Green Building Law Blog : Green Building Lawyer & Attorney : Shari Shapiro: Calliope Communications, LLC

According to Business Green, the United Nations suspended its third carbon credit auditing company in 15 months.  Essentially, the auditors failed to follow protocols for confirming that carbon offset projects actually provide the environmental gains they promise:

The executive board in charge of the Clean Development Mechanism (CDM) last week suspended Germany's TUEV SUED and also partially suspended Korea Energy Management Corporation, after spot checks undertaken at their offices revealed procedural breaches.

Why do we care? In order for an effective carbon regulation scheme, the carbon offset program has to be measurable and verifiable.  To do so, there needs to be auditors confirming that the projects are valid. 

On the one hand, the suspensions are a positive sign because they indicate that the UN is maintaining some sort of oversight over the auditors, on the other hand, it is distressing that three of the companies which have been charged with verification have been suspended, including TUEV SUED, "the second largest CDM validator" which "had approved 1,147 renewable energy projects – almost one fifth of the total – by the end of February this year" according to Business Green. 

As the United States builds its GHG regulatory scheme, it needs to take into consideration how to ensure that the guards of environmental validity are properly guarded--that auditing procedures and confirmation of the validity of the audits is build robustly into the system.  Nothing will erode the credibility of a cap-and-trade system faster than discovering that the carbon offsets at the base of the market are fraudulent.

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Today, the EPA briefed Congress on its intent to

formally declare carbon dioxide and other heat-trapping gases to be pollutants that threaten public health and welfare.

This declaration clears the way for EPA to regulate greenhouse gases through the Clean Air Act and other regulatory mechanisms. 

According to the USGBC, in the United States alone, buildings account for 38% of all carbon dioxide (CO2) emissions.  Even if these statistics are wrong by HALF, that is still 20% of carbon dioxide.  Yet many cap-and-trade and other carbon management programs do not incorporate carbon regulation of buildings because they are categorized as "indirect" and therefore more difficult to calculate and regulate.  There is also the argument that the emissions from "direct" sources like power plants are already regulated, and therefore it will be easier to regulate their emissions.

However, the health and safety of buildings is already regulated by energy codes, fire codes,  building codes, zoning codes, etc.  If greenhouse gases are a threat to human health, regulation of greenhouse gas emissions from buildings is as critical as protecting from the risk of fire. Moreover, if a cap-and-trade system is put in place, carbon credits will be very valuable.  If reductions in greenhouse gases can be generated by high performance building practices, this value should be available to those developers who choose to pursue those solutions.

Today's announcement by the EPA will lead to regulation by the executive branch, or spur Congress to act to regulate greenhouse gases.  The regulatory solution must include a regualtory mechanism for managing the greenhouse gas emissions of buildings.

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Today, the EPA briefed Congress on its intent to

formally declare carbon dioxide and other heat-trapping gases to be pollutants that threaten public health and welfare.

This declaration clears the way for EPA to regulate greenhouse gases through the Clean Air Act and other regulatory mechanisms. 

According to the USGBC, in the United States alone, buildings account for 38% of all carbon dioxide (CO2) emissions.  Even if these statistics are wrong by HALF, that is still 20% of carbon dioxide.  Yet many cap-and-trade and other carbon management programs do not incorporate carbon regulation of buildings because they are categorized as "indirect" and therefore more difficult to calculate and regulate.  There is also the argument that the emissions from "direct" sources like power plants are already regulated, and therefore it will be easier to regulate their emissions.

However, the health and safety of buildings is already regulated by energy codes, fire codes,  building codes, zoning codes, etc.  If greenhouse gases are a threat to human health, regulation of greenhouse gas emissions from buildings is as critical as protecting from the risk of fire. Moreover, if a cap-and-trade system is put in place, carbon credits will be very valuable.  If reductions in greenhouse gases can be generated by high performance building practices, this value should be available to those developers who choose to pursue those solutions.

Today's announcement by the EPA will lead to regulation by the executive branch, or spur Congress to act to regulate greenhouse gases.  The regulatory solution must include a regualtory mechanism for managing the greenhouse gas emissions of buildings.

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In my Greenbuild post, I blogged:

Green building policy was well covered, but carbon policy got short shrift. The one session dealing with carbon policy at the state and federal level was cancelled, with no explanation.

Carbon policy, in my opinion, is the 800 lb. gorilla in any discussion about environmental law, especially green building. According to the USGBC, in the United States alone, buildings account for: • 72% of electricity consumption, • 39% of energy use, • 38% of all carbon dioxide (CO2) emissions In other words, a whole lot of carbon. If carbon is valued, either through cap-and-trade or carbon tax, the whole landscape shifts. First, electricity generated through fossil fuel fired plants will get much more expensive, making energy efficiency and conservation techniques more cost effective. Second, buildings may have to pay for their emissions of CO2, making managing the emissions a key component in building construction and management. Green buildings, using less energy and emitting fewer carbon emissions will become more desireable as assets. Finally, green building which generate renewable energy thorugh photovoltaics, for example, may be more economically viable because they generate carbon offsets. Despite these obvious linkages, no speaker that I heard at Greenbuild really made the connection between carbon policy and green building. Too bad.

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I read an article a few weeks ago on Europeans snapping up US carbon offset credits on the cheap. See http://earth2tech.com/2008/08/18/us-cap-and-trade-launch-highlights-hurdles/ In short, because the United States does not currently have a mandatory carbon offset program, US carbon offsets purchased on the Chicago Climate Exchange are far cheaper than the mandatory carbon offsets for sale on the European climate market. The theory is, however, that soon the United States will regulate carbon and establish a mandatory cap-and-trade system, and the credits will increase in value.

So...you build a green building now, and have the less valuable carbon offsets which might be worth something more in the future (or to purchasers in Europe). Those ownership rights need to be considered. How should they be valued? At the current US price? Some future estimated value? Who owns them? The builder of the building or the lessee? See an interesting analysis of this situation at http://www.lawofrenewableenergy.com/2008/08/articles/climate-change/when-is-a-green-building-lease-like-a-power-purchase-agreement-avoiding-deja-vu-all-over-again/

In my opinion, the carbon offsets should be valued at the current Chicago Climate Exchange value. Anything else is simply too speculative. However, they should be treated as if they have value, because they do. Therefore, the allocation of the carbon offsets should be treated as an asset in the negotiation of any green project, with ownership rights as clearly established as the physical asset. Legal draftsmen, sharpen your pencils...

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