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US Climate Bill Passes House of Representatives

Maria Bendana

The US House of Representatives passed the American Clean Energy and Security Act (ACES), also known as the Waxman-Markey Bill by a vote of 219 to 211 early Saturday morning. Here’s an update of our late May analysis of how Waxman-Markey promotes the reduction of greenhouse gas emissions from deforestation and forest degradation.

The US House of Representatives passed the American Clean Energy and Security Act (ACES), also known as the Waxman-Markey Bill by a vote of 219 to 211 early Saturday morning. Here’s an update of our late May analysis of how Waxman-Markey promotes the reduction of greenhouse gas emissions from deforestation and forest degradation.

27 June 2009 | The American Clean Energy and Security Act of 2009 (ACES) being voted on today in the US House of Representatives certainly has its critics, but advocates of using forestry offsets to Reduce Emissions from Deforestation and Degradation (REDD) have little to complain about.

This comprehensive energy bill’s stated aim is to deploy clean energy resources, increase energy efficiency, cut global warming pollution, and transition to a clean energy economy, but the version being voted on today in the US House of Representatives gives more prominence to REDD than it did when first introduced on March 31 by committee co-chairs Henry Waxman and Edward Markey.


The Consensus – and Copenhagen

Indeed, the growing consensus could already be seen in the revised version of the bill introduced as H.R. 2454 on May 15, 2009 (for a summary of the bill click here).

“This is the first time a broad environmental NGO and industry coalition have come together to endorse a market based mechanism for REDD,” says Gustavo A. Silva-Chí¡vez, International Climate Change Policy Analyst for the Environmental Defense Fund. “This move by the House clearly indicates to the rest of the world where the US State Department and the negotiation team is going to be in Copenhagen.”


Offsets = Allowances (Sometimes)

Media attention has already focused on the broad targets: specifically, the fact that the initial 2020 target of 20% under 2005 levels has been slightly compromised to 17% and 85% of allowances or pollution permits will be given away in the proposed cap-and-trade program through 2025. (The mid- and long-term targets, however, remain the same at 42% below 2005 levels in 2030 and 83% below in 2050.

Less well-noticed is the fact that, in addition to these reduction targets, the bill allows the use of REDD offsets to reduce emissions an additional 10% below the 2005 baseline by 2020 bringing the total to 27% by 2020.

The new version of the bill – like the earlier version – distinguishes between allowances, which are issued by the government, and offsets, which come into existence when someone manages to create an approved clean development project that reduces emissions in a measurable way.

As before, on top of emission allowances, covered entities are able to offset up to two billion tons of emissions annually by using domestic and international offset credits approved by the Environmental Protection Agency (EPA). The new bill lets entities split their offsets equally between those that come from abroad and those that come from inside the United States, and it also gives offsets more recognition than the previous bill did.

Domestic offsets have been upgraded to equal status with allowances indefinitely, while in the previous bill they were 4/5 of an allowance.

International offsets, on the other hand, now have a one-to-one turn-in ratio for the first five years of the policy, with the ratio dropping to 4:5 in 2018 – meaning that covered entities using offsets must submit five tons of international offset credits for every four tons of emissions being offset. Additionally, if there are an insufficient number of domestic offsets available, the number of international offsets allowed may be increased up to 1.5 billion metric tons. Covered entities may also submit an international emission allowance or compensatory allowance in place of a domestic emission allowance.


Price Projections

A recent economic analysis by the US EPA determined that the revised bill will likely result in lower allowance prices, a smaller impact on energy bills, and a smaller impact on household consumption. Specifically, EPA estimates that: (1) the relaxation of the 2020 cap from 20% below 2005 levels to 17% below 2005 levels is likely to reduce allowance prices by 3%; (2) the changes to the offset provisions will lower allowance prices by 7% or more. It estimated that allowance prices would be $13 to $17 in 2015.


REDD Wins Big

The revisions and markups to the bill have not diluted the international forest carbon provisions. The bill still provides essentially three funding avenues for reducing deforestation: a 5% set-aside of allowance revenue for REDD, reducing to 3% from 2026 to 2030 and to 2% from 2031 to 2050, and of course international offset credits that recognize REDD as an eligible project type, and finally proceeds from the quarterly strategic reserve auctions will purchase international offset credits issued for reduced deforestation activities.

