For Out of State Offset Projects, Uncertainty Prevails | Scorcher
Peter Weisberg, The Climate Trust
Weekly Policy and Finance Update – August 7, 2017
|Bottom line | California’s cap and trade program extension changes the landscape for carbon finance and ensures long-term demand for offsets from in-state projects.
California’s cap and trade extension changes the landscape for carbon finance. Before the extension was finalized, lenders and investors significantly or completely discounted offset value after 2020. Assembly Bill 398 changes that for California-projects. Significant, long-term demand for offsets from California projects is now ensured by law.
For out of state projects, however, uncertainty remains. At the reduced usage limits, it is now possible that out of state projects could generate more credits than are allowed to be used. If this occurs, a large discount could develop between California and non-California offsets. Continued uncertainty for out of state offsets will unfortunately dampen the price signal the offset market can send to agriculture and forestry greenhouse gas mitigation projects throughout the U.S.
A lot remains to be determined. ARB’s rule-making will finalize the interpretation of ambiguous language in AB 398, clarifying the definitions of in-state offsets and the size of the out of state pool allowed to be used. Larger policy and legal questions about the constitutionality of the in-state preference and Ontario and Quebec’s response will be answered. And, finally, additional U.S. states are likely to add to California’s demand by increasing the ambition of their own climate policies during this period of federal inaction.
The in-state preference is an unfortunate additional complication, but the offset market will carry on managing and mitigating these types of longer-term uncertainties.
Research and Resources
Impact Analysis of AB398 on California’s Cap and Trade Market
California Carbon and American Carbon Registry, July 13, 2017
Top News Headlines
California Shows How States Can Lead on Climate Change
New York Times, July 24, 2017
Nothing But Clear Skies Blog
A Missed Opportunity in California’s Climate “Victory”
Mik McKee, The Climate Trust, July 31, 2017
Image credit: Flickr/Bemep