Comment Log Display

Comment submitted December 13, 2010  
COMMENT ON PROPOSED ADOPTION OF A CALIFORNIA CAP ON GREENHOUSE GAS
EMISSIONS AND MARKET-BASED COMPLIANCE MECHANISMS REGULATION,
INCLUDING COMPLIANCE OFFSET PROTOCOLS – IMPLEMENTATION OF AB32

Comment by Laurie Williams & Allan Zabel on behalf of themselves as
private citizens of California and as volunteers, writing on behalf
of Citizens Climate Lobby, a non-profit organization located in San
Diego, California, asserting that adoption of the proposed offset
protocols is arbitrary and capricious and contrary to the intent
and requirements of AB 32, the California’s Global Warming
Solutions Act of 2006.  
Overall Point – AB 32 requires that greenhouse gas (“GHG”) offsets
be “real, permanent, quantifiable, verifiable, enforceable, and
additional.”  Adoption of the proposed Offset Protocols by the
California Air Resources Board is arbitrary and capricious and
should be rejected because the protocols for proposed GHG offsets
cannot meet these standards.  In addition, to the extent that GHG
offsets are not additional, they destroy the integrity of the
entire program by allowing additional GHG emissions from the capped
sector above the “cap” that will not be offset by additional
emission reductions elsewhere.  Finally, because California’s
program is looked to as a model and proof of concept, adoption of
this flawed mechanism would be extremely damaging to national and
international efforts to effectively reduce GHG emissions. 
Adoption of GHG offsets as part of the California program would
serve as a template for such programs, encouraging others to pursue
this flawed approach to the most urgent problem facing humanity,
increasing the chances of catastrophic climate change, and
defeating the stated purpose of AB 32.  Under the proposed action,
“covered entities can use offset credits to satisfy up to eight
percent of the entity’s total compliance obligations.”  See Notice
of Public Hearing at p. 5.  This 8% of the compliance obligation is
very significant percentage of the total reductions sought.

Fatal Flaws of GHG Offsets - To be credited as an offset, the staff
report states that a project “must also be additional to what is
required by law or regulation or would otherwise have occurred.” 
See ARB Staff Report, page 35 of 472.  (Emphasis added.)  Our
analysis focuses primarily on the latter requirement.  As
demonstrated in our Whistleblower Disclosure (“Williams/Zabel
Disclosure”), dated July 22, 2010
(http://www.carbonfees.org/home/Whistleblower_Disclosure_to_Congress_7-21-10.pdf
),
GHG offsets of the type that ARB proposed to adopt are fatally
flawed and cannot be fixed.  There is no reliable way to
distinguish offset projects which will occur because of the offset
incentive from those which would have happened anyway because of
the following four unfixable flaws of GHG Offsets:
•	Additionality: Whether reductions outside the capped sector are
additional is necessarily a hypothetical inquiry and such an
inquiry cannot reliably distinguish business-as-usual. 
Specifically, it is impossible to know what “otherwise would have
occurred” and therefore it is not possible to create an offset
program that reliably excludes business-as-usual activities from
being counted as “additional.” (See U.S. Government Accountability
Office discussion below, confirming this conclusion.)
•	Leakage/Shifting Economic Activity: In some cases, such as in the
context of forestry projects, the offsets will fail to appreciably
mitigate demand and the polluting activity (such as logging) will
simply shift elsewhere; 
•	Perverse Incentives to Increase Emissions and Keep Them Legal:
GHG offsets create perverse incentives to keep polluting activities
legal and in some cases to increase them, so they can keep being
sold as offsets (Note: this dynamic is recognized in the Ozone
Depleting Substances (“ODS”) Protocol re: HCFC-22 by-product HFC-23
destruction in the United Nations Clean Development Mechanism
(“CDM”), see ODS Protocol at p. 11 of 67); and
•	Unenforceable: The complexity and subjectivity of offsets renders
them impossible to certify, regulate or enforce. 
As explained in our discussion below of each of the four proposed
offset protocols suffers from one or more of these flaws and would
result in approval of non-additional projects in violation of AB
32.  As a result, it would be arbitrary and capricious to adopt the
proposed GHG offset protocols as part of the proposed cap-and-trade
program  

