Technology and the Economics of Climate Change Policy
Prepared for the Pew Center on Global Climate Change
Jae Edmonds, Joseph M. Roop, and Michael J. Scott of Battelle, Washington, DC
Eileen Claussen, President, Pew Center on Global Climate Change
Climate change policy analysis is fraught with uncertainty and controversy, but at least one thing is perfectly clear: technological innovation is the key to addressing climate change. Moving the economy to a greenhouse - friendly future will necessitate a profound economic transition - a transition that simply cannot come to pass without technological progress.
In this report, an impressive team of economists led by Jae Edmonds and Joe Roop explains how economic models of climate change take technological innovation into account. The authors demystify a highly technical subject that is essential to sound policy formulation, raising five central insights:
- All future projections of technological change are a matter of assumption. Much is known about how technological change has occurred in the past and what will drive it in the future. However, all projections require assumptions about the future role of technological change in the way the economy grows, in the way energy is used, and in the options available as alternatives to fossil fuels.
- Technological progress reduces the cost of climate change mitigation. This result is robust across a broad range of model types and assumptions.
- Significant technological progress occurs over long time horizons. This fact should be taken into account in establishing lead times for climate policies.
- Policies and prices can "induce" technological change. Thus both policy-makers and businesses play a major role in fostering technological change.
- Modeling "induced" technological change (that is, change stimulated by climate policies or price changes) is important because it more closely reflects reality. However, modeling this phenomenon is in its infancy.
This report on technological change addresses one of the factors identified by the Pew Center as having the largest influence on economic modeling results. An earlier Center report, "An Introduction to the Economics of Climate Change Policy," by John Weyant describes the five factors, which include: how baseline greenhouse gas projections are measured, what climate policies are considered, how the substitution of goods and services by producers and consumers is represented, and whether and how GHG reduction benefits are addressed. Two other Pew Center reports explore in detail the role of climate policies, with an emphasis on international emissions trading, and the role of substitution in determining the outcome of economic modeling.
The Center and the authors appreciate the valuable insights of several reviewers of early drafts of this paper, including Nebojsa Nakicenovic, Ian Parry, and Alan Sanstad. Special thanks are due to Ev Ehrlich for serving as a consultant for the Center's economics series and to Judi Greenwald for her editorial assistance.
An Overview of Greenhouse Gas Emissions Inventory Issues
Prepared for the Pew Center on Global Climate Change
Christopher P. Loreti, William F. Wescott, and Michael A. Isenberg, Arthur D. Little Inc., Cambridge, Massachusetts
Eileen Claussen, President, Pew Center on Global Climate Change
At a Pew Center conference on Early Action held in September 1999, DuPont announced plans to reduce its greenhouse gas emissions 65 percent from 1990 levels by 2010. BP Amoco intends to reduce greenhouse gas emissions by 10 percent of 1990 levels by 2010 and has implemented an emissions trading system across all of its businesses. United Technologies Corporation has announced targets to reduce energy and water usage by 25 percent per dollar of sales by 2007.
Motivated by factors ranging from a desire to monitor and reduce energy consumption to concern for the environment to anticipation of future requirements to cut emissions that contribute to climate change, a growing number of companies are voluntarily undertaking action to reduce their greenhouse gas emissions. This report provides an overview of how greenhouse gas emissions are estimated and reported in emissions inventories. It highlights a variety of approaches taken by companies to identify, track, and curb their emissions, and provides insights from their experiences.
This Pew Center report is the first in a new series aimed at identifying practical solutions to address climate change. The Solutions series is aimed at providing individuals and organizations with tools to evaluate and reduce their contributions to climate change. This first report, prepared by Christopher Loreti, William Wescott, and Michael Isenberg of Arthur D. Little, Inc., identifies credible approaches and offers a set of principles for conducting emissions inventories. The authors identify key decision points in efforts to conduct an emissions inventory. They note that the purpose of an inventory should influence the approach, pointing out, for example, the tension that exists between encouraging consistency in reporting practices and providing flexibility to reflect a specific company's unique circumstances.
In the absence of a comprehensive climate policy regime, voluntary efforts to identify and reduce greenhouse gases at the source are critical. Ensuring that such efforts are ultimately recognized under future policy regimes is equally important and only likely to be possible if greenhouse gas emissions reductions are found to be real, quantifiable, and verifiable. A subsequent Pew Center report will address key issues in the verification of emissions inventories and emissions reductions.
