The Waxman-Markey bill, the Democratic Party’s first attempt at comprehensive climate change legislation since the election of Barack Obama as President, promises to reduce US emissions by 17% by 2020, and 83% by 2050. These numbers however, do not account for a practice known as carbon offsetting. Payal Parekh from International Rivers believes that the practice is counterproductive at best, serving to delay necessary energy generation changes, or dangerous at worst, putting communities worldwide at risk from megaprojects that they aren’t consulted about. Furthermore, offsets are an unknown as a financial entity, and have already shown themselves in Europe to be candidates for financial speculation.
Story Transcript
Cap-and-trade won’t cut it, Pt. 2
Producer: Jesse Freeston
JESSE FREESTON, TRNN: Last week, the US House Energy and Commerce Committee passed a revised version of the Waxman-Markey climate change bill, which now waits to be debated in the House. The committee’s Web site claims that the bill will see emissions in the US dropped by 17 percent by the year 2020 due to the creation of a cap-and-trade emissions-allowance market. However, the true amount of US emission reductions is obscured by this figure, due to a practice known as carbon offsetting.
PAYAL PAREKH, INTERNATIONAL RIVERS: Industries are given allowances to pollute. And let’s say, you know, I’m a coal-fired power plant and I say, you know what? I’m going to pollute more than the allowances I’ve been given. So what I can do is I can essentially offset my additional pollution. And the way I can do that is by supporting a project in a developing country or within the United States in a sector that’s not capped, such as agriculture, and I will get those emission reductions. So instead of reducing emissions with my project, I essentially reduce it with another project. The Waxman-Markey bill is proposing that two billion offsets would be allowed. And, you know, two billion offsets each year is not peanuts; that translates into approximately 30 percent of US emissions in 2005. And so what that would mean is, if industries hand in the maximum allowable number of offsets, instead of having emission reductions in 2012, the first year of the bill, we would not have emission reductions until 2027. And, unfortunately, what the science tells us is we need emission reductions on the order of 25 to 40 percent by 2020 relative to 1990, which translates into�probably, relative to 2005, we’re talking on the order of 30 percent. But because of the use of offsets, what that actually means in the US is we wouldn’t even have any emissions reductions in 2020.
FREESTON: Advocates of carbon offsetting, which is currently being practiced in the EU carbon-trading scheme, argue that emission reductions anywhere in the world are just as valuable as reductions in the United States and that offsets will make the transition to a green-energy economy smoother for all involved. But there are many reasons to believe that offsets do not and will not function as has been imagined.
PAREKH: One of the largest issues is you have to prove that this project is additional. And what that means is this supposedly clean project that’s being supported in a developing country is indeed resulting in additional emissions reductions. And it would mean that this project could only go forward with this additional funding because I want to buy the offset. And, essentially, you would have to know what would have happened if I were not willing to buy this offset, which is essentially impossible to do. And so the CDM, the clean development mechanism, which is the largest offsets market in the world, administered under the UN through the Kyoto Protocol, from that system we know that 76 percent of the projects that received offsets were actually already built at the time they applied for offsets credits. Additional problem is that many of these projects are not clean, nor do they have stringent social standards. And, in fact, 27 percent of the projects are large hydro projects. Hydro is not necessarily clean; it’s not a new technology; so it shouldn’t be funded under such a program.
FREESTON: In Part 1, we explored how the trading of carbon allowances makes room for the development of a secondary derivative market. Offsets, Park believes, also represent a risky financial instrument.
PAREKH: You can think of these offsets credits as derivatives or futures, because the way the CDM works is I’m a project developer. I submit a proposal to receive offset credits from the clean development mechanism, and then it has to be sent to a consultant, a third-party verifier, who decides whether my project is additional or not. And there’s a clear conflict of interest, because I, as the project developer, actually pay the third-party verifier. So the third-party verifier of course is hoping that in the future I will bring more projects for them to verify. So they want my business. So of course they tend to be fairly lax in enforcing or testing for additionality. The potential for fraud is extremely high, and we already know that, for example, Credit Suisse has already done something where they take a number of offsets projects and they bundle them together. And some offsets projects are better than the others, because there are a portion of offsets projects that truly are additional and are truly supporting clean technologies, but they’ve bundled them together with projects that are much higher-risk and where it’s not very clear that the emission reductions would be all that large, and then again have trenched them and are trying to sell them on the market again. So, you know, you can draw a lot of parallels to what’s just happened. And at this time, one and a half years after Wall Street started to collapse, we still don’t have new safeguards in place for regulating these trading markets.
FREESTON: Thanks in large part to offsets, the Waxman-Markey bill will not compel the phasing-out of coal, the greatest source of CO2 production, in the foreseeable future. Over 50 percent of the United States’ electricity comes from coal, and this demand has fueled the growth of the process known as mountaintop removal. MTR employs the use of explosives to flatten mountains, exposing low-sulfur coal deposits. The process, used primarily in the Appalachian Mountains of West Virginia and Kentucky, has been steadily increasing over recent years, as it allows coal companies to lay off thousands of workers, given that it’s less labor-intensive than traditional underground mining. Last week alone, a total of 17 West Virginians were arrested in three separate attempts to non-violently disrupt mountaintop-removal mining activities. Beyond the permanent altering of the local landscape, resistance to mountaintop removal has been fueled by concerns over local environmental and public-health effects. While offsets would permit continued coal extraction in the US, the practice has also come under fire for the ostensibly green projects they finance abroad.
PAREKH: The Xiaoxi project in China, this project, although it was completed, at the time of application was awarded offsets credits. And there are very minimal environmental and social standards that these projects must meet, and one of those is to actually meet with affected communities, and this was not done. So what we essentially have is a project that is not additional and displaced people who were not informed of any of their rights before this happened.
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