Because these provisions have not changed, please refer to our previous article analyzing the draft bill for a detailed description of each of these.


Eligible Forest Carbon Project Types

The original bill defined the term ‘international forest carbon activities’ in section 700 (subsection 33) as national or sub-national activities in countries other than the United States that are directed at:

• reducing greenhouse gas emissions from deforestation or forest degradation; or

• increasing sequestration of carbon through afforestation or reforestation of acreage not forested as of January 1, 2009; restoration of degraded land or forest; or improved forest management.

However this definition was taken out in the Amendment in the Nature of a Substitute that replaced the original bill. Thus REDD is the only eligible project type listed. The bill calls for the creation of an Offset Integrity Advisory Board, and the EPA, taking into consideration the recommendations of the board, may include forest degradation, or soil carbon losses associated with forested wetlands or peatlands, within the meaning of deforestation.

The EPA in consultation with the US Department of Agriculture, USAID as well as taking consideration the recommendations of the Advisory Board shall establish the initial eligibility list not later than one year after the bill passes and will add additional project types to the list not later than two years.


The International Deforestation Reduction Program : A Source of REDD Readiness Funding

Under Section 754, the following ‘REDD Readiness’ activities are allowed to receive funding:

(A) national deforestation reduction activities
(B) subnational deforestation reduction activities, including pilot activities that reduce greenhouse gas emissions but are subject to significant uncertainty
(C) activities to measure, monitor, and verify deforestation, avoided deforestation, and deforestation rates
(D) leakage prevention activities
(E) development of measurement, monitoring, and verification capacities to enable a country to quantify supplemental emissions reductions and to generate for sale offset credits from reduced or avoided deforestation
(F) development of governance structures to reduce deforestation and illegal logging
(G) enforcement of requirements for reduced deforestation or forest conservation
(H) efforts to combat illegal logging and increase enforcement cooperation
(I) providing incentives for policy reforms to achieve an additional 10 percent reduction (720 million tons) from reducing emissions from international deforestation
(J) monitoring and evaluation of the results of the activities conducted under this program.


Eligible Countries, States or Provinces

The EPA will establish, and periodically review and update, a list of developing countries, states or provinces that have the capacity to participate in deforestation reduction activities including:

• the technical capacity to monitor, measure, report, and verify forest carbon fluxes for all significant sources of greenhouse gas emissions from deforestation with an acceptable level of uncertainty, as determined taking into account relevant international standards, such as those established by the Intergovernmental Panel on Climate Change;

• the institutional capacity to reduce emissions from deforestation, including strong forest governance and mechanisms to equitably distribute deforestation resources for local actions;

• a land use or forest sector strategic plan that estimates a country’s emissions from deforestation and forest degradation, assesses national and local drivers, and identifies the maps out a plan for removing those drivers and implementing a national deforestation reduction program;

• the state or province by itself is a major emitter of greenhouse gases from tropical deforestation on a scale commensurate to the emissions of other countries

• the EPA, the Secretary of State and the US Agency for International Development (USAID) will also establish and periodically review and update a list of developing countries that will be eligible based on recent, credible, and reliable emissions data which shows they account for less than 1% of global greenhouse gas emissions and less than 3% of global forest-sector and land use change greenhouse gas emissions; and have, or are making a good faith effort to develop, a land-use or forest sector strategic plan mentioned above.

Deforestation Baselines: National Requirements

The quantity of the international offset credits is determined by comparing the national emissions from deforestation relative to a national deforestation baseline which will:

• be national in scope;

• be consistent with nationally appropriate mitigation commitments or actions with respect to deforestation, taking into consideration the average annual historical deforestation rates of the country during a period of at least five years, the applicable drivers of deforestation, and other factors to ensure additionality;

• establish a trajectory that would result in zero net deforestation by not later than 20 years after the national deforestation baseline has been established;

• be adjusted over time to take account of changing national circumstances;

• be designed to account for all significant sources of greenhouse gas emissions from deforestation in the country; and

• be consistent with EPA and USAID-approved standards

State- or Province-Level Requirements

In addition to the applicable requirements for the national level, a state-level or province-level deforestation baseline will phase out beginning in 2017 and will not be issued international offset credits.


