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Understanding the Odd Language of the California Offset Requirement | Scorcher

Published: September 11, 2017 by Editorial Team

Peter Weisberg, The Climate Trust
Weekly Policy and Finance Update – September 11, 2017

Bottom line | The odd language requiring offset projects to provide California environmental benefits is likely a protection against a legal challenge that the policy violates the interstate commerce clause.

California’s cap and trade extension bill uses odd language to require offsets to come from California, stipulating that “no more than one-half may be sourced from projects that do not provide direct environmental benefits in the state.” If the legislature wanted to promote California projects, why use this indirect language about environmental benefits?

A significant number of Ozone Depleting Substances projects remove refrigerants from California but destroy them in facilities out of state. At first, we believed this “direct environmental benefits” requirement may be a reference to including these as in-state projects. Yet, this environmental benefit language can also be seen as a defense against challenges that the in-state provision violates the Dormant Commerce Clause. By focusing on California environmental benefits, the legislation makes the case that the intent of this provision is to benefit the California environment; not the California economy, at the expense of out-of-state actors.

California’s Renewable Portfolio Standard has an existing example that may be instructive here. To generate Renewable Energy Certificates to comply with the standard, the California Energy Commission requires power plants purchasing biomethane to demonstrate that biomethane has environmental benefits in California. The RPS Eligibility Guidebook sets a series of specific tests to determine if the fuel has an air, water or odor benefit within California—foreshadowing how the California environmental benefits of offsets could be assessed.

Whether or not this argument will survive a legal challenge will depend on a court’s assessment of the true intent of the California offset requirement.

Research and Resources

Renewables Portfolio Standard Eligibility
California Energy Commission, June 2015. See page 11 for in-state biomethane requirements.

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Image credit: Flickr/Bemep