The Carbon Allowance Protocol

The Carbon Allowance Protocol (CAP) provides guidance for individuals and companies looking to account for their emissions through removing carbon allowances from government regulated carbon markets. This protocol aims to provide a transparent guide for donors looking to understand, track, and communicate their impact.

The CAP can be applied to individual events/activities in addition to comprehensive accounting of an individual’s or company’s annual emissions. Please refer to Annex A to understand the categories of emissions covered.

Terms:

Allowance Retirement: Carbon allowances are held in perpetuity in a general account of the government cap and trade program, with control over the account held by a non-profit, foundation, or other entity whose main purpose is environmental protection and that is not subject to investor desires. This action permanently removes the allowances (1 tCO2e) from the respective carbon market. Any donation binds the entity to hold these credits in perpetuity on behalf of the respective donor.

Carbon Allowance: A legal permit issued by a government agency entitling the bearer to emit one ton of carbon dioxide (or equivalent) into the atmosphere.

Carbon Neutrality: Achieving net zero emissions through minimizing an entity’s emissions to the furthest extent possible (e.g. through improved energy efficiency, onsite renewable energy, etc.) and then accounting for remaining emissions by making a donation that retires the remaining tCO2e from other areas of the economy (e.g. RGGI carbon allowances).

Regional Greenhouse Gas Initiative (RGGI): A consortium of States requiring regulated fossil fuel power plants (25MW and larger) to surrender one allowance (see Regulatory Retirement below) for every ton of CO2e they emit. Allowances are sold by the RGGI States at quarterly auction, each individual allowance is serial coded, and the number of allowances available for purchase at each auction is fixed and limited. Prices are set by auction.

Regulatory Retirement: Surrender of allowances by entities covered by a government cap and trade program to meet a compliance obligation.

Goal:

Remove allowances from compliance carbon markets, reducing the ability for regulated companies to contribute to climate change. 

Impact:

By retiring allowances, businesses and individuals can reduce the limited supply of available allowances that utilities, power plants, and other regulated entities use to pollute. Once that allowance is purchased by a donor, it cannot be used by a regulated entity to emit carbon dioxide.

Additionally, the revenue raised by the RGGI States at auction is used to fund local green projects and lower the cost of electricity for all consumers in the region. This system simultaneously puts pressure on prices for polluters while making renewable energy and investments in green technologies an increasingly attractive economic option for our grid. As of the end of 2018, RGGI has resulted in an overall reduction of costs by $150,000,000 for rate payers in the RGGI States.

Process:

Step 1: Quantification

Donors calculate their emissions, see Annex A for covered emissions. This process is flexible based on donor needs:

a.      Donor has already calculated their carbon footprint: See Step 2.

b.     Donor is looking to quickly calculate their emissions: Estimate emissions through online carbon calculator.

c.      Donor is looking to better understand their detailed emissions: Work with a non-profit or other third-party for individualized carbon footprint calculation or perform study in-house.

Step 2: Donation and Certification

Based on the calculated number of emissions (tCO2e) submit a donation to purchase the equivalent carbon allowances. This transaction can be completed online or through a purchase order.

A donation for the purchase of one allowance from a government auction is equivalent to the retirement of 1 tCO2e. Each entity managing the allowance program will clearly set out which party is taking on the price risk from potential variations in auction price, so donors are assured that each donation for 1 tCO2e leads to the retirement of at least one allowance. This donation is referred to as a National Climate Contribution (NCC) and certifies a voluntary donation toward reducing overall emissions within a domestic cap and trade programs.

Currently RGGI allowances are the only type accepted under this protocol. However, compliance RECs can be included in the allowance mix upon consultation with the non-profit. New markets for addition under the protocol are periodically reviewed.

Step 3: Reporting and Communication

The entity managing the allowance program participates in the subsequent quarterly auction, placing a bid for the donor’s specified number of allowances or provides allowances purchased in a recent auction. Allowances are delivered to the RGGI CO2 Allowance Tracking System (COATS) general purpose account within seven business days. Each allowance and its unique serial number will be posted on publicly (e.g. on a website) and attributed to the respective donor.

The donor will receive CAP Certificate noting the number of allowances and serial numbers purchased in their name along with the logo in several formats for use in promotional materials.

Annex A: Frequently Asked Questions

What categories of emissions are covered for individuals or businesses?

The definition of Scope 1-3 emissions is based on the guidelines of the Environmental Protection Agency:

·       Scope 1: direct emissions, e.g. on-site fossil fuel combustion from boilers and furnaces, fleet fuel consumption, etc.

·       Scope 2: indirect emissions, e.g. emissions that result from the generation of electricity, steam from a local steam grid, etc.

·       Scope 3: related emissions, e.g. from employee travel and commuting, contracted solid waste disposal, wastewater treatment, and transmission and distribution (T&D) losses associated with purchased electricity, etc.

What is Carbon Neutrality?

Carbon neutrality, as defined above, is based on achieving net zero emissions. Many different protocols help companies achieve carbon neutrality and have different ways of quantifying this outcome.

By purchasing and retiring allowances from only regional or national cap and trade programs, reductions are folded into economy wide goals. Therefore, with CAP certification, the correct claim for companies or organizations to make is they are helping to reduce overall emissions within domestic cap and trade programs. A donation is referred to as a National Climate Contribution (NCC) and certifies a voluntary donation toward reaching and surpassing domestic GHG mitigation goals. This is the direct impact of donations from individuals and businesses.

When these entities purchase the equal number of allowances as tCO2e that they are emitting in a year, they can claim carbon neutrality, as defined under the CAP Certification, as they have accounted for their emissions not eliminated through energy efficiency or other reductions.

In the long term, CLA expects that due to the Paris Agreement claims of carbon neutrality based on carbon offsets – e.g. offsets from the voluntary markets rather than through RGGI – will be difficult if not impossible to guarantee as compliant. As a leading offset standard notes in recent analysis, “Post-2020, as a significant share of offset projects will be in countries and sectors subject to a target under the Paris Agreement, it will become increasingly difficult to source double counting ‘risk-free’ credits to fullfil carbon neutrality or compliance commitments.” The use of RGGI allowances currently protects against this risk, which is a large reason they are utilized under the CAP Certification, and CAP will continue to monitor the market environment to ensure the Protocol is updated as details of the Paris Agreement continues to unfold.