Project- or Program-Level Requirements

In addition to the applicable requirements for the national level, project or program level baselines must be adjusted to fully account for emissions leakage outside the project or program boundary. It will also phase out beginning in 2017 but the EPA may extend the deadline to no later than 2025 if the country:

• has been identified by the United Nations as a least developed country and

• the EPA, the Secretary of State and USAID determines the country lacks sufficient capacity to adopt and implement effective programs to achieve reductions in deforestation measured against national baselines; is receiving support to develop such capacity; and has developed and is working towards implementation of a credible national strategy or plan to reduce deforestation.

Standards

The bill charges the EPA and USAID with establishing standards to ensure that supplemental emissions reductions are additional, measurable, verifiable, permanent, monitored, and account for leakage and uncertainty.

In addition, the reduction in emissions from deforestation needs to have occurred before the issuance of the international offset credit and needs to take into consideration relevant international standards, using ground-based inventories, remote sensing technology, and other methodologies to ensure that all relevant carbon stocks are accounted. The reduction should be consistent with any relevant requirements established by an agreement reached under the United Nations Framework Convention on Climate Change (UNFCCC).

The EPA will also make appropriate adjustments, such as discounting for any additional uncertainty, to account for circumstances specific to the country. Moreover, the activities should: be designed, carried out, and managed in accordance with widely accepted, environmentally sustainable forest management practices; promote or restore native forest species and ecosystems where practicable; and avoid the introduction of invasive nonnative species.


Rights, Consultation and Benefits-Sharing

The EPA, the Secretary of State and USAID will ensure the establishment and enforcement of legal regimes, standards, and safeguards that:

• give due regard to the rights and interests of forest-dependent communities, indigenous peoples, and vulnerable social groups;

• promote consultations with, and full participation of, forest-dependent communities and indigenous peoples in affected areas, as partners and primary stakeholders, prior to and during the design, planning, implementation, and monitoring and evaluation of activities; and

• facilitate sharing of profits and benefits derived from international offset credits with forest-dependent communities and indigenous peoples

New: International and Domestic Adaptation Fund

The EPA shall allocate 1% of the emission allowances annually from 2012 through 2021 for international adaptation, and increase it to 2 percent from 2022 to 2026 and 4 percent from 2027 to 2050. The domestic adaptation fund has the same allocation. The international adaptation objectives are:

• to provide new and additional assistance to the most vulnerable developing countries, including the most vulnerable communities and populations in order to support the development and implementation of climate change adaptation programs and activities that reduce the vulnerability and increase the resilience of communities to climate change impacts, including impacts on water availability, agricultural productivity, flood risk, coastal resources, timing of seasons, biodiversity, economic livelihoods, health and diseases, and human migration; and

• to provide such assistance in a manner that protects and promotes the national security, foreign policy, environmental, and economic interests of the United States to the extent such interests may be advanced by minimizing, averting, or increasing resilience to climate change impacts.

USAID will distribute allowances to any private or public group, international and faith-based organizations or any other entity engaged in the following activities (all activities except number 8 have synergies with the forest/land use sector):

• the development of national or regional climate change adaptation plans, including a systematic assessment of socio-economic vulnerabilities in order to identify the most vulnerable communities and populations;

• associated national policies; and

• planning, financing, and execution of adaptation programs and activities;

• climate change adaptation research in or for the most vulnerable developing countries

• the protection and rehabilitation of natural systems;

• the enhancement and diversification of agricultural, fishery, and other livelihoods; and

• the reduction of disaster risks;

• support the deployment of technologies to help the most vulnerable developing countries identifying and adopting appropriate renewable and efficient energy

• encourage the engagement of local communities through disclosure of information, consultation, and the communities’ informed participation relating to the development of plans, programs, and activities to increase community-level resilience to climate change impacts.

Additionally, USAID will give priority to countries that are most vulnerable to the adverse impacts of climate change and ensure that local communities are engaged in the design, implementation, monitoring, and evaluation of such programs and activities. Not more than 10% of the allowance amount will be distributed to support activities in any single country.



Maria Bendana manages the Forest Carbon Portal, a project of Ecosystem Marketplace. She can be reached at mbendana@forest-trends.org.

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