Bush Administration’s Proposed New Rules for Voluntary Greenhouse Gas Reporting Raise Many Questions

In early December, the Department of Energy (DOE) issued its long-awaited proposed general guidelines for voluntary reporting of greenhouse gas (GHG) emissions and emissions reductions; a series of more detailed technical guidelines are soon to follow. The proposal raises numerous conceptual and technical issues that will have to be resolved in order to make the enhanced “1605(b) Program” workable and effective. In particular, companies hoping that the DOE initiative would provide greater definition to a U.S. emissions trading market are likely to find the proposal somewhat incomplete. The proposed guidelines are an outgrowth of President Bush’s February 2002 announcement of a set of climate policy initiatives. A particular aim of the proposal is to enhance the accuracy and reliability of 1605(b) reports. As a result, the revised guidelines are more prescriptive than the original program guidelines, which allowed substantial reporting flexibility in order to encourage broad participation.

The proposal would establish a two-tier system. Participating companies would remain free to report as they have in the past, including on the basis of emission reduction projects. However, in order to “register” emission reductions in a new DOE database, “large emitters” first would have to submit “entity-wide” emissions inventories.

The threshold for being a “large emitter” is relatively low: annual average emissions exceeding 10,000 tons CO2-eq. This metric would sweep in any company that: (1) operates a 5 MW coal-fired boiler at 25% capacity; (2) owns a fleet of 1750 cars; or (3) purchases roughly 14.5 million kWh of electricity annually. Indeed, DOE envisions that the only reporters excluded from “large emitter” status would be households, and some farms, forest operations, and small businesses.

All other participants would have to meet the requirements for entitywide emissions reporting in order to register their reductions. These requirements are notable for their breadth. They mandate that entities not only report their direct emissions of CO2, but also their direct emissions of five other GHGs, as well as emissions changes at any of their terrestrial carbon stocks. Moreover, entities would be required to calculate their “indirect” emissions – i.e., emissions resulting from electricity purchases. The guidelines “strongly encourage” but do not require independent verification of inventories.

“Large emitters” submitting qualifying inventories would be permitted to register net, cumulative reductions – taking into account reductions in “indirect” emissions and also sequestration by carbon sinks. The guidelines recommend determining reductions in terms of emissions intensity – i.e., emissions-per-unit-output – rather than absolute emissions. This emphasis is consistent with the Bush Administration’s overall goal of reducing national emissions intensity by 18 percent between 2002 and 2012. Many companies like the flexibility inherent in the intensity approach because it recognizes emission reduction efforts without discouraging economic growth. However, the approach is controversial with environmentalists for much the same reason; they argue that companies can meet intensity targets even as their overall emissions increase. A nagging question is what benefit comes from “registering” one’s reductions – particularly in light of the burdensome reporting requirements. The proposal states only that the database will afford such reductions “special recognition.”

Notably, President Bush originally directed DOE to “recommend reforms [to the 1605(b) Program] to ensure that businesses and individuals that register reductions are not penalized under a future climate policy, and to give transferable credits to companies that can show real emissions reductions.” The proposed rule and its preamble are silent on these issues.

The proposed guidelines at least contemplate that registered reductions will be transferable in some fashion – DOE is soliciting comments on what kinds of rules should apply to offset arrangements. The Department might require offset providers to meet all of the inventory reporting and other requirements to which they would be subject were they to register the reductions themselves. DOE also is soliciting comments as to whether or not international activities should be recognized in the revised program.

Noticeably absent from the proposal is some of the fundamental architecture for tracking “registered” reductions. For example, the guidelines do not address whether participating entities would have accounts for their registered reductions or whether individual reductions would have serial numbers. It also is not clear whether non-reporting, non-emitting entities – such as brokers – could hold registered reductions.

About the Author
Kyle Danish is a senior associate in the Washington, D.C. office of Van Ness Feldman, P.C. Mr. Danish’s practice focuses on energy and environmental issues, with a special emphasis on global climate change. He has advised on the development of emissions reporting rules and has assisted clients on emissions trading transactions in the U.S. and abroad. From 2001-2003, Mr. Danish was Co-Chair of the American Bar Association’s Committee on Climate Change and Sustainable Development. His email address is kwd@vnf.com.