This post was co-authored by Andrew Stevenson of Resources for the Future and Climate Advisers.

The EPA analysis of the American Power Act shines a light on a key fact about climate policy: strong rainforest protections, especially in the short run, are essential to keeping costs low and emissions goals strong.

The analysis finds that excluding rainforest offsets from APA would increase emissions allowance prices 23 percent. Excluding international offsets entirely would increase the cost to households a whopping 31 to 114 percent. That’s no surprise: stopping rainforests from going up in smoke is one of the most affordable ways of reducing climate pollution, clocking in at less than half the cost of domestic emissions reductions. In the words of the analysis, international offsets have a “strong impact on cost containment.”

This is not an idle matter. The discussion draft of the Kerry-Lieberman APA legislation excluded key rainforest protections, including both offsets and public funding, that had been in previous legislation. In particular, it narrowed offset eligibility so that only forest conservation activities that are part of well developed state, province, or national plans for reducing deforestation are eligible for crediting. Because very few of these state, province, or national plans exist, it means offset supply will be dramatically limited, especially in the near term, and forests will continue to go up in smoke, adding pollution to a warming planet.

The legislation also eliminated a five percent set aside of allowances that was intended, among other things, to help countries actually achieve those national plans and baselines – making it even less likely that many countries would be able to supply affordable tropical forest offsets any time soon.

In its own attempt to assess the discussion draft’s cuts, the EPA analysis also calculated the impact of limited offset availability for the first ten years of legislation. It found that limiting offset availability for that short time would only increase allowance prices by one percent.

Compared to the major impacts of excluding offsets entirely, this result may seem incongruous – and a close look reveals that it is (much of this discussion is taken from Andrew’s Resources for the Future paper). EPA’s result significantly downplays the financial impact of limiting international offset supply in five critical ways (at least one of which the analysis itself acknowledges):

1)    Once a forest is gone, it can’t be used for an offset. In EPA’s model, a ten year delay actually causes annual offset purchases to increase in later years relative to what they would have been without a delay.  In many countries, the absence of rainforest offset crediting in early years doesn’t mean countries can just catch up in later years. Without incentives to protect their forests, high-deforestation countries like Madagascar could see the destruction of many or most of their remaining forests in the next 10-20 years. Once those forests are gone, they’re gone forever. Non-existent forests obviously can’t supply forest protection credits. It is possible that reforestation and afforestation offsets would be available, but these are significantly more expensive than forest protection offsets (it costs more to plant trees than to just leave them where they are). If anything, a lack of early offset supply will reduce future offset supply.

2)    Offset supply is more dependent on money than time. If external public financing to build capacity and develop measurement, monitoring and verification systems is not provided, some countries may simply never be ready for offset markets – no matter how much time they’re given.

3)    If we don’t use them, someone else might. If the United States doesn’t participate in global efforts to provide public funding for rainforest protection or allow offsets into its market, it’s possible other countries will – and will then get preferential access to offsets.  It’s anticipated that Europe and Japan may have significant demand for emissions tons from rainforest protection. If the United States even temporarily limits public funding or limits entry of rainforest offsets into the U.S. compliance market, rainforest nations could shut the United States out of the market entirely or limit U.S. access to the most affordable offset opportunities.

4)    Deforestation undercuts American farmers, ranchers, and timber producers. Incentives for protecting rainforest – both offsets and public funding – are critical to leveling the playing field for American agriculture. Illegal overseas agriculture and logging operations are rapidly cutting down the world’s rainforests for cheap land and timber. This deforestation is allowing them to flood the market with artificially cheap commodities, driving down prices, and undermining U.S. exports. A comprehensive new study by Shari Friedman of David Gardiner & Associates estimates that ending deforestation will boost revenue of U.S. agriculture alone by $141 – 221 billion by 2030, gains not accounted for by the EPA analysis (though, in fairness, the analysis doesn’t factor in a variety of other economic impacts such as health benefits from cutting power plant pollution or, most importantly, the economic benefits of tackling climate change). Cuts to rainforest offsets and public funding would eliminate these gains and cause American farmers to continue to pay a heavy price to compete with unsustainable practices in tropical countries.

5)    Rainforest protections are a necessar
y complement to domestic forest protections.
From the EPA analysis:A situation in which domestic forestry offsets are available but international forestry offsets are not could result in leakage of emissions abroad as agricultural activities and forest clearing shifts from the U.S. to Group 2 countries. In addition, limitations on international or domestic forestry offsets could result in unaccounted emissions due to the expansion of bioenergy production because combustion of renewable biomass is exempt from submitting emission allowances. The IGEM results do not account for the impact of these potential sources of leakage on global CO2 emissions in limited or unavailable offsets scenarios.” In other words, a lack of international offsets could counter the benefits to U.S. landowners by shifting production to tropical countries – while driving a huge increase in deforestation and climate pollution. 

In summary, excluding rainforest protections from climate legislation, even in the short term, will drive up the costs of climate legislation for households while reducing climate benefits (for a slightly different perspective, see Jake Schmidt’s post at Switchboard). In contrast, restoring just the rainforest set aside would save approximately $421 billion over the life of the bill, and restoring the early offset eligibility for forest conservation projects would save billions more.  In sum, restoring the rainforest provisions would bring major climate and biodiversity benefits, while keeping key American industries competitive, and providing a significant boost to our efforts to address climate change.

Senator Kerry gives us reason to hope that this vision will be realized. He recently indicated his support for restoring some or all of the rainforest protections in the final version of the legislation – and has been giving the matter his close attention. “That’s an issue that has to be reconciled with the House,” he told reporters in May. “We’re supportive of that.”

It’s a glimmer of hope for the world’s forests and the climate.