The cap-and-trade program requires entities that emit more than 25,000 metric tons of CO2e to reduce emissions to at least that threshold. If they cannot reduce all emissions above the threshold, then they must purchase carbon permits at next month’s auction or use a combination of permits and carbon credits by each of the outlined compliance periods – 2014, 2017 and 2020.

Emitters may only use carbon offsets to reduce up to 8 percent of their total emissions per compliance period. The ARB is the sole issuer of these offsets, known as carbon credits, through AB 32’s compliance offset program. Offsets are created by projects that fall under one of ARB’s approved protocols.

There are currently four approved project protocols: two forestry protocols, one for government-protected forests and one for urban forests; an agriculture protocol, mainly for manure digesters (dairies); and a protocol for ozone depleting substances, mainly refrigerants. Those projects then have to be registered with an ARB accredited registry, and are then verified under the protocols by ARB staff and ARB-trained and accredited verifiers.

According to ARB Spokesperson David Clegern, the board is currently in discussion with two existing carbon registries, who, if deemed qualified, would give a preliminary vetting of offset projects. No registries have been accredited as of press time.

“Essentially we have to be assured that they are capable to work with the standards we require and the volume of offsets,” Clegern said. The two registries ARB is in talks with are international, but would focus only on U.S. projects for AB 32, he said. ARB’s goal is to have both approved before compliance begins in January 2013, and possibly before the first carbon allowance auction.

The compliance offset program under AB 32 is the only program of its kind to use a registry, making the verification and reporting of emissions under the legislation the most stringent process on the planet, according to Clegern.

While only four offset protocols have been approved by ARB, two more protocols are being evaluated, Clegern said. “We’re looking at one that deals with rice straw and another that deals with methane from coal mines,” he said. “The rice straw protocol is a biomass process that deal with the waste left over from a straw harvest. It doesn’t make a whole lot of offsets, but it is a modular program that can be instituted in a number of different places, like Arkansas, to create offsets for California. Overall, the impact of that will be to create a fair amount of additional reductions and to get other parts of the agriculture industry involved.”

According to Clegern, it is not necessary to have more of the offset protocols by January. “I think the way that this has worked out is that they are in place when we are satisfied that they can get done what we need done,” he said. “Because of the way the program is set up, no one has to surrender offsets until 2014.”

Cassandra Drotman, lead greenhouse gas verifier and environmental professional with Long Beach-based SCS Engineers, is one of the third-party verifiers accredited by ARB. Drotman typically works on offsets produced by agriculture projects, she told the Business Journal.

Drotman’s job is to basically audit a carbon offset project to be sure that what the project developer is reporting to ARB is equal to or less than a calculated model of the project. A project developer will do all of the necessary calculations for a project, register the project, get it approved by the ARB and then report emissions to an accredited registry. The developer is then given a number of potential offset credits, which is then audited by a verifier like Drotman to be sure the developer has met all requirements.

ARB staff and accredited third-party verifiers can calculate model projects under each of the protocols down to a few metric tons, Clegern said. Using a dairy as an example, the number of cows on the dairy, the weight and type of cows – basically all of the information about the dairy goes into calculating a model to conclude how much methane would be produced over a period of time.

To measure the actual offsets produced, carbon offset verifiers like Drotman look at the actual substance being destroyed – in the case of a dairy, methane from manure. The substance is collected and then terminated in a digester, which is basically a giant enclosed swimming pool. After approximately 150 days in the digester, a biogas is formed and is then burned in engines and boilers.

The amount of methane being turned into biogas is measured by flow meters, Drotman said. The flow meter measurements are then compared to the calculated model, she said, and whichever is the lower value is used for carbon offsets. The process is similar for the ozone depleting substances protocol, but with refrigerants.

All substances have a measurable global warming potential, Drotman said, measured in CO2e. For example, methane gas is 21 times CO2e. Each type of refrigerant has its own equivalent, which ranges from 20 to 80,000 times CO2e. All are measured in metric tons, she said. One metric ton equals 2,204 pounds.

“You’re not going to get a ton of the substance,” Drotman said. “You may have a pound of it, but the global warming factor is what makes the difference.”

Because an offset project has to create additional offsets than what is already being done, an offset cannot be something that would be a product of business as usual, according to Clegern. For example, “by installing a dairy digester, the dairy is inherently creating a situation where there will be additional reductions in greenhouse gas,” he said.

Under the forestry protocols, verifiers use research on specific types of trees to determine how much carbon they hold. Other factors include how dense a forest is and how old the trees are. The land and trees must be signed off, or insured, for 100 years, Drotman said, because verifiers are looking for future carbon reductions to register. Developers looking to establish a project under one of the forestry protocols must demonstrate that new trees were planted specifically for the project, thus creating new offsets.

Ultimately the ARB is hoping to have 100 third-party verifiers like Drotman trained for the cap-and-trade program, in addition to existing ARB staff familiar with what must be done for the compliance offset program.