It's not Logical, but the EPA Supports Offsets

Interestingly the EPA's analysis of the Waxman and Markey bill focused on the cap-and-trade program. Perhaps because it is one of the most controversial parts of the draft bill?

With the aid of economic-energy models, the EPA finds that the maximum amount of allowable international offsets (1 billion) would be used each year, while only a portion of domestic offsets would be applied. Plugging in EPA's estimates for domestic offsets and 1 billion offsets, we still find that emissions within the United States would not decrease until 2020, eight years after the cap would go into effect.

EPA also finds that if international offsets were excluded from the cap and trade program allowance prices would nearly double, making it imperative that the volume of offsets is sufficient and that transactions are efficient and low-cost. But a recent study commissioned by the UK government argues that the price of carbon allowances in the EU emission trading scheme must exceed 85 pounds (about $125.00), to encourage industries to switch to low carbon technologies. The EPA estimates the price of allowances to be $25-$33 in 2015 and $33-$44 in 2020. Even if prices doubled sans offsets, the price would still be well below $125. So actually, the EPA should be arguing for the exclusion of offsets so that the price emission allowances are higher.

Lastly, the availability of domestic offset projects is a source of uncertainty, according to the EPA. This likely means that administrators of the program will be under pressure to favor a speedy and unrigorous approvals process, as we reported in our blog analyzing the offset provisions in the draft bill. Increasing the volume of domestic allowances would further undermine the price of emissions allowances, meaning US industries can further put off the transition to a low-carbon economy.