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Invalidated Carbon Offsets Highlight Controversial Rule in California

Ecosystem Marketplace

Now you see them, now you don’t regarding offsets in California’s carbon program, IKEA wrenches up its carbon emission pricing ambition and the Shanghai Emissions Trading System gets in the express lane.

This article was originally published in the V-Carbon newsletter. Click here to read the original.

22 October 2014 | California regulators invoked the “draconian” enforcement provisions of their cap-and-trade program for carbon emissions by moving to invalidate more than 230,000 ozone-depleting substances (ODS) offsets generated at an Arkansas facility.

In a preliminary decision, the California Air Resources Board (ARB) ruled that the offsets generated by two ODS projects one developed by Environmental Credit Corp (ECC) and the other by EOS Climate should be invalidated because the Clean Harbors facility in Arkansas was out of compliance with its operating permit issued under the Resource Conservation and Recovery Act. Of the 231,154 offsets the ARB is seeking to invalidate, 142,199 were generated by ECC’s offset project and 88,955 from the EOS Climate project. However, the ARB’s preliminary decision cleared the vast majority of the 4.3 million compliance offsets being investigated.

ECC declined to comment. EOS Climate officials say the Clean Harbors facility has been destroying ODS in full compliance with federal and international requirements for more than 20 years and plan to ask the ARB to reverse its preliminary ruling before a final decision is made on invalidation.

California’s cap-and-trade regulations include so-called buyers’ liability provisions that allow the regulators to invalidate offsets found to be faulty or fraudulent and require regulated entities to surrender replacement offsets for compliance.

After initially determining that these emission reductions met the program’s requirements and issuing offsets, the ARB reversed course and removed them from holders’ accounts without notice and arguably in violation of its own regulations, Jean-Philippe Brisson, Partner with law firm Latham & Watkins, argued in a white paper.

“By removing the offsets from the market, ARB removed approximately $50 million of value from market participants who had acquired them in good faith for good value,” he said. “These actions raise significant concerns as to how ARB will manage a market currently worth $2 billion annually and scheduled to increase to more than $4 billion in 2015″ when transportation fuels enter the compliance program.

The ARB’s “draconian and potentially arbitrary enforcement practices” as demonstrated in the ODS proceeding highlight a number of problems with California’s cap-and-trade program, including infrequent auctions and inadequate price containment mechanisms, Brisson said. The ARB should seriously reconsider how to better leverage offsets as a cost containment mechanism by accelerating the current review and approval timelines associated with offset projects and issuance, developing new domestic and international offset protocols to expand supply, and revisiting the 8% limit on the use of offsets, he suggested.

More news from the voluntary carbon marketplace is summarized below, so keep reading!

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V-Carbon News

VOLUNTARY CARBON

How much wood can a forest chuck?
A total of 201 projects were registered under the Woodland Carbon Code (WCC) a voluntary standard initiated for woodland creation projects in the United Kingdom in July 2011  as of September 30. Two new projects were validated since its last quarterly reporting in June. The first is a 12-hectare project in England capturing 5,000 tonnes of carbon dioxide (tCO2e) and the second is a 54-hectare project in Scotland sequestering 27,000 tCO2e. Eighty-nine projects estimated to sequester 1.5 MtCO2e have been validated under the WCC, representing a 55% rise since September 2013. In total, registered WCC projects cover 15,389 hectares of woodland and are projected to sequester 5.7 million tCO2e. Read more here
Do it yourself carbon pricing
IKEA Group, the world’s biggest furniture retailer, may introduce an internal price on carbon in part to incent adoption of renewable energy, according to the company’s chief executive officer, Peter Agnefjall. Carbon pricing was a hot topic at the recent United Nations Climate Summit and Agnefjall said the company’s participation there is influencing its consideration. A so-called “shadow price” on carbon can help make decisions about whether a certain project is sufficiently environmentally sustainable to meet potential future regulatory costs, reduce overall emissions and incentivize use of renewable energy. Numerous companies including Shell, Microsoft, Walt Disney and BP utilize internal carbon prices of anywhere from $6/tCO2e to $60/tCO2e. Read more here
Offsets get surprisingly good mileage
Spelman College is the latest recipient of financing from Chevrolet for the school’s greenhouse gas (GHG) emission reduction efforts. Spelman will receive up to $100,000 from the sale of offsets to the automaker under a Verified Carbon Standard (VCS) methodology for making energy efficiency improvements around the Atlanta, Georgia campus. The college has a goal of being carbon neutral by 2056. Chevrolet has already exceeded its commitment to offset 500,000 tCO2e through its Campus Clean Energy Campaign. The company has undertaken similar efforts at Grand Valley UniversitySouthern Oregon UniversityUniversity of IllinoisBall State and Valencia CollegeRead more here

