March 12, 2014 by CaliforniaCarbon.info
CaliforniaCarbon.info, March 12, 2014: The Air Resources Board (ARB) did not announce the award of any more offset credits (ARBOCs) today. The regulatory body makes such announcements on the second and fourth Wednesdays of every month. This is the second instance – after the second week of January – at which no credits were issued in the preceding two-week period.
With the null announcement, the number of credits that have been issued so far remains at 5,535,664. The first announcement of credits occurred on September 23rd, 2013, meaning we have now witnessed a half-year cycle in the award of credits. Prorating this supply forward would give us just over 11 million credits by mid-September 2014, which approaches the 13 million that is estimated to be the requirement for 2013 (as eight percent of the 2013 cap of 162.8 million).
Yet while such calculations are useful as a rough indicator of whether the offset program is moving at the speed which is required to perform its role in cap and trade, there are several considerations worth bearing in mind.
Firstly, compliance entities do not need to surrender the vast majority of the instruments due for any particular year until the November after the end of the triennial compliance period. Therefore, up to 70 percent of the instruments needed to cover for 2013’s emissions may in fact be surrendered only in November 2015.
Secondly, the offset budget works on the basis of the surrender requirement for a full compliance period, rather than a single compliance year. This means that a compliance entity may surrender up to 16 percent of their combined 2013 and 2014 obligations, either in November 2014 or November 2015. In other words, not the full 13 million will have to be surrendered this November if the market is to maximise its potential for offset usage.
Thirdly, many in the market expect the ARB to ramp up the issuance of offsets once everybody – project developers, verifiers, registries, and the regulators themselves – is more familiar with the requirements and procedures involved in crediting compliance offset projects and transitioning early action credits to full ARBOCs. This might happen as soon as later in 2014.
Even so, there remain concerns about the processes by which ARB handles the crediting of offset projects. Project developers have expressed their dissatisfaction that, till now, there have been no desk reviews completed for the secondary verifications required to turn Ozone Depleting Substances (ODS) ARBOC8s to ARBOC3s. This affects developers’ ability to deliver on forward contracts for the three-year product, and also to transact these over the counter.
On the other hand, developers working on other project types have suggested that ODS projects are gaining a slight advantage by virtue of the relative ease of their verification and review processes. The statistics would appear to back such an assertion up: of the 67 early action reporting periods which have been credited so far, 38 have been for ODS, versus 17 for forestry and 12 for livestock; of the 27 projects credited, 18 have been for ODS, versus 3 for forestry and 6 for livestock. This is in spite of the fact that there is near-parity between ODS and livestock in terms of the number of projects that have applied for transition from EAOCs to ARBOCs, at 31 to 30. There have been 20 forestry projects on the ARB’s list of potential ARBOC transitions. The ARB does not publicly release data on the number of compliance projects that have filed for crediting.
It remains to be seen how these areas of concern pan out in the coming months, even if it should be said that offset crediting has got off to a solid start.
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