This page last reviewed March 16, 2016

International Sector-Based Offset Credits

In addition to the domestic Compliance Offset Protocols, the Cap-and-Trade Regulation also includes the potential for international offset credits generated through approved sector-based crediting programs issued by a subnational jurisdiction in a developing country.  If approved, sector-based offset credits would be eligible for use by California covered entities to comply with a small portion of their Cap-and-Trade obligations. This portion is limited to 2% of an entity’s total compliance obligation in the first and second compliance periods, and 4% in the third.  Since ARB has not approved any sector-based crediting program to date, the first time sector-based crediting could occur if approved would be the third compliance period.  This page describes California’s ongoing evaluation of sector-based crediting programs, and in particular, those related to tropical forests.

Recognizing that addressing climate change requires a comprehensive look at the causes of greenhouse gas (GHG) emissions, AB 32 directed ARB to consult with the federal government and other nations to identify the most effective strategies and methods to reduce GHGs, manage GHG control programs, and to facilitate the development of integrated and cost-effective regional, national, and international GHG reduction programs.  ARB began assessing emerging international mitigation actions as it developed the AB 32 Scoping Plan and the California Cap-and-Trade Program.  One of the most studied sectors within which mitigation actions have been proposed has been tropical forests.

Emissions from tropical deforestation and forest degradation are estimated to account for between 11% and 14% of global GHG emissions.  Initiatives for reducing emissions from deforestation and forest degradation, or REDD, are thus a critical part of addressing global climate change, including climate change in California.  Mitigating tropical forest deforestation may have additional effects on California’s climate and environment because research indicates a direct link between tropical deforestation and reduced California precipitation.  In addition, the inclusion of REDD sector-based offset credits within the already existing quantitative usage limit for offset credits within California’s Cap-and-Trade Program would contribute to cost-containment benefits under the program, demonstrate California’s climate leadership, and yield benefits to biodiversity, forest-dependent community livelihoods, and other areas integral to low emissions rural development in tropical jurisdictions.

The Cap-and-Trade Regulation already includes general requirements for sector-based crediting programs, such as REDD.  (See sections 95991-95995.)  ARB released a whitepaper setting forth the history, status, and next steps of its evaluation of sector-based crediting, and REDD programs in particular.  This whitepaper formed the basis of a workshop scheduled for October 28, 2015. 

A copy of the whitepaper is available here.
Information on all sector-based related workshops is available here: /cc/capandtrade/meetings/meetings.htm


As part of its ongoing evaluation, California has been involved in several collaborative initiatives to better understand and assess REDD. 

Governors’ Climate and Forests Task Force
Since 2008, California has been part of a collaborative group of states and provinces called the Governors’ Climate and Forests Task Force (GCF).  As it stands currently, the GCF is comprised of 29 different subnational jurisdictions, including states and provinces from Brazil, Indonesia, Ivory Coast, Mexico, Nigeria, Peru, Spain, and the U.S.  These jurisdictions are included in the GCF because collectively, they are home to over 25 percent of the world’s tropical forests, and reducing emissions from deforestation and forest degradation in any one of these jurisdictions will result in significant climate benefits.  The GCF seeks to advance jurisdictional programs designed to promote low emissions rural development and reduced emissions from deforestation and land use and link these activities with emerging GHG compliance regimes and other pay-for-performance opportunities.  The GCF has also issued the Rio Branco Declaration, in which signatories commit to reducing tropical deforestation by 80% by 2020.  California is a signatory to this Declaration.

More information about the GCF is available here:

REDD Offset Working Group
California was also involved in a smaller collaborative group called the REDD Offset Working Group.  This group arose out of a 2010 Memorandum of Understanding (MOU) on Environmental Cooperation between the State of Acre of the Federative Republic of Brazil, the State of Chiapas of the United Mexican States, and the State of California.   Like California, Acre and Chiapas are members of the GCF, and they have been implementing innovative strategies to address climate change.  The focus of the REDD Offset Working Group was to develop cooperation and “state to state sectoral REDD linkage recommendations,” taking into account “the legal, technical and economic considerations in developing [REDD] sector-based credits.”  The REDD Offset Working Group, in which California, Chiapas, and Acre participated as observers, was made up of technical experts on topics ranging from aerial mapping to on-the-ground forest management and from local community engagement to market design.  These experts worked for nearly two years on developing a set of recommendations to present to ARB and its counterparts in Chiapas and Acre regarding how the states could integrate REDD into their climate programs.  The final recommendations were submitted to ARB on July 18, 2013.

REDD Offset Working Group Documentation:
•    MOU
•    Recommendations
•    Website archives

For questions or comments, please contact Sean Donovan at (916) 322-7202