to be held for compliance is equal to the amount of covered emissions, so for any given firm the amount of offsets they are allowed to use is equal to the product of their covered emissions and the percentage specified above. The total amount of offsets allowed is equal to the product of the total amount of covered emissions and the specified percentage. In order for this to be equal to the 2 billion ton limit on offsets specified above, total covered GHG emissions would have to be equal to the cap level plus 2 billion tons. There are several reasons



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