1. Offsets as Common Currency: U.S. and Canadian Offset Programs World Resources Institute Exploring the Challenges and Opportunities for Establishing a North American Emissions Trading System November 14, 2007, Chicago, IL Kate Zyla World Resources Institute

2. Offsets as Common Currency: U.S. and Canadian Offset Programs World Resources Institute Greenhouse Gas Markets Cap-and-Trade Markets –Currency: Allowances –GHG emissions capped by total number of allowances –SO 2 and NO x model Carbon Offset Markets –Currency: Credits –GHG reductions purchased from uncapped sources Which Work Together… –Credits may be bought and used as allowances under most GHG cap-and-trade systems

3. Offsets as Common Currency: U.S. and Canadian Offset Programs World Resources Institute Greenhouse Gas Markets

4. Offsets as Common Currency: U.S. and Canadian Offset Programs World Resources Institute Greenhouse Gas Markets Large and growing… –EU ETS valued at $24 billion in 2006 –Kyoto Protocol offset market: $5.5 billion –Voluntary offset market: $100 million –Chicago Climate Exchange: $38 million * World Bank, 2006 Data

5. Offsets as Common Currency: U.S. and Canadian Offset Programs World Resources Institute Carbon Offset Markets Hitting stride, led by CDM… Source: World Bank / IETA, State and Trends of the Carbon Market 2007

6. Offsets as Common Currency: U.S. and Canadian Offset Programs World Resources Institute North American Compliance Offset Markets Current Programs: –Climate Trust –Alberta Numerous Others Contemplated or Under Development: –Regional Greenhouse Gas Initiative –California / Western Regional Offset Program –British Columbia –Manitoba –Ontario –Canadian Domestic Offset Program –U.S. Federal?

7. Offsets as Common Currency: U.S. and Canadian Offset Programs World Resources Institute Voluntary Offset Markets Current transactions around 10 million tons per year and growing* Valued at close to $100 million* Projected potential volume of 400 million tons ca. 2012? * World Bank / IETA 2007

8. Offsets as Common Currency: U.S. and Canadian Offset Programs World Resources Institute CDM Already a Common Compliance Currency CDM EU ETS: Linking Directive RGGI: link if price hits $10/ton California: link contemplated Australia NETS: link contemplated U.S. Federal: links contemplated

9. Offsets as Common Currency: U.S. and Canadian Offset Programs World Resources Institute CDM Also Underpins the Voluntary Market CDM Gold Standard Voluntary Carbon Standard ECIS Standard VER+ Standard 3C VER Standard CCB Project Design Standards UK & Norway “Best Practice” Standards Others

10. Offsets as Common Currency: U.S. and Canadian Offset Programs World Resources Institute But This Doesn’t Mean Full Harmonization… Current links are all one-way, unilateral No links (yet) between non-CDM offset programs and standards Significant differences exist among programs on: Accounting & Additionality Standards Monitoring & Verification Standards Registry & Enforcement Systems

11. Offsets as Common Currency: U.S. and Canadian Offset Programs World Resources Institute Why Harmonize Offsets? Reduce search costs for buyers Reduce transaction costs for sellers Establish common currency—first step towards future integration of emissions markets

12. Offsets as Common Currency: U.S. and Canadian Offset Programs World Resources Institute The Challenge: Different Priorities for Offsets Low-cost reductions that reduce overall compliance costs (and/or allow more ambitious emissions targets) Reduction opportunities in sectors difficult to cap Secondary social, economic, environmental objectives (co-benefits) Political constituencies

13. Offsets as Common Currency: U.S. and Canadian Offset Programs World Resources Institute Standardizing Offset Markets Project eligibility rules –Types of allowable projects –Geographic locations of projects Offset accounting rules –Real, quantifiable, permanent, additional, etc. –Standards-based vs. project-specific –Setting baselines –Leakage

14. Offsets as Common Currency: U.S. and Canadian Offset Programs World Resources Institute Standardizing Offset Markets, cont. Monitoring and Verification Procedures –Accuracy, frequency –Qualifications of verifiers Registries and Administrative Systems –How much project information is disclosed –Fair amount of harmonization possible—single institution?

15. Offsets as Common Currency: U.S. and Canadian Offset Programs World Resources Institute Possible Ways Forward: Key questions Are rules and requirements of existing North American offset programs similar enough that linking and/or integration seem feasible? How can programs whose rules are still being considered coordinate efforts with existing programs? To what extent should North America rely on and/or recognize credits generated under other (international) offset programs? Are there existing institutions that could provide a common registration/admin system?

16. Offsets as Common Currency: U.S. and Canadian Offset Programs World Resources Institute Standardizing Offset Markets Project eligibility rules –Types of allowable projects –Geographic locations of projects Offset accounting rules –Real, quantifiable, permanent, additional, etc. –Standards-based vs. project-specific Monitoring and Verification Procedures –Accuracy, frequency –Qualifications of verifiers Registries and Administrative Systems –How much project information is disclosed –Fair amount of harmonization possible—single institution?