Introduction to Carbon
Offsets for California Cap
and Trade Compliance
Joel Levin
Vice President,
Business Development
Using Offsets for
Compliance
• Compliance obligation can be fulfilled with a
mix of allowances and offsets
• Up to 8% of obligation can be met with
offsets
• Example: If your facility generates 100,000
mtCO2e, you can use up to 8,000 offsets
• Do you have to use offsets?
• No, they are an option. People use them
because they are usually cheaper than
allowances
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What Offsets are Acceptable
for Compliance?
• Offset project must be done according to an
approved protocol
– Four Climate Action Reserve project protocols have
been adopted by ARB
• Project can be located anywhere in the United
States
• Offset must be issued by an ARB-approved
registry
– The Reserve expects to be formally approved by ARB
as an Offset Registry in Fall 2012
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So who is the Reserve?
• Nonprofit organization founded by state
legislation in 2001 to develop standards for
GHG accounting
• Originally named California Climate Action
Registry
• Renamed and expanded in 2008 to focus on
carbon offsets
– Develop standards for offsets
– Oversee projects and ensure their integrity
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Compliance Protocols
• Forestry: biological sequestration in forests for 100
years
– Improved Forest Management
– Reforestation
– Avoided Conversion
• Urban Forestry: sequestration in urban tree
plantings for 100 years
• Livestock: capture and destruction of methane from
manure using anaerobic digestion
• ODS: destruction of potent GHGs from appliances
and foams from U.S. sources
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Reserve Stats
CRTs registered 28 million
CRTs registered (CARB
10 million
compliant)
Account holders 384
Projects submitted 478
Projects registered 153
U.S. States with Projects 45
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California Offset Demand
Compliance Period Year
First
(narrow scope)
Second
(broad scope)
Third
Allowance Budget
(mt CO2e)
2013
162,800,000
2014
159,700,000
2015
394,500,000
2016
382,400,000
2017
370,400,000
2018
358,300,000
2019
346,300,000
2020
334,200,000
Total Offset
Demand
25,800,000
91,784,000
83,104,000
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CRT Issuance Projections
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Buyer Liability
• CARB may find that an offset is invalid if:
– Amount of credits is overstated by more than 5%
– Project is not in accordance with all local, state, and national
environmental, health and safety regulations during reporting
period
– Credits have been issued by another program for the same
period
• If found invalid:
– For forestry, CARB will require forest landowner to replace
credits.
– For other project types, CARB will remove the offsets from the
account where they are currently located, whether retired or
active
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Buyer Liability - Time Frame
CARB can find credits invalid within eight
years, except:
• For Livestock, Forest and Urban Forest, liability is
only for three years if the project is verified by a
different verifier within three years.
• For ODS, liability is only three years if it is reverified by a second verifier within that time.
– ODS projects have only a one-year crediting period
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Strategies Companies are
Using for Invalidation Risk
• Be sure your projects trigger the three-year cap
• Conduct due diligence on project, developer and
registry
• Have contract specify that seller will indemnify
you if offsets are invalidated—and have
mechanism to ensure compliance
• Forward contract for offsets after three-year cap
has expired (or at least run down a bit)
• Purchase a mixed portfolio of projects
• Buy forestry
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Three things to remember
about offsets
• Offsets are a useful tool to reduce compliance
costs, but they require forward planning
• Buyer liability is a manageable risk
• In a world of buyer liability, the work of offset
registries matters. A diligent offset registry helps
to reduce your risk
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