The authors and the Pew Center would like to thank the companies featured in this report for sharing their stories and insights, and acknowledge the members of the Center's Business Environmental Leadership Council, as well as Janet Raganathan and others involved in the Greenhouse Gas Measurement & Reporting Protocol Collaboration, for their review and advice on a previous draft of this report.
There is great interest today in the inventorying of greenhouse gas (GHG) emissions by corporations — perhaps more than there has ever been for a voluntary environmental initiative. This interest is part of the general trend among corporations towards increased reporting of environmental performance. In addition, many organizations have concluded that enough is known to begin taking action now to understand, to manage, and to reduce their GHG emissions. The possibility of earning credit for taking voluntary actions to reduce emissions is also a motivating factor for many companies to conduct inventories. Conducting an inventory is a necessary first step in managing greenhouse gas emissions.
This paper provides an overview of key issues in developing greenhouse gas emissions inventories, with particular emphasis on corporate-level inventories. It illustrates the range of current activities in the field and the experience of major corporations that conduct GHG emissions inventories. Areas of general agreement, as well as unresolved issues in emissions inventorying, are described. More specifically, the paper discusses:
- How national level emissions inventories relate to corporate and facility inventories,
- How companies conduct their inventories,
- Inventory accuracy,
- How companies decide which emissions to include (drawing boundaries),
- Baselines and metrics,
- Challenges for corporations in conducting global inventories, and
- Learning from similar measurement approaches.
One important issue this paper does not address is the verification of emissions inventories and emissions reductions. Verification is the subject of another paper being prepared by Arthur D. Little, Inc. for the Center.
This review of GHG emissions inventory issues is based on meetings and discussions with the Center's Business Environmental Leadership Council, a survey of selected major corporations on their greenhouse gas inventory practices, and a review of pertinent literature. It is also informed by the participation of the Center and Arthur D. Little, Inc. in a collaborative effort led by the World Resources Institute and the World Business Council for Sustainable Development to develop an internationally accepted protocol for conducting GHG emissions inventories.
The intent of this paper is not to advocate any specific methodology or approach for conducting GHG emissions inventories, nor to promote any particular policy positions. The review of the experience to date and issues surrounding GHG emissions inventories, however, suggests several general principles for developing effective GHG emissions inventory programs:
1. Start by understanding your emissions. Knowing the relative magnitude of emissions coming from various sources is necessary to understand whether or not they are material contributors to a firm's total emissions. Understanding the nature and the number of the emissions sources will facilitate the use of the inventory development guidance that is becoming available.
2. Understand the likely uses of the emissions inventory. Companies conduct GHG emissions inventories for purposes that range from internal goal-setting to external reporting to obtaining financial benefits. These different uses of the inventory information imply different levels of completeness, accuracy, and documentation in the inventory. Each organization will need to reach its own conclusion as to the cost/benefit balance of developing its inventory, depending upon its set of likely uses.
3. Decide carefully which emissions to include by establishing meaningful boundaries. Questions of which emissions to include in a firm's inventory and which are best accounted for elsewhere are among the most difficult aspects of establishing GHG emissions inventories. Since the purpose of conducting an inventory is to track emissions and emissions reductions, companies are encouraged to include emissions they are in a position to significantly control and to clearly communicate how they have drawn their boundaries.
4. Maximize flexibility. Since requirements to report or reduce greenhouse gas emissions under a future climate policy regime are uncertain, companies should prepare for a range of possibilities. By maximizing the flexibility in their emissions inventories — for example, by being able to track emissions by organizational unit, location, and type of emission or by expressing emissions in absolute terms or normalized for production — organizations will be prepared for a wide range of possible future scenarios.
5. Ensure transparency. Transparency in reporting how emissions and emissions reductions are arrived at is critical to achieving credibility with stakeholders. Unless the emissions baseline, estimation methods, emissions boundaries, and means of reducing emissions are adequately documented and explained in the inventory, stakeholders will not know how to interpret the results.
6. Encourage innovation. Now is the time to try innovative inventory approaches tailored to a company's particular circumstances. The range of experience and lessons learned will be invaluable as voluntary reporting protocols are developed or as possible regulatory requirements are established. Learning what works best — and doing it before any requirements for reporting are in place — will be as important as learning what does not work.
For Immediate Release :
August 1, 2000
Contact: Katie Mandes, 703-516-0606
Dale Curtis, 202-777-3530
Report Describes Companies' Efforts To "Inventory" Greenhouse Gas Emissions: Voluntary Initiatives Mark First Step Toward Emissions Reductions
Washington, DC - A growing number of companies are launching voluntary efforts to measure and track their greenhouse gas emissions, raising a host of practical questions and presenting opportunities for others to learn from their experiences.
