California Air Resources Board

Under the Cap-and-Trade Program, covered entities may use compliance offset credits to satisfy a small percentage of their overall compliance obligation.  This percentage – called the quantitative usage limit – applies to each individual covered or opt-in covered entity for each compliance period.

Quantitative Usage Limits

Compliance entities may use compliance offset credits to meet up to 8 percent of their compliance obligation for emissions through 2020; 4 percent of their compliance obligation for emissions from 2021-2025; and 6 percent for emissions from 2026-2030.  Starting with 2021 emissions, no more than one half of the quantitative usage limit may be sourced from projects that do not provide direct environmental benefits in the state (DEBS).

Direct Environmental Benefits

Assembly Bill 398 (AB 398; Chapter 135, Statutes of 2017) defines projects that meet the DEBS requirement as projects that result in “the reduction or avoidance of emissions of any air pollutant in the state or the reduction or avoidance of any pollutant that could have an adverse impact on waters of the state.”

In order to demonstrate that an offset project provides these direct environmental benefits in the state, the Offset Project Operator or Authorized Project Designee, or the holder of offset credits, must comply with section 95989 of the Cap-and-Trade Regulation.

Offset projects that are found to meet the requirements of section 95989(a) or section 95989(b) (further described below), will include a “DEBS” flag within the Compliance Instrument Tracking System Service, and will also be reflected in the ARB Offset Credit Issuance tab of the ARB Offset Credit Issuance Table. This table will be updated with a new column to identify whether the project fits under section 95989(a) for being automatically considered to provide DEBS, or section 95989(b), for applying and receiving an affirmative DEBS determination. The table will link to application and determination documents for projects qualifying under section 95989(b).

CARB has provided an Application for Direct Environmental Benefits Status form. Projects wishing to apply pursuant to section 95989(b) may complete and submit this form.

§ 95989. Direct Environmental Benefits in the State.

1. Section 95989(a)

Pursuant to section 95989(a), offset projects that are located within, or that avoid GHG emissions within, the State of California are automatically considered to provide direct environmental benefits in the State. This determination with respect to projects located in the State is based on the following:

Compliance Offset Protocol Livestock Projects

Livestock projects reduce the need for fossil-based fertilizers, reduce runoff into waters of the state, decrease dependence on fossil fuels—the combustion of which releases air pollutants—by meeting on-dairy energy usage needs and providing energy to the local grid, and reduce odors from the dairy. (US EPA 2018a) In addition, methane is a precursor of ozone. As noted in California’s Short-Lived Climate Pollutant (SLCP) Strategy, the photo-oxidation of both methane and carbon monoxide lead to the production of global background levels of ozone, which itself is not only a powerful SLCP but also a regional ground level air pollutant. (CARB 2017c) Reducing methane emissions, aside from the GHG benefits, also reduces the production of ground-level ozone. (WHO 2015) The SLCP Strategy stresses this point by noting that “[o]zone negatively impacts human health, and can lead to asthma attacks, hospitalizations, and even premature death. It impairs the ability of plants to absorb CO2, thereby suppressing crop yields and harming ecosystems. Ozone also affects evaporation rates, cloud formation, and precipitation levels. In addition to the direct climate benefits of cutting methane emissions, it can also reduce global background levels of ozone pollution and provide additional climate, health, and other benefits.” (CARB 2017c) As such, livestock projects located within the State provide DEBS by reducing or avoiding emissions of air pollutants in the State and reducing or avoiding pollutants that could have an adverse impact on waters of the State.

Compliance Offset Protocol Ozone Depleting Substances (ODS)

ODS projects destroy chlorofluorocarbon (CFC) and hydrochlorofluorocarbon (HCFCs) pollutants that would slowly leak to the atmosphere resulting in the destruction of the stratospheric ozone layer, in addition to their high GWPs’ impact on climate change. (UNEP 2018) For ODS projects that source ODS from within the State, destroying the ODS has a GHG benefit which results in offset credits under the Protocol; but there are also ozone related benefits from destroying these gases that are in addition to the GHG benefits for which the projects are credited. Additionally, the destruction of CFCs that could otherwise be reclaimed and reused in older refrigeration units will accelerate the conversion to newer more energy efficient units that will reduce emissions of GHGs and criteria and toxic pollutants by reducing electricity demand. (US EPA 2002) As such, ODS projects that contain material sourced from within the State provide DEBS.

