Cap-and-Trade, Allowances and Offsets
As designers in the A/E/C industry, as well as being responsible citizens within our communities, we understand that it is no longer an option to reduce greenhouse gas emissions from the built environment. Electrical and thermal loads are two of the major energy consuming sectors, and represent the foundation of any building’s performance. By dramatically improving how a building functions, we are contributing to reducing these emissions at its source. In order to accelerate change, certain methods for reducing carbon emissions have evolved that provide achievable targets and incentives for owners.
The primary methods that are emerging to reduce greenhouse gas emissions are market-based solutions such as Cap-and-Trade. In addition to creating the basic financial incentive for compliance, these programs provide the ability to benefit financially by reducing carbon emissions below established targets while also providing compliance flexibility when emissions exceed established targets. There are two main components in these programs called “Allowances” and “Offsets”.
Allowances represent the right to emit a specific volume of greenhouse gas and are distributed by a regulatory body to specific economic sectors. These allowances can subsequently be bought and sold between those who reduce their greenhouse gas emissions below targets to those who exceed their greenhouse gas emission targets.
Offsets, also known as Certified Emission Reductions (CERs) or Verified Emission Reductions (VERs) represent project-based reductions of emissions that are undertaken outside of the capped sector. These CERs or VERs can be used to offset a like amount of the buyer’s own emissions, and can be bought and sold in the same fashion as allowances.
While last year’s international global climate negotiations in Copenhagen did not lead to a legally binding global carbon reduction treaty, regional carbon markets are continuing to evolve. These regional markets are providing the framework for pricing of Allowances and Offsets.