A new report released by the Pew Center on Global Climate Change describes the pioneering work being done by some of the world's leading companies to inventory and report their greenhouse gas emissions. The report, authored by a team from Arthur D. Little, Inc., presents a set of principles for such efforts; describes credible approaches being tried by more than a dozen major companies; identifies key decision points in the process; and lists information resources that are available to companies contemplating such projects.
"In the absence of a comprehensive policy regime, we must encourage voluntary efforts to identify and reduce greenhouse gases," said Eileen Claussen, President of the Pew Center. "Ensuring that such efforts are recognized in the future requires that they be well thought out and documented today. This report is a thorough guide to the choices involved in inventorying greenhouse gas emissions."
The trend toward increased corporate reporting of greenhouse gas (GHG) emissions is driven in part by the companies' recognition that enough is known about climate change to warrant emissions reductions in the near term. An emissions inventory is the first step in that process.
Beyond considerations of environmental concern and good corporate citizenship, companies conducting inventories can also identify ways to enhance their productivity and energy efficiency; improve relationships with key stakeholders; and support the development of flexible, market-oriented policies such as emissions trading. An accurate inventory will also put companies in a better position to count voluntary, near-term emissions reductions toward any future regulatory requirements.
Among the practical issues addressed by the report are:
- How national-level emissions inventories influence corporate- and facility-level inventories;
- The specifics of a dozen companies' inventory programs;
- How companies decide which emissions to count, given complex questions of ownership, direct versus indirect emissions, and more;
- Questions of accuracy and estimates;
- Baselines and metrics;
- The challenges of conducting inventories across international boundaries; and
- Lessons learned from emissions inventories conducted under the acid rain title of the U.S. Clean Air Act and the U.S. EPA's Toxics Release Inventory program.
The report also describes the efforts of many specific companies, including American Electric Power of Columbus, OH; Air Products of Allentown, PA; Baxter International Inc. of Deerfield, IL; BP of London, England and New York, NY; DuPont of Wilmington, DE; Entergy of New Orleans, LA; ICI of London, England and Bridgewater, NJ; Niagara Mohawk of Syracuse, NY; Shell International of the London, England and Houston, TX; Suncor of Calgary, Canada; Sunoco of Philadelphia, PA; United Technologies Corp. of Hartford, CT; and Whirlpool Corp. of Benton Harbor, MI.
The report also lists 14 respected sources of information that companies may use to get started, including official government guidance, software programs, and guidebooks produced by environmental groups and business associations.
The report was authored by Christopher Loreti, William Wescott and Michael Isenberg of Arthur D. Little, Inc.
The inventory report is the first in a new series aimed at identifying practical solutions to the challenges presented by climate change. Other Pew Center series focus on domestic and international policy issues, environmental impacts, and the economics of climate change.
A complete copy of this report - and information on previous reports -- is available on the Pew Center's web site, www.c2es.org.
The Pew Center was established in May 1998 by the Pew Charitable Trusts, one of the United States' largest philanthropies and an influential voice in efforts to improve the quality of the environment. The Pew Center is conducting studies, launching public education efforts and working with businesses to develop market-oriented solutions to reduce greenhouse gases. The Pew Center is led by Eileen Claussen, the former U.S. Assistant Secretary of State for Oceans and International Environmental and Scientific Affairs. The Pew Center includes the Business Environmental Leadership Council, which is composed of 21 major, largely Fortune 500 corporations all working with the Pew Center to address issues related to climate change. The companies do not contribute financially to the Pew Center - it is solely supported by contributions from charitable foundations.
Press Relase: Corporate and Government Leaders Focus On Global Climate Change At Washington Conference
For Immediate Release:
April 12, 2000
Contact: Kelly Sullivan, 202-289-5900
Katie Mandes, 703-516-4146
Corporate and Government Leaders Focus On Global Climate Change At Washington Conference
Developing Country Perspectives Roundtable To Conclude The Conference
WASHINGTON, D.C. — Senior decision-makers and leaders will gather on April 25th and 26th in Washington, D.C. to participate in the "Innovative Policy Solutions to Global Climate Change" Conference. The international conference will discuss the proactive initiatives governments and the private sector are implementing in industrialized countries and key questions related to program design and implementation.
