1. Carbon Offset Markets and Utah’s Opportunity
Rusty Lundberg, Manager
Energy and Sustainability Group
Utah Department of Environmental Quality

2. Carbon Offsets

3. What is a Carbon Offset?
Carbon Offsets are a financial instrument utilized as a mechanism to reduce Greenhouse Gas (GHG) emissions measured in metric tons of CO2e
Represent
GHG emission reductions
GHG emissions avoided
GHG removed from the atmosphere

4. Offset Criteria Real Additional represent actual emission reductions
not artifacts of incomplete or inaccurate accounting
conservative assumptions should be used where there are uncertainties in quantifying emission reductions or removals.
Additional
reductions must be shown to be “in addition to” reductions that would have occurred without the incentive provided by offset credit
cannot be required by law or regulations
must exceed baseline criteria
Real- Offsets must represent actual emission reductions and not artifacts of incomplete or inaccurate accounting. The effects of a project on GHG emissions must be comprehensively accounted for, and “leakage” in emissions must be factored into the quantification of emission reductions. Conservative assumptions should be used where there are uncertainties in quantifying emission reductions or removals.
Additional-The reductions resulting from offset projects must be shown to be “in addition to” reductions that would have occurred without the incentive provided by offset credit. To be eligible for offsets, offset projects cannot be required by law or regulations, and must exceed baseline criteria. The baseline should use standardized criteria (including but not limited to performance standards, financial feasibility criteria, market penetration, and project start date) that serve to exclude “business as usual” projects from eligibility.

5. Offset Criteria (continued)
Permanent
emission reductions or removals must be backed by guarantees if they can be reversed
Verifiable
measured with reasonable precision and certainty
performance must be readily monitored and verified
Permanent- Emission reductions or removals must be backed by guarantees if they can be reversed, i.e., re-emitted to the atmosphere. For emission reductions or sequestration activities that can be reversed, adequate safeguards should be established to minimize the risk of reversal, or a mechanism should be provided for the replacement of those tons.
Verifiable- Offsets must result from projects or programs whose performance can be readily monitored and verified, and whose effects can be measured with reasonable precision and certainty.

6. Who Generates an Offset?
Entities without a regulatory obligation to reduce GHG emissions
Agriculture
Forestry
Waste Management

7. Agriculture Offset Examples
Soil sequestration
Manure management
Anaerobic digestion
Rangeland management
Wetland Restoration
Where does Wetland Restoration fit best, Agriculture or Forestry? There are fewer accepted protocols for it, but some members of UACT have expressed interest in seeing a protocol for it, and it likely will be of interest to some attendees, so I think it should be mentioned as a possible offset example—Chad

8. Forestry Offset Examples
Afforestation
Reforestation
Forest management
Forest preservation/ conservation
Forest products
Urban forestry

9. Waste Management Offset Examples
Landfill gas recovery
Waste and wastewater treatment
Organic waste digestion
Methane avoidance from composting

10. Who Utilizes an Offset? Voluntary Carbon Market Participants
Businesses and private entities
Used to reduce “carbon footprint”
Companies with a regulatory requirement to reduce GHG emissions
Component of cap and trade
Used in lieu of carbon allowances to meet compliance obligations
Reduce the cost of compliance, keep allowance pricing below “ceiling” price

11. Offset Protocols
Developed or adopted within specific regulatory programs or markets
Provide specific guidelines for calculating, reporting and verifying GHG reductions
Maintain integrity and market value of offsets
The Climate Action Reserve develops standardized, performance-based project protocols that provide specific guidelines for calculating, reporting and verifying greenhouse gas (GHG) emissions reductions from GHG offset projects. The protocols are created through a comprehensive, transparent public process with participation from multiple stakeholders. The Reserve has established a reputation for creating regulatory-quality protocols to ensure the offsets issued are real, permanent, additional, verifiable and enforceable.

12. Voluntary Markets Chicago Climate Exchange (CCX)
Chicago Climate Futures Exchange (CCFE)
Montreal Climate Exchange (MCeX)
CCX and MCeX partnership
“world’s first and North America’s only voluntary legally binding rules-based greenhouse gas emissions allowance trading system”
Note here that these are all in place and functioning currently.

13. Wasatch Integrated Waste Management
Joined CCX December 2006
Voluntarily bound to legal agreement to reduce GHG Emissions by 6% below 2000 levels by 2010
Excess reductions can be sold as offsets
“…the CCX is providing us an opportunity to benefit financially while helping other members of the exchange meet their emission reduction goals.” –Nathan Rich, Executive Director of Wasatch Integrated Waste

15. Offsets within Regional Cap and Trade Programs
Midwestern Gashouse Gas Accord
Up to 20% of compliance obligation
Regional Greenhouse Gas Initiative (RGGI)
Initially 3.3% of compliance obligation
Can increase to 5% or 10% based on allowance pricing
Western Climate Initiative (WCI)
Can make up to 49% of GHG reduction goal

16. Federal Cap and Trade Program Opportunity
American Clean Energy and Security Act of 2009 (ACES or Waxman-Markey Bill)
Passed in June
Provision to allow 2,000,000,000 offsets
May be increased as an allowance cost control measure
Some predict initial offsets shortage when the program begins (i.e. there will be immediate demand)

17. Federal Cap and Trade Program Opportunity
Boxer-Kerry Senate Bill
Clean Energy Jobs and American Power Act
Introduced in September
Also allows 2 billion offsets per year
Prioritizes for domestic offsets
1.5 billion domestic, 0.5 billion foreign
Ratio can be adjusted if not enough domestic offsets available

18. Revenue generating potential of ag & forestry offsets under ACESA
Source for PEW: EPA’s economic analyses of ACESA
EPA modeling results indicate that the potential for emission reduction or avoidance is large in the agricultural and forestry sectors, resulting in high revenue
earnings. This potential would increase along with allowance prices.
In 2020 for example, if carbon offsets sell for $15/ton, the value to the agriculture
and forestry sectors would be close to $6 billion per year. At $30/ton the value would be more than $22 billion per year.
Source:

19. E-mail: rlundberg@utah.gov
Contact Information
Rusty Lundberg
Phone: