New Research Shows Carbon Cap & Trade Program Is Fatally Flawed

Posted on September 1, 2019 by Bill Wolfe

California Offset Program Increases GHG Emissions & Provides Perverse Incentives

Similar Flaws In NJ RGGI Program 

Market Based Trading Replaces More Effective Regulation

No Way To Mend It – Time To End It

“Cap and trade with offsets would guarantee that we pass climate tipping points, locking in climate disasters for our children. Cap and trade benefits only Wall Street and polluters, sacrificing humanity and nature for their profits.” Dr. Jim Hansen

A new Report by academic researchers from Stanford, Berkeley & other universities provides a devastating critique of California’s greenhouse gas “cap and trade” program (hereafter “Stanford”).

The complex Stanford Report was picked up by the academic oriented media, who did a great job in understanding the complexity and clearly presenting the implications, for example, see: MIT Technology Review – a much lighter read than the academic paper. I recommend that you read the MIT Technology Review story before trying to tackle the full Report: (hereafter “MIT”)

A California program to curb climate emissions could have the unintended effect of extending the life of coal mines or encouraging farmers to switch to crops that produce far more greenhouse gases.

The risk of such perverse incentives in the state’s fledgling carbon offsets program is among the most alarming findings in a new paper by researchers at the University of California, Berkeley, Stanford and other institutions. And it’s just the latest evidence that such schemes can grossly inflate the emissions reductions achieved, or even inadvertently boost total climate pollution.

After you digest that MIT Technology Review article, you can read the whole Stanford Report:

Ultimately, relying on carbon offsets to lower compliance costs risks lessening total emission reductions and increases uncertainty in whether an emissions target has been met. As a result, offsets can be understood as a way for regulated emitters to invest in an incentive program that achieves difficult- to-estimate emission reductions rather than as quantifiable and verifiable reductions equivalent to reductions under a cap. Substantial ongoing regulatory oversight is needed to contain uncertainty and avoid over-crediting.

The California program’s fatal flaws are mirrored to a degree in the northeastern States Regional Greenhouse Gas Initiative (RGGI), which also is a cap and trade program with offsets. RGGI’s offsets are limited to 5 categories. According to RGGI, Inc.:

The RGGI offset program is similar in design but narrower than the California program’s, but the fatal conceptual, design, policy, and technical flaws documented by the Stanford Report are virtually identical to the California program.

NJ DEP recently adopted new regulations to implement the RGGI program, but those rules do not adequately address the fatal flaws documented by Stanford.

California’s cap and trade program is far more robust in design and has far more resources and professional staff than NJ’s RGGI program, but even the California program can not adequately oversee the program because of its inherent design flaws: (Stanford)

In order to address uncertainty and contain the risk of over-crediting, offset program regulators must invest in substantial, ongoing, and often under-appreciated regulatory oversight. Yet to date, governance of environmental integrity concerns in the California offsets program is focused on the initial development of protocol rules, rather than their ongoing oversight and reform. (page 6)

The most recent Stanford Report is not alone in documenting fatal flaws of the California program.

A prior Report by Berkeley found serious flaws of particular concern to NJ, flaws that I have been writing about in the context of the Sparta Mountain logging scheme.

The MIT Technology Review paper spells it out by highlighting egregious flaws documented in the Berkeley analysis of the California forestry offset program: (MIT)

But the [Stanford] paper comes on the heels of an April report by the same lead author, Barbara Haya, who leads the Berkeley Carbon Trading Project at the Center for Environmental Public Policy. It found that California’s US Forest Projects protocol—which accounts for more than 80% of the credits issued to date—may have already inflated emissions reductions by 80 million tons of carbon dioxide. That’s a third of the total cuts that the state’s cap-and-trade program was expected to achieve in the next decade, and it suggests landowners could have earned hundreds of millions of dollars for carbon dioxide reductions that may not happen (see “Landowners are earning millions for carbon cuts that may not occur”).

