CLIMATE:

Lobbyists battle over escape hatch on carbon penalties

A provision in the House climate bill that offers a controversial hedge against high costs for curbing carbon is a top target for lobbyists -- with one pack fighting to expand it and another to strip it out.

The focus is on emission offsets. Added to the bill at the behest of industry and large environmental groups, offsets let polluters avoid some fines by investing in projects that draw carbon dioxide and other greenhouse gases from the atmosphere.

As the climate measure winds its way to a floor vote, pressure on offsets grows. It is a battle over a few words here and there that could make or lose millions of dollars for many businesses.

"These lobbyists are getting in there trying to make sure their offsets are getting taken care of," said Danny Morris, research assistant with Resources for the Future, a nonpartisan research group. "Everyone has their incentive to get their language as exact to their needs as possible."

The House energy and climate bill crafted by Democratic Reps. Henry Waxman of California and Ed Markey of Massachusetts requires businesses that emit carbon to purchase allowances to cover those emissions. Although in the first years of the program 85 percent of those allowances will be given free to certain businesses, as the program evolves, industries must chose between reducing carbon emissions, buying allowances or paying for offsets. Options for offsets range from preventing the clearing of forests to planting trees to helping a farmer use less fertilizer.

Offsets, particularly those based outside the United States, are considered crucial to lowering the cost of complying with the bill. U.S. EPA has estimated that removing the international offsets would increase the bill's price tag by 96 percent. At the same time, Morris said, "there's a lot of questions and there's a lot of people who are very skeptical about offsets."

The Waxman-Markey plan allows up to 2 billion tons annually of such offsets, half from U.S. projects and half international. The international level can rise to as much as 1.5 billion tons if domestic offsets are insufficient.

Businesses in the first two years of the program could offset 30 percent of their emissions. That percentage falls from 2015 to 2021, then rises steadily to 63 percent in 2050, the program's final year.

Lawmakers and their aides are hearing from industry lobbyists aiming to alter that language. They represent companies based in India and Brazil, along with major U.S. companies like timber giant Weyerhaeuser Co. Those opposing offsets include some environmentalists and climate activists. The issue divides green groups, with environmentalists including the Natural Resources Defense Council and the Environmental Defense Fund backing industry's call for offsets.

Industry lobbyists, as well as those who oppose the use of offsets, are circling House members who have expressed interest in reviewing the bill, including members of the Agriculture and Ways and Means committees. Advocates also are talking to senators who might make changes in that chamber.

"In Congress, everything is open to negotiation until the president signs the bill," said David M. "Max" Williamson, counsel to the Carbon Offset Providers Coalition, which represents those developing and investing in greenhouse gas reducing projects.

"We're very happy that carbon offsets are recognized as a very important feature of cap and trade," Williamson said. At the same time, he said, "we are looking for very important changes."

Companies based abroad are hiring lobbyists to ensure that provisions on international offsets are both protected and expanded.

"If you're not at the table monitoring what the Congress is doing ... you may end up with a set of rules you can't live with," said Ron Shiflett Jr., president of C-Trade Comercializadora de Carbono Ltda., a Brazil-based consultancy that works with both creators of offset projects and companies that need offsets.

Industry's wish list

Key House lawmakers, while refining the bill, said they did not anticipate changing the offset provision.

"I've not asked for additional changes," said Rep. Rick Boucher (D-Va.), who helped negotiate the original offset language. "I'm persuaded that sufficient offsets are available to enable the emitters to continue their present fuel choice consistent with the terms of the program."

Near the top of the lobbyists' wish list is persuading Congress to specify which projects would be eligible as offsets. The bill creates large categories, then allows third parties to decide what is eligible as an offset. Those third parties probably would be similar to groups in the voluntary offset market like the Chicago Climate Network or the Climate Action Reserve in California.

EPA likely will put the offset program in place. But industry is pressuring Congress to enact specifics earlier.

Having rules sooner would spur quicker private investment in green projects, Williamson said. Waiting for EPA to enact regulations, he said, would mean money won't start to flow until 2012 or 2014.

Waiting, Williamson said, "is a lost opportunity for society, not to get an early jump on these emissions reductions."

Industry lobbyists are encouraging lawmakers to include among eligible offsets some existing efforts that reduce greenhouse gas emissions, like projects that capture methane at landfills. Along those lines, timber companies want credit for forest lands they cleared and then replanted. Environmentalists in general have favored new plantings or the protection of tropical rainforests.

Lobbyists also want to eliminate language that requires businesses to buy more international offsets to cancel a ton of carbon versus what they would have to buy if the offset were based in the United States.

"We don't believe it's necessary to artificially restrict the amount of offsets that can be used," Williamson said. "To the Earth, a ton of carbon reduced is a ton reduced."

