Carbon Offset Trading – Managing Risk in a Time of Regulatory Uncertainty

by Joshua Belcher and David McCullough (Sutherland Asbill & Brennan/Biofuels Digest) Over the past decade, the market for carbon offsets has waxed and waned with the likelihood of a mandatory greenhouse gas reduction program being passed into law. Carbon offsets are credits that are generated through avoiding the emission of greenhouse gases—primarily by protecting large tracts of forest from development or through capturing methane from landfills or agricultural operations and subsequently using that methane as a source of energy. Until very recently, the demand for carbon offsets was almost exclusively driven by the desire of private entities and corporations to voluntarily commit to “green” their operations by reducing greenhouse gas emissions.

We now see existing compliance programs, such as California’s AB32 cap-and-trade regulation and the Regional Greenhouse Gas Initiative (RGGI) in the Northeast, take root and ramp up. Additionally, the Environmental Protection Agency’s (EPA) recently proposed Clean Power Plan would apply strict limits on carbon emissions from steam-generating and gas-fired electric utility generating units across the country.

These pressures are bringing the carbon offset market to the forefront and presenting significant opportunities through continued confidence in the markets. With those opportunities, both buyers and sellers need to be aware of a variety of issues and common pitfalls when trading in carbon offsets. READ MORE