It would be comfortable for offset buyers if they could expect they have a guarantee of offset credit being able to be transacted in the future. The problem lies in providing for the ability to carry forward/bank unused annual offset capacity.
Offsets are a crucial part of compliance entities’ cost containment strategies. The problem of carrying forward offset capacity has been resolved to a certain extent in the California cap-and-trade program and if facilities have not used their capacity one year, then they are able to use that in the subsequent years and bank it – but under certain restrictions.
The California cap-and-trade regulation requires that offsets account for eight percent of an individual entity's emissions over a three-year period (the sector-based offset credits excepting, which face additional restrictions).
In other words, the regulation establishes that the quantitative use limit applies to the triennial compliance obligation and not the annual compliance obligation.
Applying the limit to each annual surrender was considered overly complicated, it was also estimated that there was no benefit to the program when applying it annually.
The language in sections 95854 and 95856(f)(2) of the California cap-and-trade regulation has been especially modified to clarify this issue.
In effect, for example, if a source has a 100,000 ton compliance obligation it would have the ability to use 8,000 tons of offsets. If the source only uses 1,000 tons of offsets in one year of the triennial compliance obligation, the source is allowed to carry forward 7,000 tons into the subsequent years of the said triennial compliance obligation
Generally, the design for the carrying over of offset limit under California GHG emissions trading scheme can be considered as flexible tool providing covered entities with options for managing the structure of fulfilling their annual compliance obligation.
Also under EU ETS rules entities have flexibility (without prejudice to the requirements imposed by law) with regard to the extent of the annual compliance obligation covered with offsets within all years of the specified compliance period. It is therefore possible to use up the entire offset limit in the last year of the compliance period only.