Demand Remains for Out of State Offset Projects

Peter Weisberg, The Climate Trust
Weekly Policy and Finance Update, As published by Carbon-Pulse – August 21, 2017

Given the reduced offset limits in AB 398, will there be demand for new, out-of-California offsets beyond the projects that are listed and registered today? The Climate Trust’s initial analysis indicates that existing listed and registered offsets will supply roughly 40% of the Western Climate Initiative’s demand for out-of-state projects from 2021 through 2030.

The key assumptions behind this conclusion include (but are not limited to) the following:

• Ontario and Quebec move forward with their post-2020 cap and trade systems at an 8% limit that does not discriminate against out-of-jurisdiction offsets (if Ontario and Quebec match California’s protectionism, listed and registered projects subsequently provide 70% of the now smaller demand for out-of-jurisdiction projects).
• Historically, offsets have been used to meet 4% of compliance obligations in California, while they are allowed to be up to 8%. We assume this continues and is matched in Ontario and Quebec; in California, for example, when the out-of-state limit shrinks to 2% we model that only half of that limit will be demanded (if higher prices and/or the smaller limit encourage entities to instead use 75% of their limit, increased demand means listed and registered projects will only satisfy 25% of the increased demand for out-of-state projects).
• Roughly 70% of the registered and listed projects with reporting periods in 2020 move forward to continue to generate credits throughout the remainder of the crediting period, except for the rush of forestry projects listed immediately before the protocol change (of which we assume only 30% will advance).

If already financed projects fulfill 40% of the out of state demand, is there enough market to stimulate new projects? While not the strong price signal needed to motivate the full potential of land-use emission reductions throughout the United States, we believe the Western Climate Initiative will demand roughly $3.1 billion of offset credits from outside California from 2021 through 2030. This leaves a remaining $1.9 billion that will not be satisfied by existing projects. And, as other states demand more immediate climate action, additional demand is expected. For those with a long-term outlook and patience for some policy uncertainty, long-term demand remains.

This analysis is preliminary, so please be in touch if you have comments on our assumptions or outlook. Just reply to this email.

Research and Resources

Forest offsets partner climate-change mitigation with conservation
Christa Anderson, Christopher Field and Katharine Mach, Frontiers in Ecology and the Environment, August 14, 2017

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Image credit: Flickr/Bemep