originally posted on Cleantech Blog on Thursday, April 16, 2009

By David Niebauer

In late March, Congressmen Henry Waxman and Ed Markey released the first draft of a climate bill that presents three mechanisms designed to provide funding for reducing tropical deforestation: offsets, a supplemental pollution reduction program, and strategic reserve auctions. Full text of bill can be found here.  

The bill would permit 2 billion tons of CO2 reductions to come from offsets, one half of which could be generated from international sources. The number (2 billion), while presumably not arbitrary, could be increased or decreased upon the President’s recommendation, allowing for adjustments due to market factors or where the cap is ultimately set. Of these international offsets, reduced emissions from deforestation and degradation (REDD) credits are specifically mentioned and permitted. A conversion would be applied of 1.25 offset credits in lieu of an emission allowance – the discount apparently designed to ensure that real reductions are achieved from the offsetting activity, and that the credits are accounted for in a conservative manner. The use of offsets will be increased and phased such that a covered entity could satisfy 15% of its emission reduction obligation using offsets in 2012, progressively increasing to 33% by 2050. Certain relatively strict criteria would be applied to REDD credits, including agreements between the US and the developing country from which credits would be generated, monitoring and measurement capacity, and establishment of national deforestation baselines. The bill takes a “sector” approach, or country by country, as opposed to a strictly project-by-project approach.

The supplemental pollution reduction program would provide additional incentives for tropical forest preservation. From 2012 through 2025, the Environmental Protection Agency (EPA) would set aside emission allowances to be used to support reduced deforestation in developing countries. The bill provides that EPA would transfer these allowances to countries that enter into and implement unilateral (with the US) or multilateral agreements or arrangements relating to reduced deforestation.

 Finally, the Waxman-Markey bill provides for what is termed strategic reserve auctions. 
The reserve would be made up of allowances that are banked by the system and would be additional to regular emission allowances. Reserve allowances could be purchased at auction by covered entities to meet a small portion of their emission reduction obligations. The proceeds from this special auction would be used to purchase and retire international offset credits issued for reduced deforestation activities.

Size and Scope

To some extent, Waxman-Markey can be seen as a response to scientific data on the role of tropical forests in climate change. A recent report published in the journal Nature and reported in Science Daily provides some sense of the scope of the problem. The Intergovernmental Panel on Climate Change (IPCC) reports that globally human activity emits 32 billion tonnes of CO2 each year – roughly half stays in the atmosphere; the other half is absorbed by the oceans and on land in vegetation and soils – mostly in tropical forests. Tropical forests remove approximately 4.8 billion tones of CO2 emissions from the atmosphere each year.

 Tropical forests cover 17.8 million km2 worldwide. Approximately 50% of the worlds tropical forests are in South America, 30% in Africa and the rest elsewhere, mostly in SE Asia. The IPCC shows that land-use change, which is mostly tropical deforestation, emits 5.9 billion tonnes CO2 per year (20% of all human CO2 emissions).

 A US cap-and-trade legislation that includes tropical avoided deforestation credits, despite its many methodological challenges, is critical in addressing global climate change. We will watch the progress of this bill with great interest.

David Niebauer is a corporate and transaction attorney, located in San Francisco, whose practice is focused on clean energy and environmental technologies. www.davidniebauer.com.

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