The California carbon offset market: directing a changing landscape

Charlie O’Brien
Newsletter Issue: 
April 2015

Large crowd of people outside a barn
Above: Development of renewable energy, like the Farm Power Rexville 
digester project, is a growing investment opportunity.

In 2006 the California Global Warming Solutions Act, better known as AB 32, was created and set in motion a race to reduce the state’s greenhouse gas emissions.

The Climate Trust, a national nonprofit created in 1997 to administer the Oregon Carbon Dioxide Standard, keeps a close eye on the compliance and voluntary markets in the state of California that were formed following AB 32. The Climate Trust buys and sells carbon offsets on behalf of Oregon’s utility companies, who pay into the trust on an annual basis. The California market has had a major effect on the way the trust conducts its operations.

Elizabeth Hardee, senior project analyst for the Climate Trust, stated that there has been an increased alignment between California, Oregon and Washington on policies related to the GHG’s emission reduction market.

“California is an important piece because of the affect their compliance prices have,” Hardee said. “The state is the future of the offset market and will give us the best insight to what the market’s future will look like.”

Hardee said that the California emission market is constantly evolving. Carbon buyers prefer cheaper offsets to meet their obligations in the most economic manner.

“Companies are trying to become part of the California [compliance] market due to its set price. The federal government wants to decrease omissions but offsets are not part of the plan, but this could be possibly changing,” Hardee said.

For corporations in the United States, reducing annual emissions has a significant financial outcome. According to a joint report released in 2013 by the Carbon Disclosure Project and the World Wide Fund for Nature, the U.S. corporate sector could save $190 billion by 2020 if they reduced their emissions by three percent on an annual basis.

Nutrient management, Hardee said has been identified as a potential new carbon emission offset in the California market. But, it is a long road to become a carbon offset. Offsets have to meet a high standard along with third party approval. Recently California approved a rice protocol, the first crop-based carbon offset that allows rice farmers to be paid carbon offsets for reducing methane reductions from flooded fields. The approval could enable future carbon reducing practices for corn, soybeans and even biomass crops to gain a foothold in the market.

Jason Hill, a CenUSA Bioenergy co-project director and assistant professor in the Department of Bioproducts and Biosystems Engineering at the University of Minnesota, pointed out that biomass fits the mold for carbon offsets due to its widespread availability and its ability to sequester carbon.

“Certainly a biomass like switchgrass that disposes carbon can be used would be a good candidate, plus it would produce carbon credits,” Hill said.

From Hardee’s viewpoint, biomasses like switchgrass can play a role in the future of carbon offsets—it just might take some time. She commented that approval for new carbon offsets face a difficult task due to the amount of research required to show emission reductions. So far, California has five approved protocols for carbon offsets: U.S. Forest projects, Urban Forest projects, Livestock Projects, Ozone Depleting Substance and Mine Methane Capture projects.

“There will have to be a focus on writing protocols that are streamlines with few inputs. The same goes for any protocol around biomass, offsets are held to a high standard,” Hardee said. “It will just take some time to get it passed.”

For more information about how carbon markets can provide new income for farmers see and