Key Definitions from S.139 Affecting Potential Credits for Early Compliance

Baseline: The historic greenhouse gas emission level of an entity, as adjusted upward to reflect actual reductions that are verified.

Covered Entity: An entity that owns or controls a source of greenhouse gas emissions in the electric power, industrial, or commercial sector of the U.S. economy that emits over 10,000 metric tons of greenhouse gases per year.

Direct Emissions: Greenhouse gas emissions by an entity from a facility that is owned or controlled by that entity. Indirect Emissions: Greenhouse gas emissions that are the result of the activities of an entity but are emitted from a facility owned or controlled by another entity and not reported as direct emissions by the entity from which they were emitted.

The U.S. Climate Change Initiative and Enhanced Voluntary Reporting of Greenhouse Gases Program

On February 14, 2002, President George W. Bush announced the Administration’s Global Climate Change Initiative, which includes new emission intensity reduction goals, incentives for clean technology development, added support for scientific research, expanded collaboration on climate change with foreign governments, and the development of a framework for the enhancement of the Voluntary Reporting of Greenhouse Gases program. Pursuant to the last objective, the Department of Energy is working to improve and expand the 1605(b) Voluntary Reporting of Greenhouse Gases Program. The primary goal is to create a credible and transparent program to report real reductions that support the national greenhouse gas intensity goal of an 18 percent improvement by 2012. In addition, the enhanced 1605 (b) Program will allow businesses and individuals to record their reductions and ensure that those reporters are not penalized under a future climate policy. The objective of improving the registry and providing transferable credits for reductions is to help motivate firms to take cost-effective, voluntary actions to reduce greenhouse gas emissions.

On July 8, 2002, the Secretary of Energy, joined by the Secretary of Commerce, the Secretary of Agriculture, and the Administrator of the Environmental Protection Agency, submitted recommendations to the White House that will guide the process over the coming months to improve and expand the Voluntary Reporting Program. Specifically, the Secretaries and Administrator recommended the following improvements to the 1605(b) program:

• Develop fair, objective, and practical methods for reporting baselines, reporting boundaries, calculating real results, and awarding transferable credits for actions that lead to real reductions.
• Standardize widely accepted, transparent accounting methods.
• Support independent verification of registry reports.
• Encourage reporters to report greenhouse gas intensity (emissions per unit of output) as well as emissions or emissions reductions.
• Encourage corporate or entity-wide reporting.
• Provide credits for actions to remove carbon dioxide from the atmosphere (e.g., sequestration activities) as well as for actions to reduce emissions.
• Develop a process for evaluating the extent to which past reductions may qualify for credits.
• Assure that the Voluntary Reporting Program is an effective tool for reaching the 18 percent goal.
• Factor in international strategies as well as State-level efforts.
• Minimize transaction costs for reporters and administrative costs for the Government, where possible, without compromising the foregoing recommendations.

The recommendations highlight the need to create standardized, widely accepted, transparent accounting methods, support independent verification of registry reports, and ensure that companies that make real reductions are awarded credit under a future climate change policy.

To engage the public on these issues, DOE held four regional workshops during November and December 2002. Each workshop addressed the full range of greenhouse gas accounting issues outlined above and how they would relate to an “enhanced” Voluntary Reporting Program. Following the regional workshops, DOE started a process to develop revised guidelines that will meet the intent of the President’s Climate Change Initiative. DOE intends to finalize the revised guidelines by the end of calendar year 2003, so that EIA can collect data under the new guidelines in 2004.

Entities Potentially Eligible for Early Compliance Credits Under S.139

Entities covered under S.139 include those that own or control a source of greenhouse gas emissions in the electric power, industrial, or commercial sectors that emits over 10,000 metric tons carbon dioxide equivalent per year. Additionally, an entity that imports or produces petroleum products for use in transportation that will emit more than 10,000 metric tons carbon dioxide equivalent is also covered. Determining the number of entities that would be eligible for early credits under S.139 is not a straightforward matter. An earlier analysis has estimated the number of facilities that produce more than 10,000 metric tons of greenhouse gases per year,227 but it was conducted on a facility level. Allocating facilities to corporate entities is not a simple undertaking. Further, only those entities achieving reductions in direct emissions or increases in sequestration relative to a historical level after accounting for increases in indirect emissions would be eligible. Absent a comprehensive national reporting system, it is impossible to determine the full inventory of entities that have achieved or will be able to achieve such reductions against their baselines.

Based on existing data some broad suppositions can be made about potential entities covered under the early credit provisions of S.139 on a sector-by-sector basis, as follows:

• Electric Power. There are approximately 3,100 electric utilities and 2,100 nonutility power producers in the United States. The 100 largest owners of electricity generation capacity in the United States collectively own more than 1,900 power plants, which produce about 90 percent of carbon dioxide emissions in the power generation sector.228 A total of 4,636 facilities report carbon dioxide emissions under the Clean Air Act Amendments of 1990. Of that total, 1,633 report more than 10,000 metric tons of annual emissions. In the aggregate, those 1,633 facilities represent 99.9 percent of all carbon dioxide emissions from power plants.229 Thus, it can be assumed that nearly all entities from the electric power sector covered by S.139 would be among the 100 largest owners.

• Petroleum Refining. Petroleum refiners produce petroleum products for use in transportation that will emit more than 10,000 metric tons of greenhouse gases when combusted. There are 153 petroleum refineries in the United States, of which 144 are operating. There are 44 entities that own more than 10,000 barrels of daily capacity within these refineries.230 This would imply that up to 44 entities would be covered by the reporting requirements of S.139 and potentially eligible for credit for early compliance. Output at U.S. refineries has increased steadily over the last 15 years, despite a 25 percent decline in the total number of refineries. Early reductions would be difficult to achieve if that trend continues. Further, nearly all the large refiners are part of large integrated oil companies that maintain a much broader emissions portfolio.

• Manufacturing. It has been estimated that some 7,777 manufacturing facilities have carbon dioxide equivalent emissions in excess of 10,000 metric tons annually.²³¹ It is impossible to allocate these emissions to a specific number of entities without data on emissions and facility ownership in the manufacturing sector.

• Commercial. It is unlikely that commercial buildings will surpass the 10,000 metric ton threshold limit. Some commercial buildings, however, could be captured in the entity-level inventories of manufacturers, petroleum refiners, or electric power producers that have significant point sources of emissions. It is difficult to determine the level of participation by large-scale commercial entities with many buildings or retail outlets.

Notes