Offsets take off
Dr. Charlotte Streck, director of Climate Focus, emphasized another new direction in the power sector: the use of offsets. She said that an offset represents an emission reduction obtained outside of a well-defined cap-and-trade program that can then be used to “offset” increased emission under the cap. She described emission reductions as being calculated against a baseline, with technology benchmarks or performance standards.
“Offsets act as price valves and can significantly lower U.S. utilities’ cost of compliance,” Streck said.
Streck pointed to the Kyoto Protocol as an example of international offset standards. Under the Kyoto Protocol (the U.S. is not a signatory to this treaty), the Clean Development Mechanism is an arrangement allowing industrialized counties with a GHG reduction commitment to invest in projects that reduce emissions in developing counties as an alternative to more expensive reductions in their own countries.
She discussed the emerging U.S. federal offset standards as exemplified by the proposed Lieberman-Warner bill. This legislation contains a number of provisions related to offsets. Examples include rules pertaining to non-agricultural-related methane destruction and carbon capture and sequestration. The bill does not include international reduction credits, only international allowances.
As with any new type of program, there can be roadblocks to setting up offset projects, said Streck. For example, technical feasibility may be an issue if, for example, renewable energy projects are unavailable. Likewise, there might be a problem with financial viability if the offset revenue is not significant, depending on the type of project. Other problems can arise related to compliance with offset standards/methodologies and structuring appropriate sales/purchase strategies. She concluded her presentation by emphasizing that offsets are an important component of cap-and-trade systems and are essential to containing costs.
Moving beyond carbon
This year’s Carbon Constraint event highlighted the regulatory, technical, and financial demands the utility industry must deal with as it moves into a carbon-constrained economy. Fortunately, the conference provided attendees with insights and strategies to use in balancing these challenges with the need to continue maintaining their facilities cost-effectively.
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