CBO Report Use of Agricultural Offsets to Reduce Greenhouse Gases

CBO's Assistant Director for Microeconomic Studies, Joseph Kile, testified before the House Agriculture Committee's Subcommittee on Conservation, Credit, Energy, and Research on the use of agricultural offsets as part of a cap-and-trade program for reducing greenhouse gases. Discussions about reducing greenhouse gases often focus on limiting the use of fossil fuels to generate electricity or power cars and trucks, yet a variety of other actions—including changing methods of farming and lessening deforestation—could also reduce the concentration of greenhouse gases in the atmosphere. Those activities, which would not be subject to limits on emissions under a cap-and-trade program, would have the potential to "offset" the burden of reducing emissions and reduce the net cost of achieving the environmental objective. This testimony draws upon CBO's August 2009 brief on the use of offsets as well as our analysis of H.R. 2454, the American Clean Energy and Security Act of 2009, which was passed by the House of Representatives.

H.R. 2454 would set an annual limit, or cap, on greenhouse-gas emissions for each year between 2012 and 2050 and would distribute "allowances," or rights to produce those emissions. After the allowances were distributed, regulated entities—those that generate electricity or refine petroleum products, for example—would be free to trade them, so entities that could reduce their emissions at lower costs would sell allowances to others facing higher costs.

The provisions of H.R. 2454 reflect the fact that a variety of other actions such as changing agricultural practices can also reduce the concentration of greenhouse gases in the atmosphere. Those actions have the potential to lessen the extent to which more costly actions would have to be undertaken to meet a chosen target for total greenhouse-gas emissions. Under the bill, regulated entities would be allowed to use offsets in lieu of reducing their emissions or purchasing allowances. Yet the difficulty of verifying offsets raises concerns about whether the specified overall limit on emissions would actually be met. Such concerns may be especially acute when, as under H.R. 2454, allowable offsets include actions taken outside the United States.

Read more testimony key points from CBO Blog