Carbon Primer

Forest Carbon Trading and Marketing in the United States

4. The United States Context

The U.S., citing concerns that the Kyoto Protocol was not balanced, did not set realistic goals, and did not include developing countries, decided not to ratify the Protocol and withdrew after COP 6. Even though the Kyoto Protocol provisions have limited relevance to the development of U.S. domestic policy, the U.S continues to pursue unilateral GHG mitigation programs and policies. As a practical matter, and as a member of the UNFCCC, any U.S. GHG mitigation program and policies will be influenced by the international negotiations that surround the Kyoto Protocol; therefore it seems to be in the best interest of the U.S. to develop a national program that is consistent with Kyoto Protocol rules (Sampson and Grover, 2005).

In spite of the absence of a comprehensive U.S. GHG regulatory regime mandating emission reductions, e.g. cap-and-trade legislation, GHG emissions trading in the U.S. has been actively occurring since December 2003 through the Chicago Climate Exchange (CCX). The CCX runs the world’s first and North America’s only comprehensive GHG trading program requiring its members to take on a legally binding GHG reduction commitment. As of September 2006, CCX’s 210+ membership have traded volumes of over 12 million MTCO₂. The CCX program is significant considering the underlying emissions baseline registered in CCX makes it the second largest active CO₂ emission trading program, second only to Germany.

At the federal level, several legislative initiatives have been made on climate policy. The Bingaman-Domenici White Paper presented in February 2006 entitled, “Design Elements of a Mandatory Market Based GHG Regulatory System”, surveyed 130 entities on how to design a GHG market within the US¹⁸. Among the earliest climate change initiatives in the Senate was the McCain-Lieberman Climate Stewardship and Innovations Act. The bill calls for a federal cap-and-trade system for selected sectors that emit more than 10,000 MTCO₂ per year. The cap, set initially at 2000 levels was required to be met by 2010. Senator Feinstein’s bill calls for capping emissions at 2006 levels until 2010 and then for a gradual reduction (7.5%) of emissions by 2020. Feinstein’s bill allows for the use of afforestation credits from U.S. or international sources. Table 1 presents a summary of various congressional legislative bills currently being debated in the U.S. Senate (Point Carbon, 2006).

Table 1 - Proposed GHG Legislation in the U.S.

Proponent	Type	Scope	Target Level	Price Cap	Offset
McCain and Lieberman	Cap and Trade	Electricity, transportation, industry and large commercial facilities	Stabilization at 2000 level by 2010	NA	Upto 15% including sequestration and international markets
Bingaman	Intensity target with trading mechanisms	Fuel Producers, importers and emitters of non-fuel GHGs	2.4% below BAU intensity	$7 per ton (+5% annually)	Domestic credits including sequestration. Upto 3% international credits
Feinstein	Cap and Trade	Large stationary sources, including utilities, oil and gas and transportation facilities	2006 levels in 2010, 92.75% of 2006 level in 2020	NA	25%, domestic and international including farming and afforestation
Waxman	Cap and Trade	Large emitters	Stabilization at 2000 levels, 2% annual reduction from 2010 to 2020	NA	Not defined
Kerry and Snowe¹⁹	Cap and Trade	Passenger vehicles, the U.S. to derive 20% of its electricity from renewable sources	Freeze GHG emissions in 2010. Then reduce annually to a goal of 65 percent below 2000 emissions levels by 2050	NA	Not defined

The lack of a comprehensive mandatory federal GHG reduction program in the U.S. has led to a flurry of climate change policy initiatives at the municipal, state, and regional levels. Rules for the nation’s first regional mandatory cap-and-trade program to reduce CO₂ emissions were released August 2006. Under the Regional Greenhouse Gas Initiative (RGGI)²⁰, seven northeast states have adopted a pact beginning in 2009 to cap CO₂ emissions from power plants at current levels, with a goal of achieving a 10 percent reduction by 2019.

