Comment Log Display

September 19, 2016

Via Electronic Submission

Clerk of the Board
California Air Resources Board
1001 I Street
Sacramento, CA 95812

Re:	Comments of Chugach Alaska Corp. and Sealaska Corp. on the
Proposed Amendments to the Cap-and-Trade Regulation Regarding
Forest Offset Projects. 

Dear Chairwoman Nichols and Members of the Air Resources Board,

Thank you for the opportunity to comment on the proposed amendments
to the Cap-and-Trade Regulation, 17 Cal. Code. Regs. § 95800 et
seq. (the “Regulation” or “CTR”).  Overall, we commend the
California Air Resources Board (“ARB”) for undertaking these
amendments, which in large part provide necessary clarifications
and improvements, particularly as they relate to forest offset
projects.  Offset projects have provided the Cap-and-Trade Program
with a flexible mechanism by which to ease the burden of compliance
on the regulated community, while incentivizing environmental
stewardship outside of California and Québec.  We are excited to
participate in the program, and look forward to helping to shape
the forest offset program for the benefit of California, as well as
our shareholders, our region and the global environment.

Chugach Alaska Corporation (Chugach) is an Alaska Native Regional
Corporation established pursuant to the Alaska Native Claims
Settlement Act (ANCSA) of 1971, as amended, 43 U.S.C. § 1601, et
seq. We represent approximately 2600 Alaska native shareholders in
our region. As an Alaska Native Corporation we understand the
unique challenges associated with development of ANCSA lands, which
must be done responsibly in order to maintain cultural values and
protect subsistence rights, while also providing economic benefits
to the people of the region. Chugach, as well as several other
Alaska Native Corporations,is in teh process of developing a carbon
project under the California cap and trade program. We believe
participation in the California cap and trade program is a way for
us to support environmentally friendly policies that are consistent
with our goals of protecting our lands and maintaining long term
sustainability for our region and our shareholders.   

