Biomass Blunder: Cap-and-Trade and Carbon Leakage

Posted by Mackinnon Lawrence on 11/30/09 • Categorized as Climate, Issues

Biomass Blunder Carbon leakage, a holdover issue from Kyoto referring to an increase in GHG emissions in one country as a result of a decrease in emissions in another country with strict climate policy, will be a point of contention at the Copenhagen talks this month. The increased utilization of biomass resources for energy will complicate the debate, but remains an important component of GHG mitigation strategies.

At its most basic level, the carbon leakage debate is about common but differentiated responsibilities, a principle of international law that forms the backbone of the Framework Convention on Climate Change. It refers to the notion that, while all states have a general obligation to protect the global environment, both the degree to which developed and developing states have contributed to the problem, and their respective ability to solve it, should dictate the extent of their individual obligations.

In Copenhagen, the debate will revolve around relative culpability and the specific compliance measures that will be enforced globally. Carbon leakage will be a sticking point for both developed countries as they push for uniform standards around the globe and developing countries as they argue against the imposition of strict standards that might hamper their economic development.

US Cap-and-Trade and Protectionism

Industrialized countries like the United States, whose economies are buoyed by carbon intensive industries, argue that the uneven application of GHG regulations across the globe will result in firms shifting investment and production to countries with less stringent carbon policies. This would result in an erosion of market share and a loss of international competitiveness. The concern about carbon leakage is both economic as jobs move overseas, and environmental in that net global GHG reduction benefits would be compromised by the resulting increase in emissions in less-regulated countries. For a quick summary, read here.

Two approaches to mitigating the potential impact of carbon leakage on the net greenhouse gas

reductions have been proposed.6 The first is the allocation of allowances at no cost to energyintensive,

trade-exposed industries; this is included in both bills.

The second is an international reserve allowance scheme that essentially imposes a shadow

allowance requirement on importers of energy-intensive, trade-exposed products, creating a de

facto tariff. Basically, the scheme would require importers of energy-intensive products from

countries with insufficient carbon policies to submit a prescribed amount of “international reserve

allowances,” or IRAs, for their products to gain entry into the United States. Based on the

greenhouse gas emissions generated in the production process, IRAs would be submitted on a

per-unit basis for each category of covered goods from a covered country. Whether the

international reserve allowance scheme would actually work is unclear. The daunting

administrative, informational, and analytical resources necessary to implement such a program

would create significant issues in any attempt to implement it. Likewise, it is not clear that the

potentially severe World Trade Organization (WTO) implications of the provision have been fully

exposed and accommodated.

This second approach is currently only included in the House bill. The Senate bill has a

placeholder stating the Senate’s intention to include such a provision. That inclusion is awaiting

action by other Senate committees.

The US has proposed two approaches to mitigating the potential impact of carbon leakage in both the House and Senate versions of the cap-and-trade bill. The first, which is included in both bills, involves the allocation of allowances at no cost to energy-intensive, trade-exposed industries. The second would require importers of energy-intensive products from countries with insufficient carbon policies to submit a prescribed amount of “international reserve allowances”, or IRAs, for their products to gain entry into the US. The scheme would create a de facto tariff. This approach is included in the House version of the bill; the Senate version contains a placeholder stating its intent to include the provision.

What Does Biomass Have to Do with It?

One of the main drawbacks to biomass and biofuels is that they can lead to increased GHG emissions. Biomass utilization, both for the purpose of producing electricity and transportation fuel, can also lead to carbon leakage in the following ways:

Deforestation to make way for increased agricultural production
Reversion of conservation lands into cropland

The problem with both US House and Senate approaches is that they are protectionist at heart and fail to offer a solution that would prevent increased land use change abroad as US demand for biomass-derived energy and fuels increases. According to Green Car Congress:

Neither the Kyoto Protocol, nor the existing or proposed climate legislation in Europe and the US, currently applies limits to emissions from land use such as deforestation. Because of that, the exemption of the CO₂ actually emitted from the burning of biofuels and wood for electricity means all forms of bioenergy are treated as carbon neutral, which creates incentives to clear land.

This so called “accounting error” raises important questions about the viability of biomass-derived energy, whether for fuel or electricity. While federal policy and international agreements must mitigate the effects of carbon leakage, they must account for the ripple effects associated with increased biomass utilization.

Image: Flickr/Pati’s Moment in Time

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