Reserve to Begin Accepting Compliance Offset Projects for California
The Climate Action Reserve (CAR) announced today they will begin accepting compliance offset projects for California’s cap and trade program. While the registry is not yet fully approved by California as an “Offset Project Registry” , CAR will begin accepting projects for listing. The move enables project developers to list projects using the four California-approved protocols for compliance – Livestock Methane, Forestry, Urban Forestry and Destruction of Ozone Depleting Substances (ODS). Listing the project before the start of the market will allow project owners to get a head start on document review and compliance protocol adherence. The move also positions CAR to be one the first approved registries to handle compliance-grade offsets in the California carbon market.

Going forward, the California Air Resources Board (ARB) will hold verification training in June for both registries and verifiers. In order for participants to get compliance-grade offsets issued, verifiers must have training in offset verification under the cap and trade program, registries must be approved by California, and a market tracking system must be in place. It is generally expected that verifiers will be trained and accredited and registries will be approved by the end of this summer.

The verifier training and the announcement by CAR are both positive steps in the development of the California offsets market. Both developments should provide more overall market confidence  in the offsets system and cap and trade. Compliance entities in California can use offsets for up to 8% of their obligation, and offsets are expected to provide significant cost containment, assuming there are enough offsets to meet the demand.

WCI Releases List of Offset Protocols for Evaluation
The Western Climate Initiative (WCI) Partner jurisdictions have released a list of offset protocols they will review for acceptance under the cap and trade program. The evaluation will cover the protocols listed below:

• Avoided CH4 from Manure Management (cows and pigs)
• Ozone Depleting Substances
• Coal Mine Methane
• Small Landfills

WCI may also consider reviewing these additional protocols: municipal and industrial waste water treatment, forests (all project types), fertilizer application N2O emission reductions, rice cultivation, and enteric fermentation.
 
While this does not mean the WCI (or a Partner jurisdiction) will definitely accept these protocols for compliance, it does provide regulatory clues, or signals, as to the potential future compliance-grade protocols. Historically, regulatory signals on offsets types have stimulated offset buying driven by speculation of acceptance. This activity has led to increased investment in these offsets types in advance of formal acceptance. Early investment is critical to ensuring California has access to an adequate supply of offsets.  
 
Quebec, which is expected to join California in a cap and trade market starting January 1, 2013, is expected to release their offset system regulation shortly for public comment. The draft regulation should provide additional clues as to that jurisdictions compliance offset program.

Evolution Markets on the Road
Members of Evolution Markets’ US Carbon Team will be speaking at the following carbon market events. Hope to see you there:

• May 25th – John Battaglia will provide an update on AB 32 implementation during UBS’ IPP/Utility Industry Equity Call.
• May 31st – Lenny Hochschild will participate in a panel discussion on “Managing Carbon Prices” during the Carbon Expo in Cologne, Germany.
• June 6th – John Battaglia will present at the U.S Forest Service Urban Forestry Workshop.
• June 8th – John Battaglia will present at the CAR Workshop for the Electric Power Industry.

If you have any questions on the current market conditions, please contact our US Carbon team at: +1 415.963.9137 or +1 914.323.0265.