US: Supply of offsets could be tightened by ARB regulation

14 February 2014 22:18 Source:ICIS

One of the current four protocols generating offsets could be scrapped if the Air Resources Board (ARB) decides to regulate carbon emissions from the agricultural sector, but the missing supply would be too small to impact prices.

The California cap-and-trade regulator wrote in its updated scoping plan, which outlines the future of the carbon programme, that the board is developing mid-term and long-term greenhouse gas (GHG) emission reductions targets for the agriculture sector. The ARB noted it could look at incentivizing or mandating livestock digesters.

Livestock digesters, which destroys methane or other GHG emissions from cattle or swine farms, is one of the four approved protocols for generating offsets, and the ARB has issued over 82,000 offsets from it, or 1.5% of the 5.4m issued so far. But if digesters are mandated by law, any equipment installed after the creation of the regulation would be ineligible for the offset programme, an ARB official told ICIS.

No official plan has been proposed or is in development, an ARB official told ICIS. The ARB said it is exploring its options and could opt to mandate or incentivize livestock digesters in the future.

Traders said any loss of livestock offset credits would be minimized by the small amount of credits the protocol generates and by sluggish offset demand. Buyers could turn to other protocols or buy California carbon allowances instead, they said.

According to data from the American Carbon Registry, average annual livestock offset supply is estimated to be below 1m per year from 2013-2020, or a cumulative of 5.5m credits out of the 105m total expected offsets to be issued by the ARB.

“The livestock offset potential supply is basically a rounding error compared to forestry, ODS (ozone depleting substances) and the likely possibility of coal mine methane,” said a carbon broker, referring to a fifth protocol which is expected to be approved this spring ( see EDCM 5 February 2014 ). “We don’t see livestock offset being more than 1m per year,” the broker added.

Around 82,000 offsets from livestock have been approved by the ARB so far, or just 1.5% of the total 5.4m.

Shortage of offsets

The potential supply reduction, however, would come amid offset developers’ claims that an offset shortage in the later years of the program would prevent companies to maximise their use of offsets.

Under ARB rules, 8% of compliance obligations can be met through offsets. Developers claim an estimated 95m offsets would be missing to allow to fulfil the maximum demand from compliance entities.

Scott Hernandez, the business development manager of the Climate Action Registry, said it is unlikely that the ARB would mandate the use of livestock digesters due to the high costs associated with their installation. He added all offset protocols face the potential for ineligibility if the ARB decides to regulate or mandate reductions in those sectors. Dan X. McGraw

By Dan X. McGraw