Carbon Traders Ask California Agency for Fake Offset Protection

May 20 (Bloomberg) -- Companies that unknowingly buy fake carbon-offset credits in California’s planned cap-and-trade program for greenhouse gases shouldn’t be forced to replace them with real ones, according to emissions traders.

The proposed carbon market, which is scheduled to start next year, “cannot work” if the state doesn’t change the “buyer liability” rules for offset credits, the Geneva-based International Emissions Trading Association and four other lobbying groups said in a May 2 letter to the California Air Resources Board obtained today.

California’s cap-and-trade regulation seeks a 15 percent cut in carbon dioxide and other greenhouse gases from power plants, refineries, factories, cars and trucks by 2020.

The program, similar to the federal cap-and-trade system President Barack Obama failed to get through Congress last year, requires companies to buy state-issued carbon permits or offset credits to account for their pollution. Offset credits come from unregulated sources, such as farms and forests, that voluntarily cut their pollution.

Some environmental groups have criticized carbon offsets. It’s hard to verify pollution levels at unregulated sources, meaning some credits will be awarded for cuts that either didn’t happen or would have occurred anyway without the cap-and-trade program, according to Friends of the Earth.

The risk of the Air Resources Board issuing offset credits that are later tied to fake pollution cuts is “very small,” the emissions trading group said in the letter. If buyers have to replace fake offsets themselves, the risk is large enough that they’ll probably “avoid buying offset credits altogether.”

Buffer Account

The Air Resources Board should change California’s cap-and- trade regulation to shield innocent offset buyers from this risk, the lobby groups said in the letter.

The board can create a “buffer account” by holding back 1.5 percent of the credits, which would be used to replace any carbon offsets found to be “flawed” after they’re issued, according to the letter. Only companies guilty of “malfeasance” would have to replace the fake offset credits themselves, according to the letter.

Among groups that signed the carbon-offset letter were the Carbon Offset Providers Coalition, the Coalition for Emission Reduction Policy, the Western States Petroleum Association and the Carbon Markets and Investors Association.

To contact the reporter on this story: Simon Lomax in Washington at slomax@bloomberg.net

To contact the editor responsible for this story: Larry Liebert at lliebert@bloomberg.net