At the heart of the nearly thousand page long climate change and clean energy bill being debated in the U.S. House of Representatives this week is a “cap and trade” mechanism aimed at limiting greenhouse gas emissions that contribute to global warming.
However, a provision in the bill, known as the American Clean Energy and Security Act (H.R. 2454 or “ACES”), allows polluting firms in the U.S. to finance emissions reductions overseas in lieu of reducing their own global warming pollution and may allow American emissions to continue to rise for up to twenty years, according to new analysis from the Breakthrough Institute.
The provision allows power plants, oil refiners, and other polluters regulated under the bill’s cap and trade program to use up to one billion tons of international emissions reductions, or “offsets,” to be used instead of reducing their own emissions each year. The bill also allows up to one billion tons of additional offsets each year, sourced from sectors of the U.S. economy that do not fall under the pollution cap, such as forestry and agriculture. If a suitable supply of domestic emissions offsets are unavailable, the limit on the use of international offsets may be raised to 1.5 billion tons annually at the discretion of the Administrator of the U.S. Environmental Protection Agency (EPA).
The extensive use of these international and domestic offsets would effectively allow U.S. firms in capped sectors to continue emitting global warming pollution at levels well above the reductions supposedly driven by the emissions cap. New analysis from the Breakthrough Institute reveals that if fully utilized, the offset provisions in the ACES bill would allow continued business as usual growth in U.S. greenhouse gas emissions until 2030.
While the bill intends to reduce economy-wide U.S. greenhouse gas emissions 20% below historic 2005 levels by 2020, 42% by 2030 and 83% by 2050, the use of international offsets would allow U.S. emissions to continue at up to 1.5 billion tons higher than the emissions reduction path intended by the bill. For capped sectors of the economy only, up to two billion tons of additional emissions would be permitted by full use of offsets.
The following graphics illustrate the effect of the offset provisions. Click any of them to enlarge.
This first chart illustrates the range of potential emissions across the entire U.S. economy allowed by the ACES bill if international emissions offsets are utilized at the levels permitted by the legislation (1 billion tons in normal circumstances; up to 1.5 billion tons if domestic offsets are unavailable). Because the use of domestic offsets will merely shift emissions reductions from the sectors that fall under the greenhouse gas cap and trade regulations to non-capped sectors of the U.S. economy (assuming they are credible offsets), they are not considered in this chart.
As the graphic illustrates, offsets could create a major oversupply of emissions allowances during the first nine years of the cap and trade program. This oversupply would either collapse the market value of emissions allowances or allow significant quantities of emissions permits to be banked for future compliance years (ACES allows unlimited banking of unused allowances) — or both. (Compare this graphic with this analysis from the World Resources Institute, which does not consider the impact of international offsets on U.S. emissions levels.)
The following chart illustrates emissions allowed in the sectors that fall under the greenhouse gas cap and trade regulations only. Up to two billion tons of domestic and international offsets may be used in lieu of emissions reductions in these capped sectors, resulting in the potential range of emissions levels shown below.
Again, if extensive offset provisions are utilized, the supposed “cap” on regulated sectors of the economy will essentially be lifted for more than a decade after the start of the cap and trade program. The result will be very little pressure to shift practices in capped sectors as long as affordable offsets are available for purchase.
However, the situation is even worse than the picture painted by these two charts. Because regulated polluters are allowed to bank unused emissions allowances indefinitely — and because CO2, the main greenhouse gas, persists in the atmosphere for centuries-long timescales — the cumulative greenhouse gas emissions permitted by the ACES bill are most critical to examine. The following graphic illustrates the allowed cumulative emissions for the entire U.S. economy and for capped sectors only between 2012 and 2030.
As this graphic illustrates, the offset provisions in the bill — combined with the ability to bank allowances during the major oversupply likely in early years of the program — would allow economy-wide U.S. greenhouse gas emissions to rise at projected business-as-usual rates through the year 2030. Emissions in capped sectors could exceed business-as-usual projections by nearly 9% in 2030 if the full two billion tons of offsets are routinely utilized.
This all leads one to wonder: where’s the cap in the “cap” and trade program?
Note: All of these graphics and the underlying calculations and assumptions can be downloaded here as a .xlsx file.
[Update 5/21/09]: Here’s two more graphics that show potential annual emissions in 2020 and 2030. Note that because of banking and the potential for oversupply (and therefore lots of banked allowances) in the years proceeding these, annual emissions in 2020 and/or 2030 may even exceed the levels shown here (the graph showing cumulative emissions above gets at this issue).
Originally posted at the Breakthrough Institute
