Comments on General Guidelines for Voluntary GHG Reporting

Comments by The Pew Center on Global Climate Change Regarding
General Guidelines for Voluntary Greenhouse Gas Reporting – Proposed Rule
February 11, 2004

These comments by the Pew Center on Global Climate Change are written in response to the notice of inquiry by the U.S. Department of Energy (DOE) regarding the “General Guidelines for Voluntary Greenhouse Gas Reporting; Proposed Rule” (68 Fed. Reg. 68204 (December 5, 2003)) [1]. The Pew Center appreciates the opportunity to comment on this important issue.

The Pew Center previously submitted comments in response to the notice of inquiry by the U.S. DOE regarding “Voluntary Reporting of Greenhouse Gas Emissions, Reductions, and Carbon Sequestration” (67 Fed. Reg. 30370 (May 6, 2002)). In those comments, the Pew Center stated that a mandatory greenhouse gas (GHG) reporting and disclosure program is an essential first step in any effort to reduce U.S. GHG emissions, and provided recommendations for the design of such a program. We do not repeat all of our previous recommendations here; rather, we respond specifically to key elements of the proposed revised General Guidelines.

While we appreciate the complexity of the task before DOE and efforts made to address some concerns about the previous 1605(b) program, the Pew Center does not feel these revisions provide the clarity and scope necessary to avoid a future revision. We are particularly concerned with the unequal treatment of real, quantifiable reductions made previously by leading firms, as we discuss below.

Defining Reporting Entities/Boundaries

We appreciate the desire to expand reporting by entities. However, limitations in the way this is done in the proposed Guidelines will impair the effectiveness of the provisions. Certain key terms are not well defined and/or are used inconsistently within the proposed revised General Guidelines.

In particular, the definition of “entity” is too vague. The proposed Guidelines state, “A reporting entity must be composed of one or more legally distinct businesses, institutions, organizations, or households, although reporters are strongly encouraged to define themselves at the highest meaningful level of aggregation appropriate” (68 Fed. Reg. 68216). A reporting entity would be required to provide an “entity statement” that meaningfully defines the operations and facilities covered by its reports, including the names of parent or holding companies not covered, and the names of large subsidiaries or organizational units that will be covered by the entity’s reports, among other details. However, relying on such entity statements would make it impossible for third parties to understand the true U.S. emissions of any firm. Indeed, relatively small components of a corporation may be the only reporters under this definition, which would provide a skewed view of the true entity-wide emissions and make comparison with other firms impossible.

In addition, terms such as “ownership” and “operational control” are not defined adequately in the proposed guidelines. One existing tool that has established clear definitions regarding ownership, control, and other key terms is the Greenhouse Gas Protocol Initiative, which was developed through an international multi-stakeholder process. With respect to choosing accounting and reporting boundaries, we support this GHG Protocol in its assertion that “boundaries should represent the substance and economic reality of the business, and not merely its legal form.”

While the Pew Center believes understanding the true entity-wide emissions is important, availability of less aggregated data would also be helpful for analytical purposes and to inform policy-making. For example, firms providing entity-wide data could be requested to specify facility GHG emissions over 10,000 metric tons of CO₂ equivalent (with appropriate exceptions for confidential business information).

Absolute Reductions in Emissions vs. Reductions in Emissions Intensity

While we think that the reporting of emissions intensity data would be interesting, the emissions reduction picture would be incomplete without absolute emissions reduction data presented as well.

Baseline Protection and Transferable Credits

On February 14, 2002, President Bush directed the DOE to recommend improvements to the Voluntary Reporting of Greenhouse Gases Program established under section 1605(b) of the Energy Policy Act of 1992 (“1605(b) program”). In particular, the president “directed the Secretary of Energy to recommend reforms to ensure that businesses and individuals that register reductions are not penalized under a future climate policy [i.e., “baseline protection”], and to give transferable credits to companies that can show real emissions reductions.”

