Cross-Border, Nature Based Market Solutions to Protect Blue Carbon Coastal Ecosystems in the Californias

March 2022

allowances puts pressure on covered entities to reduce GHG emissions.

however, U.S. Federal courts have upheld California’s right to establish andmaintain that linkage in place. 59 The third form in which compliance certificates may be established is through issuance of “Sector Based Offset Credit” from a “Sector-Based Crediting Program” established by a country, region, or subnational jurisdiction in a developing country. A Sector-Based Offset Credit is not created by a company or other private party but by the country, regional or subnational jurisdiction that has established the Sector-Based Crediting Programwith respect to an entire economic sector (such as tropical forests) within the jurisdiction. California law requires that CARB carries out a rigorous administrative procedure to evaluate both the Sector-Based Crediting Program and the instruments issued by that Program. Once CARB approves both, then the Sector-Based Offset Credits can be used and applied in California in the same way as CARB-issued offsets. To date, CARB has not approved any Sector-Based Crediting Programs for the issuance of Sector Based Offset Credits, although it has taken preliminary steps in this direction. In 2010, California signed a Memorandum of Understanding with the Mexican State of Chiapas and the Brazilian State of Acre to explore a potential cross-border emissions trading program for the protection of rainforests. Also, California formed the REDD Offset Workgroup to explore cross-border emissions trading options in both locations. In 2015, CARB released a policy paper and organized public workshops that led to the development of the California Tropical Forest Standard (CTFS) which was adopted in 2019 laying out a framework for potential future cross-border linking with international jurisdictions seeking to conserve biodiverse rich tropical forests. The CTFS

Offsets issued by the CARB represent a GHG emission reduction or GHG removal enhancement by a third party, not otherwise required by law or counted against legal requirements, that is real, additional, quantifiable, permanent, verifiable, and enforceable. Once created, offsets can be sold to covered entities as compliance certificates to match emissions if the covered entities do not have enough allowances. As allowances become more scarce and more expensive, offsets thus also go up in price as well. This means that the parties creating those offsets, through GHG emission reduction of removal enhancement, will reap more economic benefits. Apart from the CARB-issued allowances and offsets, the CCTP permits an external greenhouse gas Emissions Trading System to “link” with the CCTP after a rigorous administrative process to determine if the external Emissions Trading System has adopted California’s program requirements (that must be equivalent to or stricter than those required by California law). Once the external ETS is linked to California’s, then allowances and offsets issued by the external ETS can be used and applied in the same way as allowances and offsets issued by the CARB. There is currently only one External GHG ETS that is linked with the CCTP, i.e. the GHG emissions trading system established by the Canadian province of Quebec, as part of the Western Climate Initiative (WCI), a linkage that began on January 1, 2014. 57 In 2019, the Trump Administration sued California 58 in an attempt to block its international emissions trading program linkage with Quebec,

57 https://ww2.arb.ca.gov/our-work/programs/cap and-trade-program/program-linkage 58 https://eelp.law.harvard.edu/2019/11/californias cap-and-trade-agreement-with-quebec-surviving constitutional-scrutiny/#_edn1

59 https://legal-planet.org/2020/07/20/trump administrations-court-challenge-to-california quebec-cap-and-trade-agreement-again-rejected/

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