Carbon offsets not perfect but can slash costs: CBO

Reuters 4 Aug 09;

NEW YORK (Reuters) - Carbon offsets could help slash costs in a U.S. market designed to reduce emissions of greenhouse gases, but questions linger about whether all of the mechanisms fully cut such pollution, a Congressional Budget Office report said.

Annual savings from offsets under the climate legislation passed by the House of Representatives could be 70 percent per year from 2012 to 2050, said the report from the CBO, which provides nonpartisan analyses to Congress on economic and budgetary issues.

"The cost savings to the economy generated by offsets could be substantial," the report said.

Offsets allow polluters like coal-burning power plants that would face regulation under a U.S. climate plan to invest in projects that aim to cut greenhouse gases when they determine it's too expensive to cut their own pollution.

Such projects include burning methane, a potent greenhouse gas, given off by pits of rotting manure instead of letting it escape to the atmosphere, or storing carbon in soil and plants through agricultural practices such as no-till farming or planting trees.

The climate bill passed by the House aims to cut emissions of greenhouse gases by 83 percent by 2050, under 2005 levels. Democratic leaders hope to bring climate legislation to a vote in the Senate in October.

The bill would allow for a total of up to 2 billion tons worth of offsets annually from both domestic and international sources.

The CBO estimated the cost of a permit to release a metric ton of carbon dioxide equivalent by 2030 in a plan that allowed offsets would be $40 a metric ton, versus $138 a metric ton in a plan that did not allow offsets.

The net cost in the United States for the program with offsets would be $101 billion in 2030, about 60 percent less than if the mechanisms were not allowed, according to the CBO.

LEAKAGE AND OTHER CONCERNS

But concerns have mounted "that the use of offsets can undermine the environmental goals of the program," according to the CBO.

In other words, it may be hard to verify if some offsets, particularly ones that aim to save forests in developing countries from being cut down, may not actually cut the volumes of international emissions of greenhouse gases they say they do.

Saving one portion of forest from being cut down, for example, could have the unintentional consequence of spurring lumber harvesters to cut down parts of other forests by increasing the price of wood. That problem, known as leakage, would have to be controlled, especially in developing countries.

"It might be relatively easy to measure the amount of methane captured in the United States from ... processes to treat animal waste, it might be quite difficult to measure the amount of carbon removed ... because of efforts to plant trees or avoid deforestation in developing countries," the CBO said.

One way carbon markets can keep offsets that are harder to verify in a trading plan is to discount them versus offsets that were easier to verify. Another way would be to limit the amount of the questionable offsets allowed in a trading plan.

(Reporting by Timothy Gardner; Editing by Walter Bagley)