Policy Options for Transitioning from Voluntary to Federal Offsets Markets

Nicholas Institute Discussion Brief on H.R. 2454, S. 1733, and S.2729

Author(s): Lydia Olander, David Cooley and Brian Murray

Published: January 2010

download: memo (.pdf) >

This brief examines the options for transitioning from the current diversified voluntary offsets market to a more standardized federal offsets program expected as part of an economy wide cap-and-trade program. This brief was developed with input from a working group on offsets transition that first met in August 2009 as part of a broader effort by the Nicholas Institute to convene researchers, Congressional staff, and various stakeholders to explore ways of containing the overall cost of climate legislation. Based on our working group discussions (see Appendix for list of group participants), we present a number of policy options for the inclusion of offsets during the interim period between passage of a bill and final rulemaking on federal offsets methodologies (Figure 1). What happens during this interim period (~2010–2015) will impact the supply of offsets generated in the early years of the cap, and thus, the cost of the cap-and-trade system. Our discussion and the options presented in this brief were originally based on the American Clean Energy and Security Act (H.R. 2454), sponsored in the House by Reps. Waxman and Markey. Since we started this process, two new bills have been introduced: the Clean Energy Jobs and American Power Act (S. 1733), sponsored by Sens. Kerry and Boxer, and the Clean Energy Partnerships Act (S. 2729)—a bill dealing specifically with offsets— sponsored by Sen. Stabenow.3 Many of the issues originally discussed for H.R. 2454 have been fully or partially addressed by these Senate bills, and as the legislative process in the Senate continues, additional bills and amendments are likely to emerge, which could further address the issues discussed here.