Major US Power Companies Seek Offsets in Advance of Mandatory Caps
Washington D.C. 13/02/2007
Five US power companies are seeking to offset over nine million tonnes of carbon dioxide-equivalent through emissions reduction projects in the United States in anticipation of future mandatory caps on carbon emissions.
The new US Greenhouse Gas Offset Acquisition Initiative, run by the environmental consulting firm M J Bradley and Associates, together with offset buyer The Oregon Climate Trust, yesterday launched a nationwide request for project proposals aimed at reducing greenhouse gases.
The firms seek to offset emissions from power companies operating in the northeastern US, where nine states are creating a carbon trading system that will cap the amount of carbon dioxide their power plants may emit over the coming decades.
"We are looking for ways to meet the reductions required under the Regional Greenhouse Gas Initiative (RGGI, the northeast's carbon trading programme), and according to its rules companies can get 3.3 per cent of their reductions through offsets," Dan Ganest of Dominion Resources told Point Carbon.
RGGI's rules allow installations subject to caps to buy credits from projects that reduce greenhouse gases elsewhere in the US, for instance by re-growing forestland or capturing methane from landfills.
"We think there's going to be a scramble for those credits and that's why we're getting started early," Ganest said, adding that using the allowed percentage to its fullest, the company will need to offset roughly 295,000 tonnes of carbon dioxide equivalent. "This request for projects will get us about one per cent, or 100,000 short tons (90,718 tonnes)," he said.
Dominion, whose asset portfolio consists of about 28,000 MW of power generation, serves primarily the northeastern and mid-Atlantic regions of the US where the caps will become effective in 2009.
The other companies seeking offset credits are Conectiv Energy, Entergy Corporation, NRG Energy and Public Services Enterprise Group, all of which have significant generation facilities in the northeast US. Collectively, the firms' annual revenues exceed $60 billion (€46 billion) and their total power generation capacity exceeds 100,000 MW.
The Acquisition Initiative offers two "windows" through which applicants can propose offset projects: one to generate offsets intended for use in RGGI, and one for all other project types. RGGI's rules allow only five types of offsets: landfill gas capture, methane capture from animal waste, reduction of the greenhouse gas sulphur hexafluoride in the electricity transmission, end use fossil fuel efficiency in the commercial and residential sectors, and afforestation.
The power companies are interested in projects in those five sectors as well as any project located in a RGGI-participating state, regardless of sector. RGGI states currently include Connecticut, Delaware, Maine, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, and Vermont. Maryland will join the trading system before 2008.
"We had every company give an interest level measured in short tons and we aggregated them," said M J Bradley's Brian Jones. "Based on that, we know the RGGI window is looking for 7.5 million tons (6.8 million tonnes) worth of credits from offset projects," he told Point Carbon, noting that anticipated demand for other offsets is only around 2.7 million tonnes.
Some of the firms, however, contend they are not just looking for offsets to comply with future carbon restrictions. "We've been very public about saying that it's time to take action against greenhouse gas emissions, and offsets are a piece of that portfolio," Verne Shortell of NRG told Point Carbon.
"We are looking to offset generation across the country," she added, noting "it's up in the air what will happen at the federal level. We think eventually there will be a federal programme, in fact we support federal regulation of greenhouse gases." About one-third of NRG's 24,000 MW of electricity generation is in the RGGI region.
Asked what the companies might pay for the offset credits through the Acquisition Initiative, Brian Jones said prices were undetermined. The Climate Trust's experience, he said, "was that when they put in a price in project request, every single project proposal comes in at that price. Our participants want the lowest possible price."
Certified emission reduction credits, which are the most popular traded offset credits under the Kyoto Protocol, trade at around €5-15 ($6.50-19.50). According to Jones, "there's really no marker in the US right now to look to for prices, only the voluntary market exists now." A tonne of carbon dioxide equivalent on the Chicago Climate Exchange, the only operating US voluntary market, currently costs $3.70.
According to the Acquisition Initiative's own launch announcement, "it is anticipated that the process of selecting projects and finalising emission reduction purchase agreements will be completed by February 2008."
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