LEGISLATION:

The Senate bill tinkers with touchy issue -- carbon offsets

Call it carbon offsets, round two.

Major climate legislation introduced yesterday in the Senate makes significant changes from a House version of the bill on offsets, or clean-energy initiatives that businesses can use to meet emission cuts outside their own facilities. The new text from Sens. John Kerry (D-Mass.) and Barbara Boxer (D-Calif.) shifts jurisdiction over a potential program to the president, rather than defining clear roles for U.S. EPA and the Agriculture Department.

It also establishes a new office of offsets integrity within the Justice Department to ensure that carbon credits actually block heat-trapping gases from the air and to enforce sanctions when they don't. The Senate bill also limits the number of offsets that can come from overseas, allowing them to account for a quarter of projects annually rather than the half called for in the House bill.

The total number of allowed offsets, which would pay for things like mass tree plantings, remains unchanged at 2 billion tons yearly.

Many environmentalists and academics praised the altered language as prevention against fraud, but some farm groups expressed disdain over the linguistic shift.

"It's taking a step backwards. It's not acceptable," said Fred Yoder of the National Corn Growers Association about the language shifting responsibility for an offset program to the president. Like representatives from other farm groups, he said the Agriculture Department needs to have clear authority over all projects in the agriculture and forestry sectors.

A delicate deal worked out on the House side by House Agriculture Chairman Collin Peterson (D-Minn.) gave the Department of Agriculture that role. Farm groups cheered the Peterson plan as a way to bring money to landowners who might get hit financially by climate regulations. They claim that only USDA has the expertise to work with farmers.

Many environmentalists distrusted the Peterson plan, however, as another agriculture subsidy that would do little to actually stop climate change.

The updated language does not rule out USDA's involvement, but does not guarantee it either. The bill simply directs the president to consult with "appropriate federal agencies."

Will farmers bolt?

Regardless, a bolting of farm groups from Kerry-Boxer creates a potential problem, considering the number of senators from America's bread basket that are needed to push a climate bill across the finish line, according to some analysts.

"Any perceived weakening of the [House] language is going to make it that much harder to keep the aggies at the table. It is about good faith," said Chelsea Maxwell, a former climate adviser to now-retired Sen. John Warner (R-Va.) who now works for the Clark Group.

Victor Flatt, a University of North Carolina law professor who wrote a blog posting on the new offset language yesterday, noted in an interview that preliminary versions of the Senate bill emphasized the role of EPA, rather than the Agriculture Department. The "punt to the president" language popped up later.

"This might indicate that Senators Boxer and Kerry prefer the EPA as the offsets administrator, but that they are willing to have some ambiguity on the issue if it helps win farm state votes," he wrote. That's not going to make farm groups any happier, he said.

A Democratic Senate aide said the Agriculture Committee would weigh in with suggested changes to the new offset text.

Already, a draft version of altered offset language, spearheaded by Sen. Debbie Stabenow (D-Mich.), is floating around Capitol Hill. It gives a greater, clearly defined role for the Agriculture Department.

Asked about potential pushback from farm groups about the altered language, the Democratic aide said, "Yes, I foresee that."

Pressure to move toward the House text

Yesterday, Sen. Blanche Lincoln (D-Ark.), the new chairwoman of the Senate Agriculture Committee, further stirred the pot by indicating that she "likely" would hold a markup of the climate bill, a move that would create significant pressure to shift the Kerry-Boxer language closer to the House text (E&ENews PM, Sept. 30).

The Democratic aide said that the pool of international offsets was shrunk, since many members of the Senate Environment and Public Works Committee, which Boxer chairs, do not trust the environmental integrity of overseas projects as much as that of domestic ones.

One challenge, however, with shrinking the international offset pool is the potential impact on the cost of a climate regime. There are also questions about whether the United States can supply enough offsets domestically to meet demand under the new text, according to offset experts.

A recent analysis by the Congressional Research Service found that inclusion of international offsets in a greenhouse gas cap shifts cost estimates by "60 percent" or more. That is because clean energy projects overseas, such as initiatives that prevent deforestation, often are cheaper than ones developed in the United States.

Less international offsets may mean higher costs

"A constraint on international offsets makes it much more likely you get a costly program," said Kyle Danish, an attorney who counsels the Coalition for Emission Reduction Projects, a pro-offset group.

Michael Wara, a law professor at Stanford University, added that a more limited role for international offsets could make climate negotiations tricky globally, since many developing countries are counting on U.S. dollars for offset projects.

Without them, it may be harder to bring these countries on board in a global warming treaty, he said.

Yet Alexia Kelly, an analyst at the World Resources Institute, said that international offsets are not always cheaper.

The Kerry-Boxer plan allows new types of projects, like those that cut ozone-depleting chemicals, to count as offsets, she noted. That could increase the supply of projects in the United States and make things on the domestic front more inexpensive than people are expecting.

The bill also loosens language in the House bill restricting offset projects that capture methane, Wara said. He said he didn't think the Kerry-Boxer plan would make costs prohibitive.

International offsets also have been a source of controversy, particularly through the Clean Development Mechanism, the program established under the Kyoto Protocol. The mechanism allows nations to meet obligations to cut greenhouse gases by investing in clean energy projects in developing countries. But there have been documented cases of abuse in the system.

For example, a recent study from the National Commission on Energy Policy, a bipartisan group of energy experts, notes that "by far the most common critique [of the CDM] is that many claimed reductions would have occurred anyway." In the United States, similar criticisms have emerged over the voluntary offset market.

For that reason, many welcomed Kerry and Boxer's proposal for Justice Department watchdogs on offsets, as well as toughened standards about how offsets would touch on public health.

"It shows more seriousness about making sure these offsets are taken seriously," Flatt said. "They really put the environmental and social interest of the public in the front and center."

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