See also, U.S. Government Accountability Office, March 2009
―Observations on the Potential Role of Carbon Offsets in
Climate Change Legislation‖ at p. 12, GAO-09-456T
(http://www.gao.gov/new.items/d09456t.pdf).  “Because additionality
is based on projections of what would have occurred in the absence
of the CDM [United Nations Clean Development Mechanism], which are
necessarily hypothetical, it is impossible to know with certainty
whether any given project is additional.”  (Emphasis added.) 

Keeping Our Eyes on the Wrong Ball - Offsets are described in the
Staff Report as a “cost containment mechanism,” which offers
additional low-cost emissions-reduction opportunities.   See Staff
Report at page 14 of 472.  However, cost containment interferes
with another goal cited in the Staff Report -- to “stimulate
investment in clean and efficient technologies.” See Staff Report
at page 11 of 472.  Keeping the price of fossil fuel emissions
lower by allowing offsets delays investment in clean energy
technologies and energy efficiency by keeping fossil fuels cost
competitive.  As a result, such “cost containment” defeats the goal
of a rapid transition to clean energy and energy efficiency.  See
http://www.carbonfees.org/home/Cap-and-TradeVsCarbonFees.pdf

Critique of Proposed GHG Offset Protocols for AB 32:
The four offset protocols proposed for adoption by the ARB are
Livestock Manure (Digester) Projects, U.S. Ozone Depleting
Substance Projects, U.S. Forest Projects and Urban Forest Projects.
 We provide a specific critique of why each of the protocols cannot
meet the AB 32 requirements below:
(1)	Livestock Manure (Digester) Projects
The digester performance standard contradicts AB 32 requirement of
additionality:  
As noted above, key element of additionality is that the project is
additional to what “would otherwise have occurred.”  See ARB Staff
Report at p. 35 of 472.  
a.	Significantly Better Than Average:  The offset protocol for
Livestock Manure Digester Projects fails to meet this standard of
additionality by having a performance standard that allows all such
digesters to be offsets on the basis that a digester “is
significantly better than average.”  See Livestock Protocol at p. 9
of 68.  Thus, the protocol redefines “what would have occurred
otherwise” to include what is already occurring at some facilities.
 “Data shows that California livestock operations (dairy, in
particular) manage waste in a manner primarily in liquid-based
systems that are very suitable for digesters. Yet even in these
favorable conditions digesters are found on less than 1% of the
dairies,” (Id.) (however, the majority of the farms that currently
have digesters are significantly larger than the average California
dairy.) 
b.	Evidence that Digester Projects Can Be Profitable Without Offset
Payments:  A December 2009 announcement by the U.S. Department of
Agriculture and the U.S. Department of Energy indicates that
“Currently, only about 2% of U.S. dairies that are candidates for a
profitable digester are using the technology, even though dairy
operations with anaerobic digesters routinely generate enough
electricity to power 200 homes.”  See,
http://apps1.eere.energy.gov/news/news_detail.cfm/news_id=15685. 
The Department of Energy has confirmed that “A biodigester usually
requires manure from more than 150 large animals to cost
effectively generate electricity. Anaerobic digestion and biogas
production can also reduce overall operating costs where costs are
high for sewage, agricultural, or animal waste disposal, and the
effluent has economic value.  In the United States, the
availability of inexpensive fossil fuels has limited the use of
digesters solely for biogas production.  However, the waste
treatment and odor reduction benefits of controlled anaerobic
digestion are receiving increasing interest, especially for
large-scale livestock operations such as dairies, feedlots, and
slaughterhouses.”   See,
http://www.energysavers.gov/your_workplace/farms_ranches/index.cfm/mytopic=30005.


