Bloomberg News

California Considering 25 Projects for Carbon Offset Credits

March 08, 2013

California, the second-largest carbon-polluting state in the U.S. behind Texas, will decide whether to award its first carbon offset credits for 25 projects designed to cut greenhouse-gas emissions.

The candidates for offset credits include a project to improve forest management practices to avoid emissions related to timber harvesting and several to destroy biogas at farms, according to a list posted on the state Air Resources Board’s website. All of the projects must be reviewed by a certified “offset verifier” and then by the air board itself before being deemed eligible.

Should all of the projects be approved, they’ll generate as many as 3 million offset credits to be used under California’s carbon cap-and-trade program, the only system of its kind in the U.S. and the second-largest in the world, behind the European Union’s program. The state defeated a lawsuit in January that claimed the offsets, which companies can use to cover as much as 8 percent of their emissions, aren’t new efforts to cut carbon and would occur without investments.

The projects listed by the air board today will be held to “rigorous verification standards,” Mary D. Nichols, the agency’s chairman, said in a statement posted on its website. “We have determined that every single California offset credit allowed into the program represents a real ton of greenhouse gas reductions.”

Contracts Rising

Contracts based on California offset credits, each allowing the release of one metric ton of carbon, have risen 25 cents, or 2.1 percent, in the past month, according to data compiled by environmental broker Evolution Markets based in White Plains, New York. “Golden” offsets, which come with a seller guarantee to replace any invalidated credits, were unchanged at $12 a ton today, according to Evolution.

The projects would be awarded “early action” credits, which the state agreed to consider to generate an initial supply of offsets for the market. To be eligible, they must cut emissions in the U.S. between 2005 and 2014 and be listed in a preexisting registry designed to meet the state’s early action criteria, among other things.

Emissions-reduction projects that begin in 2015 and beyond must meet a different set of state standards.

Carbon Allowances

Under the cap-and-trade program, California established a pool of carbon allowances, each permitting the release of one metric ton of carbon. That pool is designed to shrink through 2020 to cut statewide emissions by roughly 15 percent. Companies over their emissions limits can buy allowances from those below the cap, as well as a limited number of offset credits, to meet their compliance obligations.

Futures based on 2013 California carbon allowances, which also allow for the release of one metric ton of carbon each, climbed 5 cents to settle at $14.55 a ton today, according to Atlanta-based IntercontinentalExchange Inc. (ICE:US)

California’s cap-and-trade system will eventually regulate 85 percent of greenhouse-gas emissions released in the state and cover all industries, including power generation, oil refining and transportation. A similar program in the U.S. Northeast, known as the Regional Greenhouse Gas Initiative, regulates emissions from power plants only.

Europe Glut

In Europe, an oversupply of offset credits has added to pressure on European Union carbon futures, already trading 49 percent below a year ago because of a glut of allowances due to the recession.

Kathrin Goretzki, an analyst at Unicredit Bank AG in Munich, estimated Jan. 29 that the EU market may have been oversupplied by much as 1.6 billion metric tons of permits by the end of 2012.

The United Nations Clean Development Mechanism has approved 6,619 offset projects in developing countries, more than half of which are in China, according to the UN’s website. More than 2,000 of these projects have supplied 1.26 billion tons of “Certified Emission Reduction” offsets for emissions-trading systems participating in the Kyoto Protocol, UN data compiled by Bloomberg show.

California’s air resources board may take “several weeks” to issue its first offset credits, according to the agency’s statement.

To contact the reporter on this story: Lynn Doan in San Francisco at ldoan6@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net


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