Top 10 implications of the American Power Act for REDD

The American Power Act (APA), a draft bill proposing a cap and trade system for reducing greenhouse gas emissions, was introduced yesterday in the US Senate by its two main sponsors, John Kerry (D) and Joseph Lieberman (I).The bill aims to reduce emissions by 17% by 2020 and by over 80% by 2050. A similar piece of climate and energy legislation, the American Clean Energy and Security Act, better known as 'Waxman-Markey' after its sponsors, was approved by the House of Representatives in June of last year.

Title VII of the APA would establish a Greenhouse Gas Pollution Reduction and Investment Program, which would regulate seven greenhouse gases, to be measured and reported in terms of metric tonnes of carbon dioxide equivalent (MTCO2e). It would place a cap on these emissions beginning in 2013, with annual reductions in the cap beginning in 2016.  Emission allowances under the cap could be bought and sold, and could also be satisfied through the purchase of offset credits up to an annual maximum of 2 billion MTCO2e. Offset credits could be generated by national and international projects that reduce greenhouse gas emissions.

Which brings us to the subject of REDD+ and what exactly this 987-page monster may ultimately mean for the world's forests. To help readers make sense of this, I have prepared a list of APA's top 10 implications for REDD. I will do my best to update this list as the bill is revised and, hopefully, is reconciled with Waxman-Markey, whose provisions would of course have their own set of implications for REDD+.

1.  APA would create a US compliance market for REDD+ offsets: As noted above, the bill would establish programs for both domestic and international offsets. Under these programs, US economic entities covered by the bill could satisfy a portion of their emissions reductions by purchasing REDD+ offsets. Under Section 756 (p. 442) of the bill, APA would establish three categories for international offsets: (i) sector-based credits, (ii) credits issued by an international body, such as the UNFCC, and (iii) offsets from reduced deforestation.

2. International REDD+ offsets could cover up to 500 million tons of annual emissions under normal circumstances, with a possibility of increasing to 1 billion tons in any given year, depending on market circumstances  - Section 722 (p.335) describes rules related to "apportionment between domestic and international offset credits." According to these rules, "no covered entity may use international offset credits to demonstrate compliance for more than 25 percent of the maximum number of tons of greenhouse gas emissions...in any given year." Given that the total annual offsets allowed would be 2 billion tons, this would create up to 500 million tons of annual demand for international REDD+ offsets. However, the bill also provides for cases where, depending on market conditions, domestic offsets offered at or below a certain "allowance price" were expected to total less than 1.5 billion tons of GHG emissions. In such cases, the overall ceiling for international credits would be raised from 500 million to 1 billion tons for that year. Given that there do not appear to be any specific sectoral restrictions within that overall cap, demand for international REDD+ credits could in such years conceivably reach up to 100% of international offsets, or 1 billion tons.

3. Countries would have to establish their eligibility in order to participate - REDD offsets could only be purchased from countries deemed eligible to supply them. Thus, "the Administrator [of the Environmental Protection Agency]...shall establish, and periodically review and update, a list of the developing countries that have the capacity to participate in deforestation and forest degradation reduction activities, and enhanced forest sequestration, at a national level." But what kind of capacity? The bill describes three distinct components of capacity. First, it calls for a country to have "technical capacity to monitor, measure, report and verify forest carbon fluxes for all significant sources of greenhouse gas emissions from deforestation and forest degradation and emission reductions from enhancing forest sequestration." Second, the bill calls for a country to display adequate institutional capacity, including "strong forest governance and mechanisms to ensure transparency and third-party independent oversight of offset activities and revenues, and the transparent and equitable distribution of offset revenues for local actions." Finally, an appropriate land use or forest sector strategic plan would need to be in place. Taken together, these provisions constitute a fair portion of what is typically described as "REDD Readiness."

4. Issuance of credits would be subject to various safeguards being met- When issuing credits, the EPA Administrator would need to need to ensure that the activity which created the credits was "designed, carried out and managed" according to certain standards. For example, forest management practices in place should be designed to improve the livelihoods of forest communities, maintain the natural biodiversity resilience and carbon storage capacity of forests, and not adversely impact the permanence of forest carbon stocks or emission reduction. In addition, credit-generating activities should: promote or restore native species and ecosystems; pay due regard to the rights and interests of forest-dependent communities and other local peoples, who should also have been consulted on, participated in, and be sharing in the profits from, the activity;  be undertaken in a transparent manner and subject to third-party oversight, and; should have their social and environmental impacts monitored.

5. National-level offset systems would be given priority, with sub-national offsets being phased out over time - Just as with countries (see #3 above), the EPA Administrator should establish a list of states and provinces in developing countries that are eligible to participate in the international offsets program, based on various criteria. In order for states and provinces to get on the list, the 'parent'  country must demonstrate that it is making a transition to a national program within five years. The bill would also allow a 'covered entity', i.e., a polluting enterprise which is purchasing credits, five years from the time it enters the program during which it may purchase credits from states or provinces. This somewhat odd provision would seem to have the effect of prolonging the market for sub-national credits, albeit at a greatly reduced level of operation.

6. While initial focus is on deforestation, scope can be expanded - "The EPA Administrator, taking into consideration the recommendations of the Advisory Committee, may expand the scope of creditable activities to include emisions that reduce emission from land use, such as those that address forest degradation or soil carbon losses associated with forested wetlands or peatlands." It is interesting to note here that forest degradation seems to be excluded as an elgible activity for international offsets initially. In essence, the draft bill seems to be calling for RED rather than REDD.

7. Participating countries would have to commit to zero-net deforestation after 20 years - A national deforestation baseline would need to be established in eligible countries to "establish a trajectory that would result in zero-net-deforestation by not later than 20 years after the date on which a national deforestation baseline has been established." This should include "a spatially explicit land use plan that identifies intact and primary forest areas and managed forest areas that are to remain while the country is reaching the zero-net-deforestation trajectory." It is unclear what penalty would be applied in case a country were to fail to reach its commitment.

8. An International Offsets Integrity Advisory Committee would be created - An independent, "International Offsets Integrity Advisory Committee" would be be set up within 60 days of enactment of the legislation.  The Committee would consist of nine members, selected by the EPA Administrator. Within 180 days of its establishment, the Committee "would provide recommendations to the Administrator regarding offset project types that should be considered for eligibility...taking into consideration relevant scientific and other issues...including methodologies to address the issues of additionality, activity baselines, measurement, leakage, uncertainty, permanence, and environmental integrity in the context of international offsets."

9. Offset projects will be assessed according to standardized methodologies  - Section 755 (p. 435) sets forth general requirements for international offset projects, including REDD+ projects. A key element of this section relates to methodologies to be used in determining the eligibility of different project types. The use of "standardized methodologies" is called for with respect to the following: (i) determining the additionality of emission reductions due to projects; (ii) establishing activity baselines for offset projects that reflect a "conservative estimate of business as usual performance"; (iii) determining incrementality vs. baselines, and; (iv) accounting for and mitigating potential leakage.

10. A substantial US market for REDD+ offsets would be created - Last but far from least is what I like to call 'US REDD.' Often ignored in all of the excitement about reducing tropical deforestation has been the possibility that credits could be earned from avoided deforestation in the US. If passed in anything like its present form, the APA would make that possibility a reality. It would enable domestic offsets to be generated from activities such as: forest management resulting in an increase in forest carbon stores, improved management or restoration of forest land and reduced deforestation. To the extent that REDD+ projects can compete domestically with other domestic offset types, US REDD should be able to secure a substantial portion of the 1.5 billion ton market that would be created for domestic offsets.