c.	Existing Projects:  The proposed program appears to allow
existing digester projects to count as additional to what
“otherwise would have occurred.”  The ARB staff report states, “The
proposed regulation also includes a process for offset credits from
qualified existing offset projects operating under specific offset
protocols to be accepted into the compliance offsets program.”  See
ARB Staff Report at p. 78 of 472.  This feature means that existing
projects -- project that are currently in progress – can be counted
as additional to “would otherwise have occurred.”  The net result
is a system that allows profitable, existing projects and
approaches to methane reduction to be used to allow emissions above
the cap in the allegedly “capped” sector. 

d.	Perverse Incentive to Increase Emissions (Digester Offsets May
Increase Emissions and Cause Other Environmental Harm):  The ARB
Livestock Manure Protocol Report notes that “The installation of a
BCS [Biogas Control Systems] at an existing livestock operation
where the primary manure management system is aerobic (produces
little to no methane) may result in an increase of the amount of
methane emitted to the atmosphere. Thus, the BCS must digest manure
that would primarily be treated in an anaerobic system in the
absence of the project in order for the project to meet the
definition of an offset project.”  See Livestock Report at p.  19
of 68, FN 5.  This footnote provides an important admission that
proposed Digester Protocol may encourage an increase in emissions
as a means to gain offset payments.  Specifically, manure could be,
and sometimes is, processed in an aerobic environment, producing
little to no methane.  An example is that manure can provide
valuable fertilizer to farming operations and be used instead of
petrochemical fertilizers.  However, by creating the offset
program, ARB may encourage facilities to first switch from an
aerobic to an anaerobic process (and hence increasing methane), so
that their farm can qualify to participate in obtaining offsets. 
This decision could also lead to increased use of petrochemicals
and other environmental harm.

e.	Perverse Incentive to Keep Methane Emissions Legal and Prevent
Regulatory Evolution:  In addition to potentially encouraging a
move to anaerobic conditions so that a dairy would qualify for
offsets, the Digester Protocol also creates an incentive for
additional market participants to oppose regulation that would
require either aerobic treatment or an anaerobic digester.  As
noted with respect to the other Protocols and in the Williams/Zabel
Disclosure, normal regulatory evolution would move in the direction
of prohibiting activities that are found to be harmful in
significant ways that were not previously appreciated or known.  In
this case, all facilities that engage in anaerobic storage of
manure for more than 150 cows could potentially be required to use
a biogas control system and destroy or sell the resulting methane
for energy.  A law that creates an offset market for this activity
creates opposition to a comprehensive regulation that would remove
this activity from the offset market and deprive these market
participants of the related revenue, creating instead an obligation
that has associated costs.  The heightened opposition to such
regulation should be analyzed as part of “what otherwise would
occur,” in order to fully consider whether the proposed offset
protocol creates truly additional reductions outside the capped
sector.

f.	Summary:  In summary, there are five types of evidence that it
would be arbitrary and capricious to approve the proposed Digester
Protocol for Offsets: (1) the protocol redefines additional as
“significantly better than average,” which clearly includes a type
of activity that is already occurring (non-additional) without the
offset incentive, (2) the protocol allows offsets for activities
that would be profitable even without the offset payment, (3) the
protocol allows existing projects to create offsets, (4) the
protocol creates a perverse incentive for some farms to increate
anaerobic manure storage to increase the chance of offset income,
and (5) the protocol increases the incentives for those who profit
from the offsets to fight new regulation that would require the
capture and/or use of the methane produced by livestock, as this
would deprive them of offset profits.  In light of these five
factors, the degree of additionality created by the Protocol is
unknowable and unverifiable and thus fails to meet the required
standards for AB 32 offsets. 

