Nov 24, 2008

Early Action Bonuses for Carbon Emission Reductions and Offsets

It is clear that one priority of the incoming Obama Administration is the control and reduction of greenhouse gas emissions, principally carbon dioxide, in the U.S., though it is impossible to predict the exact form any legislation will take. In advance of any such legislation passed by the U.S. Congress to control greenhouse gas emissions, there is a potential opportunity for companies to take advantage of possible early action credit for carbon emission reductions.

The Lieberman-Warner Climate Security Act of 2007 (S. 2191, changed to S. 3036 as a substitute bill) was the only proposed legislation considered by one of the houses of Congress. It was considered by the U.S. Senate last summer. While it did not pass, it provides insight into what might be included in climate legislation to be considered under the Obama Administration. One important provision in that legislation, which exists in various forms in the other proposed comprehensive climate change legislation being considered in Congress, is the early action provision contained in Section 3201. That provision, and related provisions in the bill, provide for companies that take action before the enactment of the legislation to reduce carbon emissions, or to create carbon offsets on land owned by such companies, to receive early action bonuses in the form of emission allowances. The legislation provides that in the first five years in which greenhouse gas emissions are capped–which would have been 2012 – 2016 under the bill–the U.S. EPA would distribute nearly 885 million allowances to early acting companies. One study projects that those allowances will be worth around $18 apiece in 2015, and $101 in 2050. Thus, the early action bonuses under the bill would be worth more than $15.9 billion in 2015, and more than $89.3 billion in 2050.

Under the proposed legislation, there are a number of ways to earn early action bonuses. All require that “verified and credible” reductions be registered before the date of enactment of the legislation. Several methods of registration are authorized under the proposed legislation.

Activities that could be eligible for early action bonuses include:

  • Reduction from actions taken explicitly to reduce greenhouse gas emissions;

  • Actions taken to reduce costs and energy usage that also result in greenhouse gas emission reductions; and

  • Actions to take greenhouse gases out of the atmosphere, such as reforestation, as long as they are taken on a company’s land (for example, planting of trees in buffers).

Of course, any company that decides to undertake programs designed to achieve early action bonuses does so at the peril that eventual legislation will not include such bonuses, or that the requirements for the bonuses are not met by the actions taken. However, if your facilities are undertaking or have undertaken programs that result in reduction of emissions of carbon dioxide and other greenhouse gases, it would benefit the relevant company to undertake them in such a way, and register them, as to qualify for bonuses under currently proposed legislation. Also, if facilities have undertaken programs aimed at efficiencies, and those programs also resulted in greenhouse gas emission reductions, a little effort now to document and register those reductions could have significant benefits under the eventual legislation.

To discuss these opportunities in more detail, please contact a member of Smith, Gambrell & Russell’s Sustainability Practice Group.

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