The Pew Center on Global Climate Change and the Chatham House/Royal Institute of International Affairs will host the conference at the Willard Inter-Continental Washington Hotel. Featured speakers are:
- John Prescott, Deputy Prime Minister, United Kingdom
- Jan Pronk, Minister of Housing, Spatial Planning and the Environment, The Netherlands
- Robert Hill, Minister for the Environment and Heritage, Australia
- Theodore Roosevelt, IV, Managing Director, Lehman Brothers, Inc.
- Rodney Chase, Deputy Group Chief Executive, BP Amoco
Governments and the private sector are beginning to address the climate change challenge because they recognize that the problem and its consequences cannot be ignored. The conference will highlight the measures that are being implemented to address global climate change," said Eileen Claussen, President of the Pew Center on Global Climate Change. She will deliver the opening and closing remarks at the conference.
The conference also includes various discussion panels on the climate change problems. State and local policies to help alleviate climate change, energy and transportation policies, and competitiveness and trade effects on climate change are among the topics the international gathering will address.
The conference will conclude with a Roundtable Discussion, co-sponsored by the Pew Center and the Shell Foundation Sustainable Energy Programme. The Developing Country Perspectives on climate change discussion will be chaired by Bakary Kante of the United Nations Environment Programme and will feature Luiz Gylvan Meira Filho, Espen Ronneberg and other distinguished individuals from various developing countries. There is no fee to register for the Roundtable.
The Pew Center was established in May 1998 by the Pew Charitable Trusts, one of the nation's largest philanthropies and an influential voice in efforts to improve the quality of the U.S. environment. The Pew Center is conducting studies, launching public education efforts, promoting climate change solutions globally and working with businesses to develop marketplace solutions to reduce greenhouse gases. The Pew Center is led by Eileen Claussen, the former U.S. Assistant Secretary of State for Oceans and International Environmental and Scientific Affairs.
The Pew Center includes the Business Environmental Leadership Council, which is composed of 21 major, largely Fortune 500 corporations working with the Center to address issues related to climate change. The companies do not contribute financially to the Center, which is solely supported by charitable foundations.
For more information on the Innovative Policy Solutions conference, the Developing Country Perspectives Roundtable, or on the Pew Center on Global Climate Change, please visit the Center's web site at www.c2es.org.
Address by Eileen Claussen, President, Pew Center on Global Climate Change
Whenever I appear before an international group such as this, with people from different countries who speak different languages, I am reminded of a joke I first heard long ago. We all know that if you can speak three languages, you're trilingual. And if you can speak two languages, you're bilingual. But what are you if you can speak only one language? Why, you're American, of course.
Today, I would like to speak to you as an American, but as an American who has been in close contact with others around the world on the topic of global climate change. And I would like to base my remarks on an American expression. That expression is "reality check." It means taking a moment to reflect on what is really happening in the world. And it means being truthful with ourselves and others about what we are capable of achieving. A reality check is an affirmation of yet another American expression-an expression that our mothers repeated again and again while we were young. "Honesty is the best policy," they would tell us. And, of course, there was no doubt that they were right. They were our mothers, after all.
And the reality is that honesty is the best policy when we are addressing the issue of global climate change. It was honesty about the risks of a changing climate that brought 150 nations together to negotiate a framework for reducing greenhouse gas emissions around the world. In the same way, today we all need to be honest about what we can achieve and when-and about how best to move forward so that future generations don't look back and wonder why we couldn't work together to meet this global challenge.
In the time that I have with you tonight, I want to talk about some of the issues that the United States, Germany and other nations need to be more honest about in order to achieve real progress in addressing the challenge of climate change. I also would like to offer a realistic view of what is happening on this issue in the United States-in both the public and private sectors, as well as among the media and the general public. And I will close with some recommendations about how to move the global dialogue on this issue forward and achieve real progress.
Getting Real: What We Can Achieve
So let us begin with a few reality checks. From my perspective, there are three issues that our governments need to be more honest about as the world addresses the challenge of climate change in the months and years ahead. The first is the timeframe in which the world can achieve entry into force of the Kyoto Protocol. The German government-which, to its infinite credit, has been out front on this issue for years-is urging entry into force in 2002. Although this is surely an admirable goal, the honest truth is that it is unlikely to happen.
