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The Battle for Offsets: Health, communities and socioeconomics, with Derek Six of ClimeCo and Brian Shillinglaw of New Forests

January 19, 2017 by Billy Hamshaw

Last week CC.info caught up with Kevin Townsend of Blue Source, and Jeff Cohen of EOS Climate to discuss the economic and market argument for the continued inclusion of carbon offsets within the California Cap-and-Trade program.

In this, the second part of CC.info’s coverage on the ongoing offsets debate, Billy Hamshaw of CC.info spoke with Derek Six of ClimeCo and Brian Shillinglaw of New Forests to discuss the socio-economic and health aspects of California’s offset program.

CC.info – Billy Hamshaw: By way of introduction, could you briefly describe your role and your companies’ involvement within the WCI market?

Derek Six: I am the Senior Vice President and a director of ClimeCo corporation, an environmental advisory and trading company based in Boyertown, Pennsylvania with offices throughout North America. We serve as an offset project developer (OPD) for the destruction of agriculture methane and Ozone Depleting Substances (ODS) in the California carbon market. We are also involved in a number of other protocols for the voluntary markets.

Brian Shillinglaw: I am the director of U.S investments and operations for New Forests. New Forests is a sustainable timberland and environmental market investor with offices in Sydney, Singapore and San Francisco. Through our Forest Carbon Partners fund, we have managed over 450,000 acres of forest carbon offsets in the U.S and are a top ten supplier of offsets in the Californian market.

 

BH: One of the Environmental Justice Advisory Committee (EJAC)’s main issues with the offset program is that it lessens the emission reductions and co-benefits seen by those most at risk from heavy pollution and the worst effects of climate change. In what respects do you believe disadvantaged communities have benefited from the offset program, could you give some examples from your own projects?

DS: Absolutely. The argument for including an offsets program started out as one of cost containment: a lower cost mechanism to provide the reductions that California needed, and to provide some relief to the rate-payers in California.

But I think there are three other main points on offsets that get overlooked when you make that argument. I would like to argue that offsets provide an opportunity for innovation and practice changes, that they help to engage people in non-capped sectors, and that they have significant local co-benefits.

Because of the way the offset program is designed – you have to ensure additionality, and that is on-top of all the necessary regulations. That pre-requisite means projects have a large number of co-benefits to the communities where they are located.

There are two types of projects we are currently working on: ODS and Agricultural Methane in California. Not only do these projects eliminate harmful gases that would have otherwise contributed to climate change, but they also reduce odor and pathogens derived from the manure in local communities. In addition, they provide employment and can be a source of renewable natural gas or renewable electricity.

BS: There is one thing I would flag around environmental justice more generally. Without doubt it is an important policy goal, but it’s important to remember that it’s not just an urban concern. There are many rural communities, particularly native American communities, that have very significant environmental justice concerns and ambitions. The offset program can sustain and carry those in rural communities.

For example, the first project ever registered under the California compliance protocol was with the Yurok tribe in Northern California. The tribe have earned millions of dollars in revenues from this system for long term commitments to sustainable forestry. They are using that revenue to reacquire ancestral territory, and manage it for community benefit, watershed and salmon fishery health, and the wider climate. The tribe has a significant number of members below the federal poverty line, and thus fall within the definition of a disadvantaged community. The offsets program has made a real difference in meeting their economic and environmental goals.

BH: A quick look at the data reveals that only 27% of all issued offsets were generated within California. With all existing ODS facilities based out of state and the only three forestry projects listed in the last 2 years originating in Alaska, what would you say to those that argue the benefits are not being felt by communities in California?

BS: There are a lot of forestry carbon offsets in California, both with family forest landowners and Native American tribes. In addition to the Yurok tribe mentioned, we have also developed projects for a number of other tribes and family forest owners across the state that are using the system to support sustainable forestry and continued family land management goals – almost 60,000 acres in total.

The offset market is also attracting major participation across the California forestry sector, with hundreds of thousands of acres’ that are listed and seeking enrolment.

DS: When we talk about ODS projects in California, one of our business partners is Appliance Recycling Centers of America (ARCA). ARCA operates facilities across the country that take in household appliances and tries there best to recycle them as responsibly as possible with the goal of having zero land-filled waste from their operation. Although the destruction of the ODS has taken place out of state, the bulk of the activity is the collection, recycling and gathering of refrigerants which occurs to a great degree in California.

Compton has been one disadvantaged and low-income community which has benefited from the program. The residents of Compton have benefited from job opportunities created by ARCAs activity with the utilities in the surrounding area.