We strongly support California’s commitment to addressing climate
change by both reducing GHG emissions and sequestering GHGs. 
Forest offset projects made possible by the Program enable millions
of tons of carbon to be sequestered while also providing critical
co-benefits to native peoples in rural Alaska, allowing them to
sustain their traditional culture and way-of-life and protect the
environment that they have called home for some ten thousand years.
 As noted above, in general we believe that most of ARB’s proposed
amendments will improve the CTR and the Offset Program in
particular.  We also want to call attention to several proposed
changes that we specifically support as making real improvements. 
That said, we also believe that certain adjustments will better
effectuate the goals of the amendments and provide those with
forest offset projects better guidance as to the Program’s
operation.  We offer these stakeholder comments in a spirit of
support and hope that ARB may find them helpful.
1.	We Welcome ARB’s Amendment of the Regulatory Compliance
Requirement, though More Clarification is Needed.
ARB’s clarification in proposed Appendix E of what activities may
offend the regulatory compliance requirement set forth in CTR
Sections 95973(b) and 95985(c)(2) is a much needed improvement. 
Specifically, Section (d) of Appendix E brings into the Regulation
the commonsense notion that only those activities that actually
affect carbon stocks in a forest offset project should be
considered for the regulatory compliance requirement.  While
Appendix E provides much needed clarity, its utility is diminished
by the ambiguities in Section 95973(b) that remain unaddressed. 
The proposed text of CTR Section 95973(b) reads:
Local, Regional, State, and National Regulatory Compliance and
Environmental Impact Assessment Requirements. An Offset Project
Operator or Authorized Project Designee must fulfill all local,
regional, state, and national requirements on environmental impact
assessments that apply based on the offset project location. In
addition, an offset project must also fulfill all local, regional,
state, and national environmental and health and safety laws and
regulations that apply based on the offset project location and
that directly apply to the offset project, including as specified
in a Compliance Offset Protocol. The project is considered out of
regulatory compliance if the project activities were subject to
enforcement action by a regulatory oversight body during the
Reporting Period, although whether such enforcement action has
occurred is not the only consideration ARB may use in determining
whether a project is out of regulatory compliance.
The troublesome ambiguity lies in the sentence with the highlighted
“and,” an ambiguity that is underscored by the somewhat open-ended
language that is proposed at the end of the provision.  We believe
that the correct reading of the sentence with the highlighted “and”
is that compliance is required at the risk of invalidation only
with those legal requirements that both apply to the project
location and are directly applicable to the offset project.  This
is consistent with the thrust of Appendix E’s focus on project
activities, and also with the language now proposed for inclusion
in CTR Section 95973(b)(2) that also focuses on project
activities.
However, the provision remains a bit ambiguous.  The “and” sentence
also can be read to require compliance with legal requirements that
apply to the project location in addition to those legal
requirements that directly apply to the project itself.  Under this
interpretation, the violation of, say, a local reporting
requirement that is not applicable to the offset project activities
but that does apply to the project location could invalidate an
entire reporting period’s worth of ARBOCs.  Such a result would be
draconian, especially if it occurs during the initial years of a
forest offset project, which is when most of its credits are
earned.
In a previous rulemaking addressing section 95973(b), ARB explained
that the section only applied to project activities, and went so
far as to state “[r]egulatory conformance is intended to be limited
to project activities.”   However, to our knowledge ARB has never
directly addressed the ambiguity identified above.  We therefore
request that ARB reaffirm its interpretation that CTR Sections
95973(b) and 95985(c)(2) as amended mandate compliance at the risk
of invalidation only with those legal requirements that directly
apply to project activities, thereby making Appendix E the
meaningful and helpful addition to the Regulation that it is
intended to be.
2.	We Welcome the Expanded Reporting Deadline for Submitting a
Project’s First Offset Project Data Report. 
ARB’s proposal to expand the reporting deadline for the first
offset project data report (“OPDR”) for a project is a significant
improvement over the CTR’s current deadlines.  Extending the
deadline for the submittal of the first OPDR from 24 to 28 months
in order to allow a full 24 months of data to be included, giving
the project operator four months to prepare the report itself, is
both prudent and practical.  Many of the ARBOCs generated by a
project likely will occur within the first reporting periods, and
allowing projects to capture these credits during the initial phase
without having to wait for another reporting period will enhance
the timely generation of ARBOCs for use within the Cap-and-Trade
Program.  It also will facilitate annualized reporting periods.
3.	We Welcome the Proposed Allowance of Late-Filed Offset Project
Data Reports to Satisfy the Continuous Reporting Requirement. 
Allowing a tardy OPDR to satisfy the continuous reporting
requirement found in proposed CTR Section 95976(d) provides much
needed breathing room in what may otherwise be a fairly drastic
provision.  Forest projects with vast acreages such as many of
those in Alaska will require a lengthy, dedicated effort to ensure
that all of the information included in the OPDR is complete and
accurate.  Given the size of the task for these large projects,
there is a chance that a report may not be timely submitted.  We
thus appreciate ARB’s clarification as to what will happen if such
an event does occur.
4.	Adding Overestimations Due to the Use of Approved Growth Models
to the Definition of Intentional Reversal is Inappropriate.
ARB’s proposed definition of “intentional reversal” appears to
alter what was previously the touchstone of determining the status
of a reversal – that is, whether the reversal was “caused by a
forest owner’s negligence, gross negligence, or willful intent . .
. .” CTR Section 95802(a)190.  A forest owner that so causes a
reversal is, appropriately in our view, responsible for replacing
the requisite amount of ARBOCs.  Id. at 95983(c)(3).  However, the
proposed definition of “intentional reversal” now includes those
reversals that are “caused by approved growth models overestimating
carbon stocks.”  Proposed CTR Section 95802(a).  It is difficult to
understand how using a growth model approved by ARB is tantamount
to “negligence, gross negligence, or willful intent.”
It would be far more appropriate to treat as unintentional any
reversal due to an overestimation of carbon stocks that results
from the use of an approved growth model and not negligence or
worse.  Such an overestimation may not be the result of an Act of
God such as disease and wildfires, the examples cited in the
current definition of “unintentional reversal,” but they are the
result of well-intentioned human acts that cause a reversal just as
the intentional setting of a back burn, the exception cited in the
definition of “intentional reversal.”  In both instances, the
reversals are the result of acts by persons other than the forest
owner.  The forest owner should not be held responsible for the
acts of others in positons of authority as if she was guilty of
negligence, gross negligence, or willful intent.  In short,
overestimations that result from the use of an approved growth
model should be treated as unintentional and not intentional
reversals.  We therefore respectfully suggest the following