Compliance Offset Protocols for Urban Forest and U.S. Forest Projects

Urban and U.S. forest projects deliver air quality benefits by the cooling effect of tree shade (for urban projects) and by removing certain pollutants (leaves and needles have surface area that can allow for removal (deposition) of ozone, nitrogen dioxide, and to a lesser extent particulate matter). (CARB 2012) Healthy forests, with reduced fuel loads, help reduce the risk of wildfire and local air quality risks. (Forest Climate Action Team 2018) In addition, healthy forests, with improved management and/or avoided conversion projects, reduce the risk of runoff into waters of the state. (CARB 2017a) Moreover, reduced harvesting will reduce fossil fuel usage by equipment and vehicles which will result in reduced energy consumption (CEC 2005) and reduced criteria, toxic, and GHG emissions that are not accounted for in the protocol. All of these benefits are in addition to the GHG reductions for which urban and U.S. forest projects would receive credits for and these project types located within the state therefore provide DEBS.

Compliance Offset Protocol Rice Cultivation Projects

Rice cultivation projects reduce the need for agricultural water, a water quality benefit, which will result in reduced fossil fuel consumption (CEC 2005) from conveying water and, therefore, reduce criteria, toxic, and GHG emissions that are not accounted for in the protocol. In addition, methane is a precursor of ozone. As noted in California’s Short-Lived Climate Pollutant (SLCP) Strategy, the photo-oxidation of both methane and carbon monoxide lead to the production of global background levels of ozone, which itself is not only a powerful SLCP but also a regional ground level air pollutant. (CARB 2017c) Reducing methane emissions, aside from the GHG benefits, also reduces the production of ground-level ozone. (WHO 2015) The SLCP Strategy stresses this point by noting that “[o]zone negatively impacts human health, and can lead to asthma attacks, hospitalizations, and even premature death. It impairs the ability of plants to absorb CO2, thereby suppressing crop yields and harming ecosystems. Ozone also affects evaporation rates, cloud formation, and precipitation levels. In addition to the direct climate benefits of cutting methane emissions, it can also reduce global background levels of ozone pollution and provide additional climate, health, and other benefits.” (CARB 2017c) As such, rice cultivation projects located in the state provide DEBS.

Compliance Offset Protocol Mine Methane

To date, there are no mine methane capture projects located in California. However, mine methane capture projects can decrease dependence on fossil fuels—the combustion of which releases air pollutants—by meeting mine energy usage needs and providing energy to the local grid. In addition, methane is a precursor of ozone. As noted in California’s Short-Lived Climate Pollutant (SLCP) Strategy, the photo-oxidation of both methane and carbon monoxide lead to the production of global background levels of ozone, which itself is not only a powerful SLCP but also a regional ground level air pollutant. (CARB 2017c) Reducing methane emissions, aside from the GHG benefits, also reduces the production of ground-level ozone. (WHO 2015) The SLCP Strategy stresses this point by noting that “[o]zone negatively impacts human health, and can lead to asthma attacks, hospitalizations, and even premature death. It impairs the ability of plants to absorb CO2, thereby suppressing crop yields and harming ecosystems. Ozone also affects evaporation rates, cloud formation, and precipitation levels. In addition to the direct climate benefits of cutting methane emissions, it can also reduce global background levels of ozone pollution and provide additional climate, health, and other benefits.” (CARB 2017c) As such, if any mine methane capture projects are located within the state, they would provide DEBS by reducing or avoiding emissions of air pollutants in the state.

See Staff Report: Initial Statement of Reasons from the 2018 rulemaking for more information.

2. Section 95989(b)

Section 95989(b) specifies a process for out-of-state offset projects to provide documentation to CARB to demonstrate that they also provide DEBS. This documentation should be in the form of peer reviewed scientific papers, reports from governmental or multinational bodies such as the Intergovernmental Panel on Climate Change, or project specific data. These projects may utilize the form described above.

The regulation also specifies timing requirements for the submittal of the documentation identified above. For new offset projects that have not previously been issued ARB offset credits, the documentation must be submitted during the first (initial) reporting period. For existing offset projects, that have previously been issued ARB offset credits, the documentation must be submitted to CARB for review no later than December 31, 2021.

Once a project has been determined by CARB to provide DEBS, the project will be considered to provide DEBS for the duration of the project life.