Lobbyists for international companies want clarification on who decides whether an international offset is eligible. Shiflett argues that in some cases, a state government is qualified to declare an offset legitimate. The president of the Brazilian offset consulting firm is also concerned about language that ties verification of some offsets to European standards. That is one of a few options for verifying an international offset.

The bill sets up standards for verifying that an offset is legitimate, said Morris with Resources for the Future. Some activists are fighting to make sure those standards are not changed.

"It would be a mistake to substantially weaken the language in the bill that preserves the integrity of the international offsets," said Joe Romm, a senior fellow with Center for American Progress and a former Clinton administration energy official.

Industry lobbyists want the Department of Agriculture and not EPA to handle regulations on forest offsets, believing USDA would be more sensitive to businesses' needs.

'Rip-offsets'

While there are environmentalists who support offsets as a way to encourage reforestation and similar projects abroad, others argue that the offset provisions could damage the goal of transforming energy use by obviating industry's need to shrink carbon emissions.

"Offsets are essentially fake reductions," said Erich Pica, director of domestic policy for Friends of the Earth, which is asking lawmakers to reconsider the provision. "We're trying to get rid of them altogether or at the very least pare them back."

Friends of the Earth and others argue that offsets will allow carbon-producing businesses to stall cutting greenhouse gas emissions. A report from International Rivers and Rainforest Action Network estimated that through offsets, industries could delay action on carbon reductions through 2036. The report was written in April, reviewing a draft bill and not the legislation approved by the House Committee on Energy and Commerce.

Friends of the Earth on Tuesday joined other environmentalists, churches and communities groups that asked the House Ways and Means Committee to review the climate bill because of the offset provision and other issues.

"Offsets are not a measurable or verifiable method of reducing greenhouse gas emissions and that they violate the 'polluter pays' principle by providing polluters with profitable means to continue to pollute," they wrote.

Ways and Means leaders have said that the advocacy groups' concerns about the bill likely will be addressed through negotiations, and that there will not be a separate committee vote on the bill.

Romm is among the critics of the offsets, calling them "rip-offsets." He believes they should only be available in the bill's early years.

"The only reason for the offsets is to give the carbon-intensive companies a few extra years to switch out into new technologies," Romm said. "The point of the offsets is not to let people still use offsets 30 years from now."

Williamson with the offset trade group rejects the argument that allowing unfettered access to offsets will stall the move to a greener energy economy.

"If you encourage a coal-fired power plant to invest money in a wind turbine ... or giving farmers the ability to buy new tractors to reduce fertilizer [use], that is investing in a transformative economy," Williamson said.

One climate activist talking to lawmakers argues that both offsets and emission reductions are needed.

"If the coal-fired utilities in this country did nothing but protect forests elsewhere, 10 years from now you've done a lot on forests, but you haven't done a lot on energy," said Thomas Lovejoy, biodiversity chairman with the nonpartisan Heinz Center. He said he is talking to Sen. John Kerry (D-Mass.), chairman of the Senate Foreign Relations Committee; aides to Waxman and Markey; and the "greener senators."

"The name of the game here," Lovejoy added, "is how you design the credits so you actually achieve something on both sides."

Romm believes offsets won't be that important, after all, and that clean energy alternatives -- energy efficiency and conservation, biomass, and switching from coal to natural gas -- will be less expensive for businesses than buying the offsets. But he acknowledges that many disagree.

Counting chickens?

While industry is depending on offsets to reduce costs, there is skepticism about whether the high number of offsets would be attainable.

"Two billion [tons of] offset credits I don't think are going to be available in 2012," said Morris with Resources for the Future. "There's a lack of structure in place in many countries to determine what is an eligible offset."

Offsets, he added, will be more expensive when they are based in countries where there is a good structure, such as Brazil.

A bipartisan group of energy experts last week issued a similar warning.

"The question is how large a role offsets can play without undermining the administrative feasibility and environmental integrity of the underlying program," the National Commission on Energy Policy said in a report.

The commission warned that "over-reliance on international offsets -- given the practical difficulty of assuring that emissions reductions claimed in other countries are real, permanent, additional, and verifiable -- could undermine program goals and political support, especially if substantial U.S. funds are leaving the country to support abatement efforts abroad rather than at home."

Assuming the average overseas project generates 100,000 offset tons per year, the report cautions that to get to the 1 million international tons allowed in the bill "would require the approval of 10,000 projects within three years of the start of the program." That number is "more than seven times the total number of projects registered under the Clean Development Mechanism (CDM) established by the United Nations as part of the Kyoto Protocol," it says.

Eben Burnham-Snyder, a spokesman for Rep. Markey, said that "there hasn't been the kind of robust market that would come" with a program limiting U.S. emissions.

"I'm pretty sure some projects would come on pretty quickly," he said.

Senior reporter Darren Samuelsohn contributed.

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