In September 2006, Governor Schwarzenegger of California signed a bill, the Global Warming Solutions Act²¹, making California the first state to cap GHG in the U.S. The bill would develop regulations and market mechanisms with the goal of reducing California’s GHG emissions by 25% by 2020. Under the bill, mandatory caps will begin in 2012 targeting significant emission sources in the state.

Through the CCX trading platform, numerous cities, municipalities, states and counties have committed to reducing GHG emissions by 6% by 2010. Cities include Chicago, IL, Portland, OR, Berkeley, CA, Oakland, CA, Aspen, CO, and Boulder, CO. The two states, New Mexico and Illinois, have committed to the CCX reduction commitment.

The mayors of 284 U.S. cites representing over 48 million citizens have signed the U.S. Mayor’s Climate Protection Agreement²² urging their state governments, and the federal government, to enact policies and programs to meet or beat the GHG emission reduction target suggested for the United States in the Kyoto Protocol.

A parallel development involves the emergence of multiple CO₂ emission “Registries”. The four primary emission registries that provide for forestry offset emission reduction credits in the U.S. include, 1) the Chicago Climate Exchange²³, 2) the Department of Energy (DOE) National Voluntary Reporting of Greenhouse Gases Program under section 1605(b) of the Energy Policy Act of 1992²⁴, 3) the California Climate Action Registry (CCAR)²⁵, and 4) the RGGI. Of these, the CCX is the only exchange platform for trading forestry offset credits in the U.S.

The development of numerous registries has implications both to emission allowances as well as emission reduction credits created by forestry offset projects. In the absence of mandatory emission reduction requirements or knowing the price of carbon that may be obtained, the financial incentives to register direct emission reductions or sequestered carbon will remain elusive. Forestry offset projects have unique characteristics where the proliferation of registries will create additional transaction costs. Multiple registries will translate into different rules for participating, e.g. how to set carbon baselines, the eligibility of managed vs. afforestation/reforestation projects, monitoring methods, verification rules, and the pools of carbon that can be registered (i.e. above ground, below ground, harvested wood products), all of which will increase registration transaction costs for forest management organizations that manage forest lands in multiple regions of the U.S.

The registries that are currently active in the U.S.; the CCX, the DOE’s 1605(b) program, and the CCAR are all in a development phase. The rules for qualifying, monitoring, and verifying forestry projects are quite different, opening the door for a much needed standardized national program that will most likely develop as federal cap-and-trade legislation evolves over the next five years. For now, due to the infancy of these registries in handling forestry offset projects, they play a minor role in their total emission reduction portfolios.

An analysis of forest sequestration projects registered in 2003 in the DOE’s 1605(b) program indicated that 446 projects were reported in the “carbon sequestration” category by 51 different entities and accounted for 2.1 million tons of net carbon emission reductions, of which 89 percent were from foreign projects. Almost all of these carbon sequestration projects involved forestry projects, the vast majority of which entailed preservation, conservation, and afforestation or similar tree-planting activities. While 39 of the projects reported are based on forest preservation, those projects accounted for 88 percent of the total carbon sequestration reported. All of these reductions were reported by five large forest preservation projects; as a result, just 10 percent of all reporting entities accounted for 92 percent of the total sequestration reported in 2003 (Richards, et al. 2006).

5. Global Carbon Markets

¹⁸http://energy.senate.gov/public/_files/JointStatementonClimateConference.pdf
¹⁹ This bill is not included in the Point Carbon reference. http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=109_cong_bills&docid=f:s4039is.txt.pdf
²⁰http://www.rggi.org/modelrule.htm
²¹http://www.aroundthecapitol.com/billtrack/text.html?file=ab_32_bill_20060418_amended_sen.html
²²http://www.seattle.gov/mayor/climate/default.htm
²³http://www.chicagoclimatex.com/
²⁴http://www.pi.energy.gov/pdf/library/TechnicalGuidelines_March2006.pdf
²⁵http://www.climateregistry.org/PROTOCOLS/FP/
[top]

Carbon Farmers

Carbon Primer

Forest Carbon Trading and Marketing in the United States

4. The United States Context

Table 1 - Proposed GHG Legislation in the U.S.