modifications to the proposed amendments to CTR Section 95802(a)
(italicized words are those already proposed by ARB; our proposed
additions are underlined):
“Intentional Reversal” means any reversal, except as provided
below, which is caused by a forest owner's negligence, gross
negligence, or willful intent, including harvesting, development,
and harm to the area within the offset project boundary, or caused
by approved growth models overestimating carbon stocks. A reversal
caused by an intentional back burn set by, or at the request of, a
local, state, or federal fire protection agency for the purpose of
protecting forestlands from an advancing wildfire that began on
another property through no negligence, gross negligence, or
willful misconduct of the forest owner is not considered an
intentional reversal but, rather, an unintentional reversal.
Receiving Adverse Offset Verification Statements on two consecutive
offset verifications after the end of the final crediting period
will be considered an intentional reversal.
*		*		*
“Unintentional Reversal” means any reversal, including wildfires or
disease that is not the result of the forest owner’s negligence,
gross negligence, or willful intent, including a reversal caused by
approved growth models overestimating carbon stocks. In the case of
a wildfire, only trees identified as dead or dying, in the
post-event inventory, as a result of the fire will be removed from
the project’s inventory and compensated from the Forest Buffer
Account minus any salvage harvest accounted for under long-term
storage.
5.	We Welcome ARB’s Proposed Amendment Extending the Timeline for
Conducting a Post-Unintentional Reversal Carbon Stock Estimate.
Because it is not hard to foresee a situation in which it would be
necessary, we welcome ARB’s proposal to expand the timeline to
complete a post-unintentional reversal carbon stock estimate. 
ARB’s proposed section 95983(b)(1) will allow 23 months for such a
carbon stock estimate to be conducted.  Depending on the acreage
involved in such a reversal, providing a complete and accurate
carbon estimate may take a significant amount of time.  This is
especially true for many of the forest projects in Alaska where the
acreages are vast.  We also welcome as reasonable and practicable
ARB’s proposal to toll the requirement of submitting an offset
project data report while this carbon estimate is being completed.
6.	We Support the Purpose of ARB’s Proposal Regarding Required GHG
Emission Reductions But it Should Be Broadened to Include
Jurisdictions Other than California and Linked Jurisdictions.
ARB staff has explained that it “is proposing clarification that if
a law, regulation, or legally binding mandate to limit GHG
emissions that directly applies to an offset project goes into
effect during the crediting period of a project, then the project
may continue to receive ARB offset credits for the remainder of
their crediting period, but may not renew their crediting period.” 
Initial Statement of Reasons (August 2016) (the “ISOR”) at 56.  We
support the spirit of this proposal to protect the expectations of
those that have made financial investments in the generation of
ARBOCs.  Protecting such expectations ensures the continued
participation of entities willing to undertake the significant
effort and expenditure required to develop compliance offset
projects.
However, the regulatory language proposed by ARB does not fully
support the purpose identified in the ISOR.  Proposed CTR Section
95973(a)(2)(G) speaks only to situations where a GHG reduction
requirement “comes into effect in California or in a linked
jurisdiction.”  It does not address what happens with offset
projects in jurisdictions such as Alaska.  Thus, to account for
those jurisdictions outside of California and linked jurisdictions,
we respectfully propose the following modification to proposed CTR
Section 95973(a)(2)(G):
If any law, regulation, or legally binding mandate requiring GHG
emission reductions or GHG removal enhancements comes into effect
in California or in a linked jurisdiction pursuant to section 95943
the jurisdiction where the offset project is located during an
offset project’s crediting period, then the offset project is
eligible to continue to receive ARB offset credits for those GHG
emission reductions and GHG removal enhancements for the remainder
of the offset project’s crediting period, but the offset project
may not renew that crediting period. If an offset project has not
been listed prior to the law, regulation, or legally binding
mandate going into effect, or the law, regulation, or legally
binding mandate goes into effect before the offset project’s
crediting period renews, then only emission reductions or removal
enhancements that are in excess of what is required to comply with
those laws, regulations, and/or legally binding mandates are
eligible for ARB offset credits.
This modification will ensure that offset projects in all
jurisdictions are treated equally under the Cap-and-Trade Program,
and will incentivize the continued participation of entities
outside of California and linked jurisdictions.
7.	ARB’s Proposal to Require Forest Owners to Replace Invalidated
Offset Credits in the Forest Buffer Account Should be Improved.
Proposed CTR Sections 95985(h)(3) and (i)(3) require the Offset
Project Operator (which for a forest offset project is the forest
owner) to replace 50% of any ARBOCs are located within the Forest
Buffer Account (“FBA”) that have been invalidated.  Although at
first blush it seems logical that these credits would need to be
replaced, the proposed requirement actually does not make sense in
the context of the regulatory scheme as a whole.
Under the current Regulation, the only invalidated ARBOCs that must
be replaced are those that have been used and thus are in a
retirement account.  CTR Sections 95985(h) and (i).  ARBOCs in the
FBA, however, have not yet been used.  They have not been
surrendered to meet a compliance burden, but rather are placed in
the FBA to serve as insurance against unintentional reversals. 
ARBOCs that have been invalidated pursuant to CTR Section 95985(c)
reflect a determination that the credits never should have been
issued in the first place – and if they had not been issued, then
there would have been no need to insure them against reversal. 
ARB’s proposed requirement that only half of the invalidated ARBOCs
in the FBA be replaced appears to be a concession that these
credits really do not truly need to be replaced.  If not, why is
ARB only solving half the problem?  (The ISOR does not address the
50% replacement rate.)
We suggest that if ARB wishes to require the replacement of
invalidated ARBOCs in the FBA, then to be consistent with the rest
of the Regulation the number to be replaced should be tied to the
number of credits that have been retired from the FBA.  This could
be done by administering the FBA in such a way that an equal
percentage of credits present in the FBA from each offset project
are used to compensate for an unintentional reversal.  This
equalizes the risk of invalidation with the requirement to replace
credits retired from the FBA across all forest offset projects,
which would harmonize better with the general insurance goals of
the FBA.  While we do not anticipate ever being in a position where
the invalidation provisions affect us, ensuring the integrity of
the Program as a whole can only benefit all involved.
Conclusion
Many of the proposed amendments take steps in the right direction
for ensuring the long-term integrity of the forest offset projects.
 With a few minor adjustments, and further input from the
stakeholders involved, we believe that many of the issues addressed
in the rulemaking may be resolved to the benefit of the
Cap-and-Trade Program, its stakeholders and the global environment.
 Once again, we salute California for its commitment to addressing
climate change, a commitment that we share, and we thank you for
your consideration of these comments.  We look forward to
continuing to work with ARB regarding this important program.

Sincerely, 

Josie Hickel
SVP Energy & Resources
Chugach Alaska Corporation