College of Natural Resources, UC Berkeley

The Risks of Outsourcing Climate Action

August 21, 2008

A policy paper by University of California Berkeley economist David Roland-Holst says that greenhouse gass "offsets," a popular strategy for meeting carbon emissions, should play only a limited role in cap-and-trade programs.

Think Globally, Innovate Locally: Offsets and the Risks of Outsourcing Climate Action.

Both the Western Climate Initiative (WCI), a partnership among seven states and four Canadian provinces to reduce global warming pollution, and California are grappling with the controversial issue of "offsets." Offsets would allow polluters to purchase emissions reductions from uncapped sectors or countries, instead of reducing an equivalent amount of their own emissions or buying allowances from other capped facilities. Offsets have become one of the most contentious design elements in state, regional, and federal cap-and-trade systems.

THE CALIFORNIA PROPOSAL

California drafted its plan in response to a new state law requiring global warming emissions reductions to 1990 levels by 2020, amounting to a 29 percent decrease from business as usual levels. The proposal makes strong recommendations for cutting pollution from the energy and transportation sectors, however, its proposed cap-and-trade program is deficient, according to the Union of Concerned Scientists (UCS).

The plan currently calls for meeting 20 percent of the pollution reduction goal through a cap-and-trade system. Under that system, businesses would be required to obtain allowances -- sometimes called tradable permits -- for all of their global warming emissions. The total amount of allowances allowed into the market each year would be ratcheted down until the 1990 emissions level is reached. Thus, the state government would be able to guarantee a certain amount of overall pollution reduction while giving businesses flexibility to find the most efficient way to cut emissions.

However, the California cap-and-trade proposal may allow businesses to use offsets to meet all of the emission reductions required by the cap and trade program. That approach would undercut the state's goal of maximizing emission reductions in the state's highest-emitting sectors-transportation, electricity, natural gas, and industry, according to UCS

California will finalize its plan in November. -- Union of Concerned Scientists

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