(2)	U.S. Ozone Depleting Substances (“ODS”) Projects
a.	Destruction of ODS from Refrigeration Equipment and Foam:  The
proposed ODS Protocol would grant GHG offsets for projects which
collect and destroy ODS from refrigeration equipment containing ODS
and from foam which was manufactured using ODS as a blowing agent. 
Both the ODS refrigerant and the ODS blowing agent must originate
from the United States.  See ODS Protocol at sections 2.3.1 and
2.3.2 (p. 22 – 23 of 67).  The ODS Protocol contains two major
flaws.  These flaws would allow potential project operators to
receive GHG offsets for claimed GHG emission reductions which are
not additional.  In addition, the ODS Protocol’s reliance on
unverifiable assertions and records generated by the offset project
operator would create opportunities for fraud which would be
extremely difficult or impossible prove once the fraud was
completed.
b.	Unsupported Assumptions:  In explaining how the performance
standard of destruction of ODS pursuant to the Protocol would be
additional, the Staff Report claims, without providing any
supporting citation or materials, that “Data shows that less than
1.5% of recoverable US sourced ODS are destroyed upon end-of-life
of the [refrigeration] equipment or [foam] material. This indicates
that collecting and destroying the ODS is above and beyond common
practice and therefore destruction meets the performance standard.”
 Staff Report, page 6.  In addition, the ODS Protocol assumes that
all ODS recovered from refrigeration equipment is reclaimed for
further use.  ODS Protocol at sections 2.3.1 and 5.1.1.
c.	Destruction of ODS during Business-As-Usual: The combination of
these assumptions is important for claiming that all ODS destroyed
pursuant to the Protocol are additional for purposes of generating
offsets.  If ODS removed from refrigeration equipment is not always
reclaimed and reused, but for technical and/or financial reasons is
sometimes destroyed, the destruction of this ODS would not be
additional because it would occur in the course of
business-as-usual.
d.	Barriers to Reclaiming and Reuse - Title VI of the Clean Air
Act:  In fact, not all ODS recovered from refrigeration equipment
is reclaimed and reused.  To be used as reclaimed refrigerant, ODS
must meet established specifications under Title VI of the Clean
Air Act.  To be economically viable as reclaimed refrigerant, ODS
removed from refrigeration equipment must not be mixed with other
types of ODS and must not be heavily contaminated with oils and
other impurities.  Either of these problems will most often make
the cost of bringing the ODS up to Clean Air Act specification
prohibitively expensive.  These problems regularly occur and a
significant amount of ODS removed from refrigeration equipment is
destroyed rather than being reclaimed and reused.  The ODS Protocol
would allow the generation of GHG offsets from this destruction.
e.	Barriers to Verification:  The ODS Protocol contains two glaring
enforcement weaknesses.  First, as stated above the ODS Protocol
requires that both the ODS refrigerant and the ODS blowing agent
destroyed in a project must originate from the United States.  This
requirement is not practically enforceable.  Once the foam or
refrigerant is destroyed, it will be virtually impossible for an
enforcement inspector to verify or challenge the paper records kept
by the project operator.  Second, this hopelessly flawed reliance
on paper records generated by the self-interested project operator
is a hallmark of the entire verification “methodologies” in the ODS
Protocol.  The temptations for a project operator to exaggerate or
outright fabricate records will be enormous.  If GHG offset prices
come close to the offset prices in the European GHG trading
program, destruction of a single pound of GHG could be worth nearly
$100.  Again, once all the real evidence is gone, e.g., the foam
and refrigeration unit are in the landfill and the ODS has
allegedly been destroyed, there is little, if any, hope of proving
the fraud.
f.	Emissions Above the Cap:  As with the Digester protocol above,
the net result of the unverifiable and non-additional offsets that
can be created under this protocol is a system that would allow
emissions above the cap in the capped sectors.
g.	Perverse Incentive to Keep Landfill Disposal of Foam Containing
ODS Legal:  Allowing offsets for ODS destruction from foam may also
create additional barriers to passage of appropriate regulations
that would require ODS destruction before foam containing these
substances could be brought to a landfill.  Once an offset activity
is profitable, those who are profiting will provide additional
resistance to the passage of legislation and/or regulations that
could provide an across the board, rather than piecemeal solution. 
