Greenhouse Gas Markets

Offsets as Common Currency: U.S. and Canadian Offset ProgramsOffsets as Common Currency: U.S. and Canadian Offset Programs

World Resources InstituteWorld Resources Institute

Exploring the Challenges and Opportunities for Establishing a North American Emissions Trading System

November 14, 2007, Chicago, IL

Kate ZylaWorld Resources Institute



Greenhouse Gas Markets

• Cap-and-Trade Markets– Currency: Allowances– GHG emissions capped by total number of allowances– SO2 and NOx model

• Carbon Offset Markets– Currency: Credits– GHG reductions purchased from uncapped sources

• Which Work Together…– Credits may be bought and used as allowances under most

GHG cap-and-trade systems




Cap-and-Trade Carbon Offsets Mandatory EU Emissions Trading

System Northeast U.S. Regional

Greenhouse Gas Initiative (RGGI)

Kyoto Protocol’s Clean Development Mechanism (CDM)

RGGI Offset Program

Voluntary Chicago Climate Exchange

Personal offsets (e.g., for business travel)

Corporate offsets (e.g., to achieve “carbon neutrality”)




• Large and growing…– EU ETS valued at $24 billion in 2006– Kyoto Protocol offset market: $5.5 billion– Voluntary offset market: $100 million– Chicago Climate Exchange: $38 million

* World Bank, 2006 Data



Carbon Offset Markets

• Hitting stride, led by CDM…

Source: World Bank / IETA, State and Trends of the Carbon Market 2007



North American Compliance Offset Markets

• Current Programs: – Climate Trust– Alberta

• Numerous Others Contemplated or Under Development:– Regional Greenhouse Gas Initiative– California / Western Regional Offset Program– British Columbia– Manitoba– Ontario– Canadian Domestic Offset Program– U.S. Federal?



Voluntary Offset Markets

• Current transactions around 10 million tons per year and growing*

• Valued at close to $100 million* • Projected potential volume of 400 million tons

ca. 2012?

* World Bank / IETA 2007



CDM Already a Common Compliance Currency

CDM

EU ETS: Linking

Directive

RGGI: link if price hits $10/ton

California: link

contemplated

Australia NETS: link

contemplated

U.S. Federal: links

contemplated



CDM Also Underpins the Voluntary Market

• CDM Gold Standard• Voluntary Carbon Standard • ECIS Standard• VER+ Standard• 3C VER Standard• CCB Project Design Standards• UK & Norway “Best Practice” Standards• Others



But This Doesn’t Mean Full Harmonization…

• Current links are all one-way, unilateral• No links (yet) between non-CDM offset

programs and standards• Significant differences exist among

programs on:Accounting & Additionality Standards Monitoring & Verification StandardsRegistry & Enforcement Systems



Why Harmonize Offsets?

• Reduce search costs for buyers• Reduce transaction costs for sellers• Establish common currency—first step

towards future integration of emissions markets



The Challenge: Different Priorities for Offsets

• Low-cost reductions that reduce overall compliance costs (and/or allow more ambitious emissions targets)

• Reduction opportunities in sectors difficult to cap

• Secondary social, economic, environmental objectives (co-benefits)

• Political constituencies



Standardizing Offset Markets

• Project eligibility rules– Types of allowable projects– Geographic locations of projects

• Offset accounting rules– Real, quantifiable, permanent, additional, etc.– Standards-based vs. project-specific– Setting baselines– Leakage



Standardizing Offset Markets, cont.

• Monitoring and Verification Procedures– Accuracy, frequency– Qualifications of verifiers

• Registries and Administrative Systems– How much project information is disclosed– Fair amount of harmonization possible—single institution?



Possible Ways Forward: Key questions

• Are rules and requirements of existing North American offset programs similar enough that linking and/or integration seem feasible?

• How can programs whose rules are still being considered coordinate efforts with existing programs?

• To what extent should North America rely on and/or recognize credits generated under other (international) offset programs?

• Are there existing institutions that could provide a common registration/admin system?



Standardizing Offset Markets

• Project eligibility rules– Types of allowable projects– Geographic locations of projects

• Offset accounting rules– Real, quantifiable, permanent, additional, etc.– Standards-based vs. project-specific

• Monitoring and Verification Procedures– Accuracy, frequency– Qualifications of verifiers

• Registries and Administrative Systems– How much project information is disclosed– Fair amount of harmonization possible—single institution?

Greenhouse Gas Markets

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