Common Tragedies

Thoughts on Environmental Economics

Offsetting everything

Posted by Danny Morris on April 3, 2009

Hey, did you know that this week is International Offset Week? Oh you didn’t? Well, that’s probably because it’s not, but with all the posts about it here on CT the past couple days it might as well be. In my world, it’s been 648 pages of climate legislation week. One of the big issues I’ve mentioned in previous posts was how the Waxman-Markey bill would treat offsets. Turns out, it luuuuuuuvvvvvvvvvvvvvsssss them. As Andrew pointed out yesterday, a lot of this legislation came straight from recommendations from the US CAP, and they loaded it up with as many offsets as they could find. Seriously. You should go out and horde lodgepole pine seeds and move on top of a covered landfill, because you could potentially be sitting on a gold mine in a few years. How many offset credits will be in a future carbon market? I’ve crafted a handy-dandy (updated!) table below to show you:

Year Emissions (mmt) Offsets (%) Emissions offset (mmt) Actual offsets (mmt)
2012 4,770 30 1431.00 1788.75
2013 4,666 30 1378.43 1723.04
2014 5,058 30 1517.55 1896.94
2015 4,942 28 1400.40 1750.50
2016 5,391 29 1553.15 1941.44
2017 5,261 27 1423.62 1779.53
2018 5,132 28 1413.58 1766.97
2019 5,002 28 1402.69 1753.37
2020 4,873 29 1391.89 1739.86
2021 4,739 29 1379.02 1723.77
2022 4,605 30 1366.67 1708.34
2023 4,471 30 1353.82 1692.28
2024 4,337 31 1340.44 1675.55
2025 4,203 32 1326.50 1658.12
2026 4,069 32 1311.95 1639.93
2027 3,935 33 1296.75 1620.94
2028 3,801 34 1280.88 1601.10
2029 3,667 34 1264.26 1580.33
2030 3,533 35 1246.87 1558.58
2031 3,408 36 1231.88 1539.85
2032 3,283 37 1214.13 1517.66
2033 3,158 38 1195.53 1494.42
2034 3,033 39 1176.04 1470.05
2035 2,908 40 1155.57 1444.47
2036 2,784 41 1134.47 1418.09
2037 2,659 42 1111.62 1389.53
2038 2,534 43 1087.79 1359.73
2039 2,409 44 1062.64 1328.30
2040 2,284 45 1036.06 1295.08
2041 2,159 47 1007.94 1259.92
2042 2,034 48 978.12 1222.65
2043 1,910 50 946.95 1183.69
2044 1,785 51 913.04 1141.30
2045 1,660 53 877.15 1096.43
2046 1,535 55 838.80 1048.50
2047 1,410 57 797.74 997.17
2048 1,285 59 753.67 942.08
2049 1,160 61 706.24 882.80
2050 1,035 63 655.06 818.83

For those of you not in the know, mmt = million metric tons.

In the major proposed legislation of the 110th Congress, few of them were willing to give offsets more than 30-35% of the total cap. As you can see, Waxman-Markey blows them out of the water, allowing 30% of the total cap to be achieved through offsets in the 1st few years before eventually increasing to 63% by 2050. That’s a lot of offsets. The first question I have is: are there enough offsets out there that are reputable enough to be included in a market starting in 2012? I’m pretty sure there are not, and ClimateWire tells me that a report by Point Carbon (sub req’d) has found essentially the same thing. So let’s see, you not only give emitters an easy out for emissions reductions, but also make it a substantial portion of the entire market, generating lots of demand for a product that is in short (and potentially questionable) supply. I’m not entirely sure how to describe your eventual outcome, but i think it might rhyme with mustard-duck.

Update: A little bit more on how the offset totals are calculated. The cap for offsets in any year is 2 billion tons. The legislation states that the way to determine the applicable percentage of offsets in any year’s market is to take 2 billion, divide it by 2 billion plus the emissions cap for the last trading year, then multiply that by 100 to get your percentage. BUT, remember that 1.25 offset credit = 1 emission credit, meaning your actual avoided/reduced emissions is 80% of the offsets in the market. I’ve updated the table above to illustrate things a bit further.

Later Update: After re-reading the bill itself, and looking at some other analyses, I realized I misinterpreted how the bill treats offset credits and emissions credits. I thought 2 billion was the absolute cap for offsets and actual emissions reductions would be 80% of that due to the 1.25 = 1 conversion rate in the bill. Now I think that that is the cap for credited emissions, which means the actual amount of capped offsets could go as high as 2.5 billion (125% of 2 billion). The table has been corrected again. I humbly throw myself at the feet of the readership and beg forgiveness. Can we make up? It pains me to think some of you might go to bed angry with me.

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9 Responses to “Offsetting everything”

  1. Max Epstein said

    Danny, how did you calculate offsets? If up to 2 billion offsets are allowed per year at a conversion rate of 1.25:1, then wouldn’t the percentage of offsets in, for example, 2030 be
    2/1.25/3.533 = 45.3%? I haven’t gone over the bill too thoroughly yet, so I must be missing something because I doubt (hope) that it doesn’t presume all compliance from 2042-2050 will be done via offsets. Although to be fair what happens once we hit 2042 is the least of my concerns at the moment with this draft.

    • Danny Morris said

      Max,

      I tried to answer your question a little bit with the update of the post. So, for example, in 2030, the offset percentage would be 2/(2+3.533)*100. Then you can convert that into actual emissions by 3.533*.35*.8. Make sense? And I must agree, 2042 is not at the top of my priority list yet regarding this bill, but that’ll change if can get my hands on old ag land…

  2. [...] really likes carbon offsets, which would be good news for business and bad news for enviros. Common Tragedies crunches the [...]

  3. Zach said

    Danny,

    I am having trouble coming up with your numbers….

    Example of 2050
    (2/2+1.160) = 63%
    1035*63% = 655 Offset credits allowed
    655*80% = 524 Offsets for compliance

    Is this incorrect?

    • Danny Morris said

      Zach,

      My calculations didn’t transfer over correctly. Your calcs are correct. I’ve fixed the table.

  4. [...] Tragedies (Danny, Andrew, Josh) have been blogging up a storm about carbon offsets. Start with Danny’s 3 April post and follow the links. I’m glad that they are paying attention to this, because it’s a [...]

  5. [...] really likes carbon offsets, which would be good news for business and bad news for enviros. Common Tragedies crunches the [...]

  6. Carlos Ferreira said

    Question: are these offsets only carbon sinks (trees, soil absorption and whatever takes carbon in), or are they also substitutes – such as investment in non-CO2 emitting technology, wind farms, etc? I remember reading that the Chinese government was considering dropping the bottom of the offset market, so this might be a sort of made in China less expensive emission permit.

  7. [...] in domestic legislation. Waxman-Markey included two billion tons worth of offsets annually, a significant proportion of overall U.S. emissions, the same amount as in the Kerry-Boxer bill introduced in the Senate last [...]

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