Nicholas Institute for Environmental Policy Solutions
Recent climate legislative proposals place a significant emphasis on greenhouse gas (GHG) offsets in uncapped sectors (e.g., agriculture and forestry) to reduce compliance costs of an economy‐wide cap‐and‐trade system, while incentivizing more environmentally friendly production. The most recent bill to be proposed is the Kerry‐Lieberman American Power Act. Section 734 of this bill establishes a comprehensive list of potentially eligible domestic offset activities. Among those included are “projects that reduce the greenhouse gas intensity per unit of agricultural production.” This output‐based intensity approach is a distinct departure from standard offset mechanisms for agriculture, which focus on absolute GHG reductions that are determined on a per unit area (acre or hectare) to which the practices are applied. While the focus of this discussion is offset mechanisms in regulatory or voluntary markets, insights can also be gained for low‐carbon fuel standards, supply chain requirements, and other low‐carbon strategies.