1. EPA Offsets Experience and Analysis Bill Irving Climate Change Division U.S. Environmental Protection Agency April 28, 2009

2. 2 EPA offsets experience and activities Program experience Economic analysis Offsets policy, design and implementation

3. 3 On-the-ground Experience: Voluntary programs Non-CO2 programs, domestic and international –AgSTAR, GasSTAR, Coal Mine Methane Outreach Program, Landfill Methane Outreach Program, M2M –source-specific experts who identify candidate sites, conduct feasibility studies, and bring parties together Energy efficiency –Energy STAR

4. 4 EPA Policy/Technical Experience Relevant to Offsets Implementing cap and trade programs for SO2/NOx National inventory work –US inventory –UNFCCC reporting, reviews –IPCC methodological development Mandatory reporting of GHGs Capacity building in developing countries –particularly for agriculture, land-use change and forestry

5. 5 Waxman-Markey Draft Domestic & International Offsets: Highlights Offsets have a strong impact on cost containment –The capped sector uses all of international offsets allowed in all years of the policy (1.25 billion tCO2e offsetting 1 billion tCO2e of capped sector emissions annually) –International offsets produced from REDD, afforestation, and forest management –The 1 billion tCO2e annual limit on domestic offsets is never reached due to limited mitigation potential –Without international offsets, the allowance price would increase 96 percent. Reduction in overall potential of domestic forest and agriculture sector compared to previous results (EPA, 2005) –Assumes that all offsets are available from start of policy and that no offset categories are discounted –Attributed to changes in demand for agricultural commodities, RFS2 requirements, income and population growth, etc.

6. 6 GHG Mitigation in Forestry and Agriculture in Waxman-Markey Draft Mitigation potential still quite large for sector and increasing with price –Highest mitigation potential generally from forestry practices increases in management intensity and rotation age with higher C prices leading to more C in the forest and in HWP Relatively small potential from other agriculture categories –There is already a lot of no-till and reduced- till in the baseline (40+ % and rising over time) –Rising C prices result in reduction of no-till acres as farmers convert to forestry –Use of conventional cropping methods to produce additional biofuel feedstocks are netting out mitigation by farmers that are implementing agriculture best management practices

7. 7 U.S. Forestry and Agriculture GHG Offset Potential

8. 8 General Thoughts on Offsets Experience with cap and trade for SO2 and NOx demonstrates the need to ensure integrity in the cap to guarantee environmental objectives Offsets should be seen in this context, while recognizing the role they can play in cost containment and leveraging reductions in sectors outside the cap EPA advocated a top-down performance standard approach for the CDM during early negotiations Redirection of efforts after Kyoto –Development of offsets in context of Climate Leaders program –Providing policy-neutral technical input to external offsets programs (e.g., CCAR, WRI etc.) –Studying implementation of CDM and other programs

9. 9 Offsets in USEPA Climate Leaders Program Climate Leaders is an EPA industry/government partnership that works with companies to develop comprehensive climate change strategies –Partner companies (numbering more than 200) commit to setting aggressive greenhouse gas reduction goals and annually reporting progress to EPA An important objective of the Climate Leaders program is to focus corporate attention on achieving cost-effective reductions within the boundary of the organization Partners may also use reductions and/or removals that occur outside of their corporate boundary (i.e., external reductions or offsets) to help to meet their goals EPA’s Climate Change Division has developed offset guidance based on a top-down performance standard approach to address additionality and to select and set the baseline

10. 10 Offsets Method0logies Accounting methodologies: –Commercial boiler –Industrial boiler –Landfill Methane –Anaerobic digesters –Transportation – Bus fleet –Afforestation/Reforestation –End-use of methane –Forest management (in development) –Coal-mine methane (in development)

11. 11 Looking Forward Continuing to work with Climate Leaders partners Continuing to work closely giving technical guidance to external groups (e.g., CCAR) Providing policy-neutral technical assistance to Congress upon request Engaging with stakeholders to understand views on offsets Providing technical support to new EPA leadership

12. 12 Resources Climate Leaders Offset Methodologies and Guidance (www.epa.gov/stateply/resources/optional- module.html )www.epa.gov/stateply/resources/optional- module.html EPA economic analyses (Waxman-Markey, Lieberman-Warner, etc.) (http://www.epa.gov/climatechange/economics/e conomicanalyses.html)http://www.epa.gov/climatechange/economics/e conomicanalyses.html