COMPLIANCE CARBON

Shanghai Surprise
Institutional investors are contributing to increasing liquidity in Shanghai’s emission trading system (ETS). The ETS recorded 11 straight days of transactions totaling 22,400 tonnes during a period from September to October, as compared with zero transactions in July and August. Prices have risen along with the activity to yuan 35/tonne in October from yuan 29/tonne in September after institutional investors were granted access to the market. The city of Qingdao recently approved plans to start its own carbon market in 2015, which would make it the 8th pilot carbon market in China, in preparation for expected implementation of a national market in 2016. Read more on Shanghai
Read more on Qingdao
New model year
The Climate Trust, a non-profit organization that manages funds from utilities complying with the Oregon Carbon Dioxide Standard, is implementing a new model for early-stage project investment: the Carbon Investment Management Organization(CIMO). Under the CIMO model, the trust will finance agriculture, biogas and forestry projects that generate carbon offsets. The early-stage investment will come in exchange for an equity share of future revenue from carbon offset sales. The trust will remain actively involved involvement in the projects to provide technical expertise and guidance to project developers who will retain a share of the future offset revenue. Read more here
The early bird gets the carbon
Britain wants reforms to the Europe Union’s Emissions Trading System (ETS) to start from 2017, four years earlier than proposed, to address the program’s allowance surplus and boost investment in clean technologies. The European Commission wants the so-called market stability reserve, which will set aside hundreds of millions of surplus allowances from the ETS to come into force from 2021. But the British government is advocating for an accelerated timeline. It also called for the 900 million allowances whose sale was postponed via the so-called “backloading program to be cancelled or inserted directly into the reserve. Read more here

STANDARDS & METHODOLOGY

Fairer trade
Fairtrade International and The Gold Standard are currently seeking public input on the “Fairtrade Carbon Credit Standard during the second consultation period, open until October 26. The proposed standard seeks to enable greater access and participation in the carbon market for smallholders and rural communities in developing countries and to drive a greater proportion of carbon income to them. Offsets associated with Fairtrade Carbon Credits will be generated from agriculture, renewable energy, energy efficiency and forest management. Read more here
No dude ranches here
The American Carbon Registry approved a protocol that rewards ranchers for land management practices that put more carbon in the soil, which improves soil health and reduces GHG emissions. The Compost Additions to Grazed Grasslands protocolprovides a clear process for calculating the GHG reductions from applying compost to rangeland, which allows ranchers to generate revenue from the sale of emission reductions on voluntary carbon markets. But some observers see a faster approach to developing a carbon farming model that includes composting through the Natural Resources Conservation Agency, which is incorporating carbon planning into its voluntary national farm conservation protocols. Read more here

Featured Jobs

Blue Carbon Manager, Madagascar Blue Ventures
Based in Ambanja, Madagascar, the Blue Carbon Manager will support Blue Ventures’ pioneering blue carbon projects along the west coast of Madagascar. The project aims to develop carbon finance and other payments for ecosystem services mechanisms using the new VCS Wetland Restoration and Conservation project category and integrate blue carbon into Madagascar’s national REDD+ activities. The successful candidate will have a master’s degree in a relevant field, experience in the development of forest carbon projects for VCS validation, and good knowledge of REDD+ policy. Fluency in English is required; proficiency in French would be a plus. More information here
Research Fellow, National Deep Decarbonization Pathways – Institute for Sustainable Development and International Relation (IDDRI)
Based in Paris, France, the Research Fellow will contribute to IDDRI’s Deep Decarbonization Pathways project, which aims to produce deep decarbonization pathways for 15 developed and emerging countries that would serve as a basis for the implementation of low-carbon policies at the United Nations Framework Convention on Climate Change. Eligible candidates should have an advanced degree in climate change or energy, two to three years of professional experience and skills related to quantitative analysis of climate policies. Fluency in English is required and fluency in French would be a plus. More information here
Forest and Climate Expert, ONF International (ONFI)
Based in Kinshasa, Democratic Republic of Congo (DRC), the Forest and Climate Expert will coordinate ONFI projects and activities in the DRC. Candidates should have at least five years experience coordinating forest carbon projects and institutional relations within the DRC. Ideal candidates will have a working knowledge of the international negotiations on climate and understanding of its institutional framework. Professional fluency in French and English is required, proficiency in Spanish and Portuguese is a plus. More information here
Executive Director National Mitigation Banking Association
Based in Washington, D.C., the Executive Director will manage day-to-day operations of the organization, coordinate and support the Board of Directors, and lead public policy and advocacy activities. A successful candidate will have a proven track record of engagement in good public policy that works for both business and the environment. More information here
Forestry, Agriculture and Climate Change Expert South Pole Carbon
Based in Medellin, Colombia or Rio de Janeiro, Brazil, the Forestry, Agriculture and Climate Change Expert will support South Pole Carbon’s forestry project department in technical work and marketing and sales for forest carbon offsets or forest footprints. The successful candidate will have a university degree in economics, engineering, environmental science or another relevant field; two years of work experience in project development or consulting; excellent command of Spanish and English (French, German or Portuguese are an advantage); and strong analytical skills. Knowledge of statistical software and Geographic Information Systems are a plus. More information here
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