In this sense, the proposed offsets do not meet the standard of
additional reductions beyond what would have occurred otherwise.
(3)	U.S. Forest Projects
a.	Reforestation, Improved Forest Management and Avoided
Conversion: The proposed U.S. Forest Protocol would grant GHG
offsets for three types of projects – reforestation, improved
forest management, and avoided conversion.  This Protocol contains
a plethora of very serious flaws.  The most serious of these flaws
concern the determination of whether any given forest project is
additional, i.e., whether the project would have occurred in the
course of business-as-usual.  For each type of forestry project,
the U.S. Forest Protocol established a performance test.  If the
project meets the applicable performance standard, the project is
deemed to be additional.  U.S. Forest Protocol at section 3.1.2.
(p. 34 of 131.)
b.	Performance Standard Approach to Additionality and
Business-As-Usual : We have set forth an analysis concerning the
common failures of a performance standard approach to determining
additionality in the Williams/Zabel Disclosure at pp. 9-11.  As
detailed below, the U.S. Forest Project Protocol includes a number
of these failures that result in include projects which would have
occurred in the course of business-as-usual.  This is because
performance standards of this type are, by their very nature,
almost always comparisons to projects which have actually occurred.
 In a market economy, the most advanced methods quite often give
the business using them a competitive advantage.  This is why these
advanced pieces of equipment and methods are most often
“significantly better than average” and “better than common
practice.”  In a market economy, they are the result of
business-as-usual.  It violates AB 32’s requirement of
additionality to grant offsets to such projects. 
c.	Improved Forest Management and the “Common Practice” Performance
Standard:  The U.S. Forest Protocol for improved forest management
projects contains several different performance standard flaws.  It
relies on calculations that involve mind-numbing complexity and a
series of subjective and unenforceable judgment calls.  This
protocol also relies heavily on “common practice” as its benchmark
for additionality.  The entire demonstration of additionality is
based upon “estimating baseline onsite carbon stocks” and comparing
this to “common practice” on “similar lands” in the area of the
project.  U.S. Forest Protocol at section 6.2.1.  (p. 64 of 131.) 
Since it is impossible to have an objective determination of
whether forest management projects are beyond what would otherwise
have occurred under this protocol, the offset performance standard
clearly fails to satisfy AB 32’s requirements that offsets be
“real, permanent, quantifiable, verifiable, enforceable, and
additional.”
d.	Reforestation - “Less Than 10% Tree Canopy Cover” Performance
Standards: For reforestation projects, the U.S. Forest Protocol
allows two possible performance standards, either of which could
lead to the approval of offsets.  One of the standards is the there
is currently less than 10% tree canopy cover.  In this case, the
protocol merely states that projects which occur on land that has
had less than 10 percent tree canopy cover for the last 10 years
are automatically additional.  No analysis, data, or rationale is
presented for this determination.  
e.	Reforestation  - Areas with “Significant Disturbance” - 
Alternative Performance Standards-  “Economic Cost Scenario” or
“Historical Not Engaged In or Allowed Timber Harvesting”:  For
reforestation projects which occur on land which has undergone a
“Significant Disturbance” (e.g., fire) projects are additional if
they either meet one of two performance standard.  For the economic
cost scenario (set forth in a two page appendix to the Protocol) or
if the “Forest Owner has not historically engaged in or allowed
timber harvesting.”  U.S. Forest Protocol at section 3.1.2.1.   
The economic cost scenario approach to additionality appears to
very heavily rely on data which either does not yet exist or have
not been made public.  Twice this part of the Protocol states that
certain economic information and assumptions can be found in “the
lookup table in the Forest Offset Protocol Resources section of
ARB’s website.”  U.S. Forest Protocol, Appendix E, p. 103.  We were
unable to locate this section of ARB’s website.  In addition, the
second test for additionality contains no explanation or number of
years which constitute “historically engaged in or allowed timber
harvesting.”  It is suggested, by example, that this qualification
would apply to municipal or state parks, but this is made clear or
exclusive in the Protocol.  U.S. Forest Protocol at section
3.1.2.1.  This completely subjective “standard” is neither rational
nor enforceable.
