Climate Bill Report: Carbon Offsets Abroad Likely Greater Than Emissions Reductions at Home

On Tuesday, a non-partisan government agency released an analysis of the climate change bill being considered by Congress, examining what impact the pending legislation would have on energy markets and the economy.

The Energy Department’s Energy Information Administration (EIA) projected that the American Clean Energy and Security Act would, by 2020, result in an $134 a year increase in an average household’s energy bill. Immediately, both proponents and opponents of the bill began touting the estimate – which projected a modest increase in energy prices through the year 2030 – as bolstering their side’s argument.

ACES proponents said the increase, roughly 23 cents a day, was nominal, while opponents called it an energy tax.

But in the back and forth, an important point was obscured: the report showed wide-ranging uncertainty over how effective the bill will be in meeting one of its primary goals -- reducing the emission of greenhouse gases from capped sources of pollution in the United States.

That's because a safety valve built into the bill – carbon offsets – makes it possible for polluters to pay someone else to reduce emissions instead.

ACES proposes to cut emissions of the greenhouse gases responsible for global warming several ways, including a cap-and-trade program, an improvement in technologies like carbon capture and storage and nuclear energy, and the buying and selling of carbon offsets.

If ACES passes, the amount of carbon dioxide companies can emit will be capped. If they emit more than that limit, they can meet the target by paying for a reduction of greenhouse gases elsewhere, thus offsetting their excess emissions.

But the rules are so complicated that the outcome is actually a big guessing game, even for the EIA.

“Uncertainty with regards to offsets falls into several areas: how much is technically available, how much of the technically available will turn out to be economic, how much and how fast will this potential supply be brought to market, and lastly, how long will it take to set up the required international agreements or arrangements, monitoring, verification, and trading infrastructure needed,” says Alan Beamon, the EIA’s Director of the Office of Integrated Analysis and Forecasting.

The unpredictability of these factors led the EIA to construct six different scenarios constructed around different assumptions. The results differ widely, depending on the scenario. For instance, net emissions in 2020, taking into account actual emissions as well as offsets, could be as low as 5.08 billion metric tons of carbon dioxide equivalent, or as high as 6.79 billion – 33% higher.

But the EIA's first key finding highlighted the large role that offsets are expected to play if the bill becomes law. 

Given the potential of offsets as a low-cost compliance option, the amount of reduction in covered emissions is exceeded by the amount of compliance generated through offsets in most of the main analysis cases.

In other words, it is most likely that the emissions cap in the ACES bill will be met less by reductions of CO2 at home, and more by paying others abroad to make reductions instead.

Offsets are meant to fund new emissions reduction projects -- projects that would not have happened if the offset hadn’t been purchased. But that is easier said than done.

For instance, a company may intend to offset its excess emissions by preventing the chopping down of some trees that were slated to become timber. But, how can the company prove that the owner did intend to chop down the forest? Or, if a company offsets its emissions by planting a forest, should they receive the credits toward their emissions target before the trees grow to absorb the amount of carbon dioxide they are meant to offset? What if the trees die before they reach maturity?