These utilities have worked with ARCA in developing appliance ‘return & rebate’ programs allowing them to replace heavily polluting household appliances with more efficient units with further cost benefits. This has also helped to reduce the load and impact of energy generation in California, as well as reducing the cost of compliance with the cap-and-trade program.

Had Californian residents not been incentivized to replace these refrigerators, the pollutants would have become airborne within those communities.

BH: Over the summer the California Assembly passed AB 197, a bill linked to AB 32. The legislation stipulates that the cap-and-trade program must prioritize local and direct emission reductions. What are your views on the interpretation of this to the offset program?

BS: AB 197 is drafted to prioritize tail pipe and on-site emissions reductions. The day after the legislation was drafted, the lead author explicitly outlined that it would not preclude cap-and-trade. The reason for this is that by its very nature, the existing system already leads to the majority of emission reductions resulting from regulated facility and tailpipe reductions.

Personally I am 100% supportive of the environmental justice goals and the aim to tweak AB 32 to maximize criterion pollutant emission reductions through the system. However, I do think though that it is very important that decisions to meet that goal are driven by the data.

I personally don’t believe that there has been enough research into identifying the key policy interventions that would truly minimize the criteria pollutants in the communities concerned. Once that analysis is conducted, I believe that most effective measures will be things like taking the worst polluting diesel trucks and cars off the roads, and taking measures to reduce wildfires. From a public health perspective, eliminating or reducing the offset quotas would not have any measurable effect on criterion pollutants. So if the goal is environmental justice, targeting the offset program doesn’t get you there.

 

BH: A fundamental aim of the offset program was to spur innovation in sectors outside of cap. So far we have seen the approval of only 6 protocols, whilst output has been dominated by 3. Do you believe that the program has driven the intended level of clean tech innovation?

DS: When we talk about innovation and the practice change piece, the opportunity to develop offset protocols allows people to think creatively, and come up with original solutions for emission reductions. It allows us to bring new technologies to scale. That being said, there are a tremendous number of innovations occurring beyond protocol development.

Forestry projects are bringing improvements to GIS mapping software. In agriculture, methane projects are creating improvements to flow meters, data monitors and improving connectivity for rural areas so projects can feed that data to developers. The cost of digesters and other kinds of project equipment are starting to come down as more and more offset projects encourage manufacturers to participate.

BS: Just because there are 3 protocols being used at scale, that doesn’t preclude a drive for innovation. When you have more than 5 million acres of forest enrolled worldwide, that is innovation. Innovation includes substantially aiding Native American communities with some of the most prominent environmental justice concerns in the nation. So I don’t think the measure of innovation is the number of protocols etc., the measure is the number of communities impacted and the extent of use of existing protocols.

 

BH: In keeping with the goals of AB 197, California’s allowance market has been an important source of revenue for investments in lower emission transport systems, the urban parks and green spaces, and the dissemination of clean technologies in low-income communities across the state. Unlike the allowance market however, offsets generate no state revenue. Do you think charging a small fee for credits traded on CITSS could be a suitable compromise to the debate on offset quotas?

DS: No I don’t think this is a necessary approach. The offsets program is driving direct socio-economic benefits which are being felt by low-income communities, the work of ARCA, previously mentioned, is a good example.

BS: I think it’s great that 25/30% of the auction revenues are being focused on the disadvantaged communities concerned – that’s a huge source of revenue for EJ priorities that doesn’t exist anywhere else in the US. Its notable that Washington State had an opportunity to introduce a revenue neutral tax in the last ballot cycle in November 2016, but both the environmental community and EJ community opposed it because it was not revenue positive. Essentially in Washington they wanted what California has: a revenue positive system that reduces carbon pollution. There is a consensus that the tax in British Columbia is not effectively reducing. So the positive revenue is a real strength of our program, and can be reinvested in R&D and adaptation, particularly for communities that bear a disproportionate burden of climate risk and air quality issues.

AB 32, the centerpiece of Californian climate policy, legally requires the Air Resources Board to satisfy multiple goals. As well as cost efficiency, one of the explicit requirements of the legislation is climate leadership. The system as designed meets all those objectives including the objectives of AB 197.

In my view, offsets are a form of economic diplomacy for climate mitigation. We are now seeing farmers, forest landowners and facilities, across the country, getting paid for climate mitigation. That changes hearts and minds, which is part of the explicit mandate of AB32. The system could certainly be tweaked to cut criteria pollutants, but I don’t think we should be eliminating a world leading system that has functioned demonstrably, instead we should slowly work to improve it.

 

Billy Hamshaw – (billy@californiacarbon.info)

CaliforniaCarbon.info would like to thank this week’s guest contributors and look forward to welcoming members from the Environmental Justice Advisory Council next week to highlight their key concerns and ambitions.

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