Primer NI PR OF-2. Sticking Points in Offsets Policy. June USDA vs EPA. Why offsets are important for a climate policy

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1 NICHOLAS INSTITUTE FOR ENVIRONMENTAL POLICY SOLUTIONS Primer NI PR OF-2 June Policy Options Involving Offsets Sticking Points in Offsets Policy Lydia Olander *, Tim Profeta *, and Christopher Galik As the U.S. congressional debate about climate policy matures, the design of a carbon offsets program has become increasingly central to the debate. Offsets have attracted the support of a number of stakeholders because of their promise to provide low-cost, flexible compliance in a carbon trading scheme. They have also, however, evoked a number of concerns in the political discourse, as stakeholders have made different judgments about how to balance the assurance of performance with the efficient administration of the program. As policymakers need to understand and evaluate these tradeoffs, this primer is intended to outline and compare a range of policy options that would address key issues in offsets policy in a greenhouse gas cap-andtrade system. Why offsets are important for a climate policy A number of activities that remain uncapped in domestic policy or international agreements (e.g., reducing deforestation, changing agricultural management, capturing methane from waste or leaks) can potentially provide mitigation at a lower cost than capped entities. Many of these activities do not require new technology and can begin immediately. As a result offsets may provide a bridge, keeping costs down until new low- carbon technology and infrastructures come online. Models suggest that offsets can provide market liquidity and substantially reduce the cost of the proposed climate policies (e.g., 90% lower cost). 1 Some key constituencies agriculture, developing carbon businesses, and industry (capped sectors) see offsets as an important part of a climate policy. Some environmental groups are opposed, but many are supportive of a cautious offsets policy. Below we discuss a variety of specific policy issues: 2 USDA vs EPA One controversial issue is whether an offsets program should be led by USDA or EPA. Both agencies have expertise and resources that would be beneficial. At minimum EPA will need to establish some aspects of the policy framework for agricultural and forestry offsets to make sure that they meet the requirements of the national cap-and-trade policy and the national accounting system established under the United Nations Framework Convention on Climate Change (UNFCCC). USDA has the network and expertise to engage landowners in a voluntary program, which will likely be critical for scaling up and building a successful compliance program. On activities such as methods development,either agency could take the lead, but ideally both would be engaged. 1 EPA analyses of H.R The Institute is grateful for funding support from the Linden Trust for Conservation. 2 Policies regarding the stacking of carbon (GHG) payments with other federal or state payments or programs have not been fully explored or addressed in existing legislation. The Nicholas Institute and others are currently working on these issues. J. Baker and C. Galik explore the integration of GHG payments with other programs in Policy Options for the Conservation Reserve Program in a Carbon-Constrained Economy (Climate Change Policy Partnership, 2009, edu/ccpp/ccpp_pdfs/low.carbon.policy.pdf), and N. Bianco provides a nice overview of the issue in Fact Sheet: Stacking Payments for Ecosystem Services (World Resources Institute, 2009, Author Affiliations * Nicholas Institute for Environmental Policy Solutions, Duke University Climate Change Policy Partnership at Duke University Citation L. Olander, T. Profeta, C. Galik Sticking Points in Offsets Policy. NI PR OF-2. Durham, NC: Duke University.

2 Evolution of the offsets program Project lists

3 Permanence and liability

5 Supplemental Program

6 Interim rules/transition strategy

8 Early Actors

10 APPENDIX

11 Acknowledgments This analysis draws on initial modeling work conducted by Etan Gumerman and Whitney Ketchum. We gratefully acknowledge feedback and advice from Sarah Adair, Dallas Burtraw, Jonas Monast, Richard Newell, Tim Profeta, Nathan Richardson, Jeremy Tarr, and participants in the Duke Climate Policy Dialogue. This work was supported in part by grants from Duke Energy and Bank of America Merrill Lynch. Nicholas Institute for Environmental Policy Solutions The Nicholas Institute for Environmental Policy Solutions at Duke University is a nonpartisan institute founded in 2005 to help decision makers in government, the private sector, and the nonprofit community address critical environmental challenges. The Nichols Institute responds to the demand for high-quality and timely data and acts as an honest broker in policy debates by convening and fostering open, ongoing dialogue between stakeholders on all sides of the issues and providing policy-relevant analysis based on academic research. The Nicholas Institute s leadership and staff leverage the broad expertise of Duke University as well as public and private partners worldwide. Since its inception, the Nicholas Institute has earned a distinguished reputation for its innovative approach to developing multilateral, nonpartisan, and economically viable solutions to pressing environmental challenges.. Contact Nicholas Institute, Duke University P.O. Box Durham, North Carolina New York Avenue NW Suite 1110 Washington, D.C Duke Marine Lab Road Beaufort, North Carolina phone fax nicholasinstitute@duke.edu copyright 2014 Nicholas Institute for Environmental Policy Solutions

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