Get that? Alleged GHG emissions reductions were inflated by 80 million tons! Landowners were paid hundreds of millions of dollars by ratepayers for no reductions. BOOM!

It gets worse: (MIT)

Despite all these uncertainties, California is depending heavily on the offsets program to achieve real reductions. It could represent the full effect of the state’s cap-and-trade program through 2020, and half of it over the following decade, the new paper states. ARB declined to comment for this piece….

“I am deeply skeptical of the ability for any major offsets program to work,” Victor says. “The problem isn’t just accounting (although often that is hard) but also the intrinsic difficulty of measuring the counterfactual, or the level of emissions that would have existed otherwise.”

And some fatal flaws are inherent in the program and can not be fixed: (Stanford)

While the risks of over-crediting and perverse incentives can be reduced through careful analysis, conservative design decisions, and periodic review of protocol outcomes, uncertainty and risk are inherent to carbon offsets. This is because offsets pay for reductions rather than charge for emissions. Quantifying emission reductions involves estimating the difference between observed emissions and those projected in an unobservable, and therefore uncertain, counterfactual scenario that describes what would have happened without the offset program, including the effect of non- additional projects that are allowed to participate under the protocol’s eligibility criteria. Instead of internalizing an externality (as is done by charging polluters for their emissions), income created by paying for reductions can create a range of perverse incentives, including improving the profitability of high-emitting activities, inducing a shift in activity rather than a net reduction in emissions, and creating a disincentive for governments to regulate emissions. (page 5)

In addition to actually increasing GHG emissions and replacing regulation, cap and trade programs may also delay and weaken laws and regulations: (Stanford)

Carbon offsets can also create an incentive for governments to delay enactment of policies requiring reductions from sectors profiting from offset credits, since reductions are no longer eligible for offset revenue once they are required by law. For example, Latin American governments considered weakening laws in the early years of the CDM to increase CDM eligibility for certain projects (Figueres 2006). (page 8)

RGGI has very similar conceptual, design and implementation flaws as the California program – in fact, NJ’s RGGI program is not nearly as robust, provided resources, and staffed as California’s program  –  but it has not been rigorously scrutinized. I’m sure that similar academic investigation would produce similar – or worse – findings.

Where the hell are you Rutgers?   In the tank – or hiding under your desks?

I have long been a harsh critic of RGGI:

“Cap and trade with  offsets would guarantee that we pass climate tipping points, locking in climate disasters for our children. Cap and trade benefits only Wall Street and polluters, sacrificing humanity and nature for their profits.” Dr. Jim Hansen

Instead of the fatally flawed “market based” RGGI program – whose major objective and explicit design is to reduce polluters’ compliance costs – I’d prefer to see a traditional regulatory program, which would be much more effective in actually reducing GHG emissions (and have huge additional benefits of transparency, public involvement, public accountability, enforceability, and certainty in monitoring, quantification, measurement & verification).

One of the flaws I’ve emphasized is that the existence of the market based RGGI program is used as an excuse to avoid direct regulation of emissions.

Well, the Stanford Report documents exactly that problem. Check this out: (Stanford)

Offsets can also increase pressure on governments not to regulate emissions because any reductions that are legally required cannot be sold as offsets.

Statements made by staff of the U.S. Bureau of Land Management suggest that the Mine Methane Capture Protocol may have influenced federal decisions not to regulate methane emissions from coal mines on federally-owned lands during the Obama Administration. (page 5).

Did you get that?

Let me repeat that – based on words from Obama administration officials: the Obama administration chose not to regulate methane emissions from coal mines on federal lands because the California offset program addressed those emissions.

So, in addition to extending the life of coal mines, increasing greenhouse gas emissions, and providing perverse incentives, the fatal flawed market based cap and trade program is being used as an excuse not to regulate greenhouse gas emissions.

Time to end it, because there’s no way to mend it.

This entry was posted in Uncategorized. Bookmark the permalink.