The Dingell Boucher climate change bill, released earlier this week,  would establish a cap-and-trade program in the US.  The bill contains two major provisions for carbon offset credits.  Carbon offset credits are generated by projects that reduce greenhouse gas (GHG) emissions, and must be “real, verifiable, and additional” to business-as-usual emission reductions.  The offset credits would be purchased from project developers by regulated entities as a way of fulfilling compliance obligations in the future cap-and-trade program.

One provision creates a domestic offset program, enabling qualifying emission-reduction projects within the United States to generate credits for use within the cap-and-trade system.  The statute would initially allow credits from the following types of projects;  1) methane collection and combustion at active underground coal mines; 2) methane collection and combustion at landfills; 3) methane collection and combustion involving manure management; and 4) afforestation or reforestation of areas not forested as of January 1, 2008.  Other projects types may be brought into the offset program after review by the EPA.

The second provision is creates an international emission allowance and offset credit program.  This allows credits generated under a qualifying international program to be used for compliance within the future US cap-and-trade program.  There is no specific list of eligible project types, though the “methods, protocols, and standards for approval of such international offset credits shall be at least as stringent as the methods, protocols, and standards applicable to domestic offset credits . . . .”  This means that projects developed under the Kyoto Protocol’s Clean Development Mechanism (CDM) could be permitted in an eventual United States cap-and-trade system.

The Dingell Boucher authors have clearly studied the various successes and failures of the CDM, and designed the US program to avoid problems that have plagued the CDM’s integrity and effectiveness.  For example, the destruction of hydrofluorocarbons is omitted from the Dingell Boucher proposal,  which is an area where many have questioned the legitimacy of CDM credits generated by the chemical manufacturing sector.

For further information about this topic, please contact Akin Gump.