It is not known when a mandatory program to limit emissions of GHGs will be established in the United States or what the design of such a program will ultimately be. Despite these uncertainties, it is important to move forward with GHG reductions, given the long atmospheric lifetimes of GHGs. To stimulate voluntary reductions of GHG emissions today, a GHG reporting program should provide “baseline protection” for companies that have already taken action or are planning to take action to reduce their emissions. These entities should be assured that — in the event of future controls on GHG emissions — they would receive credit for reductions achieved voluntarily. The extent and form of such credit would depend on the design of the ultimate GHG control program. All this is implicit in the President’s February 14, 2002 directive to the Secretary of Energy.

Baseline protection from the first year of reporting and onward should apply to all participating entities that are in compliance with program requirements, and that report emissions for the entire entity – not just for projects or individual facilities – with adjustments made to account for acquisitions, mergers, and other changes in the entity’s operation. An entity’s “baseline” would be emissions reported during its first year of reporting under this program, unless it chooses to select an earlier base year for which there is credible and verifiable information on GHG emissions.

The Pew Center’s review of existing statutory authorities indicates that the Executive Branch currently lacks authority to assure that current efforts to reduce GHG emissions will receive credit under a future law. If a baseline protection program is to have binding effect, it must be authorized by law to provide greater assurances to companies that the baseline protection would extend beyond the current Administration. DOE should seek this authorization not only to comply with the president’s directive, but also to strengthen the existing reporting program.

Moreover, DOE has determined that it lacks the statutory authority to create transferable credits for registered emissions reductions. As with baseline protection, DOE should seek the statutory authority to create transferable credits in the interest of complying with the president’s directive and strengthening the existing reporting program.

Registering of Activities Prior to 2003

Under the new two-tiered guidelines, entities may report (but not register) emission reductions achieved prior to 2003. Reductions that were reported to 1605(b) before 2003 could not earn registration status, even if the entities met the new guidelines. The DOE’s decision to distinguish between reductions achieved prior to 2003 and reductions achieved from 2003 is counterproductive and arbitrary. Not only would real, verifiable reductions that occurred before 2003 not be recognized under the proposed system, but entities would have no assurance that a future revision process would not similarly fail to recognize post-2003 registered reductions.

The Pew Center urges that entities be able to register pre-2003 emissions reductions so long as they meet all other requirements of the revised, more stringent 1605(b) guidelines. Many companies have taken responsible actions to curb their GHG emissions and undertake GHG reduction projects over the last decade, due to concern about climate change impacts and in response to the United Nations Framework Convention on Climate Change and various U.S. voluntary programs. A number of these firms acted in good faith reliance on representations from previous government statements suggesting these actions would be rewarded—or at least not punished. These companies should receive credit for their early action. A GHG reporting program should make it possible for such entities to register (and receive baseline protection for) emission reductions and offsets implemented since 1990, so long as the information is certified by the reporting entity and is reported under the established reporting standards. Companies should be able to select any base year in this timeframe for which their emissions are well documented and verifiable.

International Emission Reductions

The proposed revised General Guidelines do not address either the reporting or registering of non-U.S. emissions or emissions reductions. However, the current 1605(b) program guidelines provide for reporting of international activities. The proposed revisions, therefore, take a step backward from the existing guidelines in this regard.

Because GHG emissions have the same warming effect regardless of where on the globe they are emitted, it is useful to encourage the most cost-effective GHG mitigation opportunities even if they are not in the United States. As with our comments above, many leading firms have invested in such beneficial projects at some expense and with careful attention to concerns regarding monitoring and verification. These efforts should be recognized. Therefore, the Pew Center recommends that DOE allow and encourage reporting and registering international projects so long as they: (1) are certified as real, quantifiable, and not resulting in increased emissions elsewhere; (2) are verified by a third party qualified to provide such certification; and (3) pertain only to projects not reported elsewhere in the register.

Conclusion

The Pew Center does not feel these proposed revisions provide the clarity and scope necessary to avoid a future revision. While moving to entity-wide reporting is desirable, the guidelines do not define entities clearly enough. The guidelines fail to provide baseline protection for pre-2003 reductions, and do not provide transferable credits. The guidelines also fail to address international reductions.

The Pew Center believes that a mandatory GHG reporting and disclosure program is the logical next step in any effort to address climate change. Even a voluntary emission reduction program requires mandatory reporting in order to determine the overall efficacy of the voluntary effort. The Pew Center urges DOE to work with Congress to enact mandatory reporting and disclosure.