What is REDD+ getting itself into?

California’s cap-and-trade market was formally launched on January 1, 2013 and the market will eventually cover industrial and transportation activities that represent nearly 85% of total emissions in the state. The market is the result of over seven years of work by the California Air Resources Board (CARB), part of CalEPA, and offset projects were begun long before the regulations came into full effect. CARB distributed about 90% of total allowances for free to regulated entities and auctioned the balance. Offset credits are created in addition to these distributions. Each allowance represents the right to emit greenhouse gas (GHG) molecules that have the equivalent global warming potential of one ton of carbon dioxide. So far CARB has conducted two auctions for allowances. In both auctions allowances have traded modestly above the reserve price, signaling fairly robust demand that has been absent in the floundering European Union Emissions Trading Scheme.

The strong initial demand for allowances has re-ignited long-held concerns about the availability of offset credits. Industry groups have consistently argued that CARB has not approved enough offset methodologies and that the number of offset credits that compliance entities can apply to their obligations is insufficient, which will lead to inflated compliance costs. Another factor to note is that are the multiple types of secondary (or non-exchange mediated) trades being conducted in offset credits. The difference in these transactions is based on who is legally responsible if an offset project fails to achieve the promised GHG reductions. ‘Golden’ offsets, where liability remains with the offset developer rather than the purchaser, are trading at a premium. This will have ramifications for REDD+ projects that are considered for California’s market.

CARB has worked with an astonishing array of actors in order to formulate the market as mandated by AB32, the California Global Warming Solutions Act of 2006. CARB garnered input from across regulated industries (including electric power, agriculture, heavy manufacturing, transportation fuels, and cement manufacturers), environmental advocacy groups, business lobbyists, carbon industry professionals, economists, legislative staff, and the public. Even following this outreach campaign questions about market operation remain. First are spatial considerations; currently offset projects can only be valid for compliance purposes if they are conducted in the United States. This would likely change both with the adoption of REDD+ methodologies approved for Mexico and if California links its market with other cap-and-trade programs. These other programs could most immediately include Western Climate Initiative partner Quebec, but potentially could expand to Australia, South Korea, and others. This leads to questions about the regulation of interstate and international commerce, as well as national and supranational financial regulatory regimes. Second, financial considerations remain unresolved. These issues include how California will spend auction revenue, the growth of non-compliance entity activity in the market and attendant concerns about fraud or manipulation in the market, and linked questions of environmental justice. Even though questions of justice have been addressed at length by the courts they are sure to reappear in debates about the inclusion of REDD+.

Patrick Bigger is a PhD Candidate at University of Kentucky’s Department of Geography and member of the Political Ecology Working Group


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