Definition of an Offset
An offset is a type of financial allowance that is produced from reducing emissions outside of a capped emitters' business area. Offsets exist as a less expensive alternative and complementary solution for greenhouse gas emitters to optimize the energy efficiency of their business processes. Offset allowances can be traded on a commodities exchange market, such as the European Climate Exchange (ECX), or can be purchased directly from an offset provider. Each offset credit that an emitter garners is equal to one ton of carbon dioxide equivalent (CO2e), with prices either determined by the market exchanges in which they are traded or by the participants in a strategic transaction. All emissions reductions created through offset projects must be real, additional, verifiable, permanent, and enforceable; otherwise, the offset allowances lose their integrity.
Forestry Offsets
A forestry offset refers to an offset allowance that is created by reducing emissions beyond an emitter's business-as-usual activities through the sequestration (storage) of carbon dioxide within the biomass of trees, plants, soil, and other organic materials. Carbon credits accrue when biomass grows in previously denuded areas within the project site or when endangered forests are secured from threats of deforestation. The carbon content stored within an area of land can be measured and monitored using GIS, remote sensing technologies, and carbon accounting models to verify that forestry offset credits are robust. Carbon finance revenues can support forest conservation, protect areas from illegal logging and provide indigenous, forest communities with a payment to consider alternative land uses.
Future of Forestry Offsets
With the impending expiration of the Kyoto Protocol in 2012, a new international legislative framework will need to be implemented in an attempt to reduce greenhouse gas emissions at rates beyond the levels currently mandated by cap and trade regulations. The future of an international cap and trade system will be largely dependent upon the willingness of the biggest emitters - the United States and China - to sign the new legislation. In the United States, AB 32 for California contains provisions for using forestry offsets to supplement more expensive reductions. According to the bill, forestry offsets can be created from terrestrial sequestration by reducing emissions from deforestation and degradation (REDD). The willingness of major emitters, like the United States, to ratify a successor of Kyoto hinges upon whether forestry offsets will be adopted in future domestic and international cap and trade legislation.
AB 32 has to-date approved two Climate Action Reserve (CAR) protocols related to forestry, namely the Forest Protocol and the Urban Forest Protocol. The Forest Protocol outlines the methodology for quantifying emission reductions from projects that sequester carbon on forestry; the projects comprise of reforestation, improved forest management, and avoided conversion projects. The Urban Forest Protocol outlines the methodology for quantifying emission reductions from tree-planting and maintenance projects by municipalities, educational campuses, and utilities.
Under AB 32, Forest and Urban Forest offsets can be generated from projects within the United States, but can also be developed and will qualify with bilateral agreements with Mexico and Canada.
About Reduced Emissions from Deforestation and Degradation (REDD)
The loss of tropical forestry is a major contributor to global warming. Emissions from deforestation and degradation alone account for approximately 20% of greenhouse gas emissions worldwide. As a result, there is great potential to abate emissions and conserve valuable biodiversity by protecting vital tropical forestry areas. REDD projects curb deforestation and degradation by preserving forested areas and by promoting sustainable development and timber harvesting practices. By using carbon measuring and monitoring technologies, the amount of carbon emissions avoided by a REDD project’s conservation efforts can be measured, accounted for, and credited. Forestry offset credits from REDD projects are already eligible for trade in voluntary carbon trading schemes. It is only a matter of time until forestry offsets are incorporated into regulated schemes, such as the European Climate Exchange. With the run up to the next Conference of the Parties in Durban, South Africa, REDD credits are on the agenda. Regulated trade of forestry offsets will be dependent upon negotiations at future climate conferences, such as the 2011 United Nations Climate Conference in Durban, South Africa. CINCS is focused on reducing the complexities of the REDD project cycle as it gains experience from avoided deforestation projects in North America, Africa and Latin America. Our intention is to work with landholders in these countries and support the goal of an international policy framework that incorporates forestry offset credits by refining the CINCS system that will bring down the cost to develop such projects.
AB 32 will allow REDD offsets to be generated from projects in developing countries except Mexico, but these offsets can only be used as sector-based offsets. As of now, the AB 32 proposed regulation order on sector-based offsets is still undeveloped, and more updates on the order regarding sector-based offsets will likely be available before 2012, including other approved types of sector-based offsets other than REDD.
For more information on REDD standards and procedures, please consult CINCS' Carbon Sequestration Primer.