f.	Avoided Conversion Projects – Shifting Economic Activity: 
Finally, for avoided conversion projects (e.g., conversion of
forest to commercial, residential or agricultural land), the U.S.
Forest Protocol relies very heavily on appraisals of land value in
the various land use scenarios.  U.S. Forest Protocol at section
3.1.2.3.  This approach has two basic problems.  First, leaving a
forest uncut and unconverted to another use does not necessarily
result in fewer GHGs.  Forest products exist in a world market. 
The largest supplier to the U.S. of softwood (used, for example, in
building homes), is Canada.  If U.S. demand for softwood is not
diminished, the forest preserved in the U.S. will almost certainly
result in additional timber harvesting in Canada or some other
country.  This will result in no net decrease in GHGs.  In fact, it
would like result in a slight increase represented by the fuel it
takes to import the timber products.  Second, appraising land value
is hardly an exact science.  Anyone aware of the mortgage meltdown
should be aware that appraisals can be manipulated, fabricated,
and, essentially, purchased by a self-interested party.  Having a
“qualified” appraiser, as required by the Protocol, hardly
addresses this problem.
(4)	Urban Forest Projects
a.	Tree Planting and Maintenance:  The proposed Urban Forest
Protocol would grant GHG offsets for tree-planting and maintenance
programs carried out by municipalities, educational institutions,
and utilities.  This Protocol is the most benign, and probably the
most well-intentioned, of the proposed offset protocols.  However,
even the Urban Forest Protocol contains one serious flaw.
b.	Net Tree Gain:  The Urban Forest Protocol assumes that any “Net
Tree Gain” represents an additional reduction in GHGs.  While any
Net Tree Gain is a happy thing for the environment, people, and the
livability of our communities, these gains do occur in the course
of business-as-usual.  A case in point is the urban forest project
carried out by San Francisco’s Department of the Environment.  In
its September 2009 Annual Report to the Mayor and Board of
Supervisors, San Francisco’s Urban Forestry Council noted that a
five-year plan, initiated in 2004, had resulted in the planting and
maintenance of 26,408 trees.  This occurred well before the
incentives of GHG offsets.  See Annual Report, September 2009,
http://www.sfenvironment.org/downloads/library/sfe_urban_forest_annual_report_2009.pdf.
c.	Emissions Above the Cap:  Ultimately, for an offset protocol to
have integrity, the results of all offset projects must be the
result of the financial incentive.  It this is not the case, the
financial gain for the “would-have-happened-anyway” project is
merely a gratuitous reward.  While cities and other institutions
would appreciate the extra revenue for planting and maintaining
trees they would have planted and maintained anyway, the problem is
that all non-additional GHG offset will inexcusably undercut the
goal of the associated environmental program, reducing emissions. 
Any such non-additional offsets, will result in allowing additional
unjustified emissions above the cap in the capped sectors. 
CONCLUSION
It is critically important for ARB to resist the temptation to make
offsets part of California’s cap-and-trade program.  Given that
rapid transition to cleaner energy and energy efficiency is
critical to avoiding global climate disruption, California cannot
afford to endorse a program that would allow increases in emissions
in the capped sector above the cap to be “offset” by unverifiable
reductions that overlap with business-as-usual.  A system that
allows such offsets will encourage other jurisdictions to follow
suit and create a system that locks in climate degradation and the
attendant harsh consequences.  While these offset protocols are
supported by interests that would like to profit from the protocols
and by continued emissions in the capped sectors, they would create
a huge loophole of non-additional offsets and would delay effective
action in ways that are likely to be tragic for today’s young
people and for future generations.  
While we agree that it would be positive for California to create
incentives for a net increase in additional forest cover, more
reliable capture and destruction or recycling of ozone depleting
substances, and reductions in livestock methane emissions, we do
not believe that GHG offsets are a reliable way to accomplish these
goals.  As demonstrated above, the proposed offset protocols are an
inappropriate mechanism for seeking these improvements because it
there are numerous barriers to reliably verifying that any given
project is additional.  As a result, it is arbitrary and capricious
and inappropriate for the Air Resources Board to approve the
proposed GHG offset protocols.