While it is certainly true that many European countries are anxious and willing to ratify the Protocol in the near term, some of them-such as the Netherlands-have said that the United States must ratify at the same time. Ratification by non-European countries such as Japan, Canada and Australia also is unlikely without U.S. action on this issue. And here is the reality check: Given the current mood and political situation in Washington, U.S. ratification of the Kyoto Protocol-in the near term at least-is about as likely as hell freezing over. And if hell did freeze over, I am certain that many in the U.S. Congress would make every effort to attribute it to nothing more than normal climatic variations.
Another reason why entry into force in 2002 is unlikely is the sheer volume of work that remains to be done. We should not diminish the complexity or the importance of establishing environmentally effective, private sector-friendly rules for the Kyoto mechanisms; or of determining how to handle the sequestration of carbon in trees or soils; or of establishing a compliance regime that is both meaningful and fair. It is absolutely essential that these issues be addressed in an honest and an effective way. The system we create is likely to be in place for many, many years. Completing all of these jobs this year to give countries the time that would be required for entry into force in 2002 is both unrealistic and unlikely.
The second thing that our governments need to be realistic and honest about is the ability to meet the targets in the Kyoto Protocol if entry into force comes later in this decade. Reality check number two, therefore, is this: For the United States at least, meeting the targets in the existing timeframe will be impossible.
Even if we saw a profound shift in Washington on this issue in the next one or two years, the United States will not be able to achieve the Kyoto targets as they are currently drawn for the simple reason that administrative process in our county can be enormously time-consuming. For the Kyoto Protocol to become U.S. law, the Senate would have to grant its advice and consent; both Houses of Congress would have to pass implementing legislation that would then have to be signed by the President; and a designated Agency would have to draft rules and regulations that would have to go through formal notice and comment procedures before they could be finalized and then implemented.
Given that such legislation and regulation would clearly result in regional and sectoral economic impacts, the odds of all this activity occurring by 2008 are very small indeed.
Lest you think that my doubts are reserved to my own country, I firmly believe that the United States will not be alone in its inability to move fast enough to meet the Kyoto targets. Surely, there is much effort on this issue in Europe and elsewhere, but even in the countries that have fully embraced the importance of reducing emissions, it is not a given that the targets can be met, particularly with current programs. And I would venture to say that the likelihood that these targets will be met will decrease as people and governments become convinced that the United States will not be able to meet its targets.
This brings up the third issue that we all must be realistic and honest about, which is the serious engagement of the developing world. The reality, whether we like it or not, is that most developing countries are unlikely to agree to binding emission reduction targets that would take effect in this decade. This is based in part on their fear that emission limitations would place unacceptable constraints on their economic development. It is also based on their view that, even among environmental issues, climate change is less of a priority than such things as reducing local air and water pollution.
But the developing world's opposition to targets cannot be allowed to hide the fact there is movement on this issue among these countries. For example:
Privatization of the electricity sector is moving forward in India, where competition is expected to increase the use of natural gas and lower greenhouse gas emissions.
Korea is beginning to plan for opening up its power sector to competition, again with a projected increase in the use of natural gas.
And China, which has dramatically lowered its energy consumption per unit of output over the last decade, is on a path to continue making significant energy-saving improvements over the decade to come.
In these and other developing nations, investment decisions made in the power and transportation sectors in the coming years will have a significant impact on global greenhouse emissions for decades to come. And the reality is that many opportunities exist for lowering these countries' emissions from a business-as-usual trajectory. In other words, binding commitments for these countries may not be possible, but significant action to lower emissions from their expected path may very well be. Indeed, this is already happening in some countries.
So there they are-three issues that the governments of the United States, Germany and other nations need to get real about in order to push this discussion forward. The timeframe for entry into force. Whether the existing Kyoto targets can be met. And the serious engagement of the developing world. If we follow our mothers' advice and are honest with one another about these issues, I believe we will go a long way to ushering in the next phase in the global effort to meet the challenge of climate change-a phase that will move us from rhetoric to reality and from discussion to action.
The View from the U.S.
Just as it is important to understand what is truly happening on this issue in developing countries, I believe it is also critical that everyone clearly understand the current situation in the United States. While there is still bickering within and outside the U.S. government about: 1) whether climate change is even real; and 2) what the United States should do about it and when, the reality is that the American news media is devoting more attention than ever before to the topic of climate change, the American people accept that it is something that demands our government's attention, and American businesses are moving ahead on their own in the absence of government action.
Let me talk briefly about the news media first, because I believe this is a very important development. Based in part on the growing consensus among scientists that global climate change is real-and in part as well on the fact that 1997, 1998 and 1999 were the three hottest years on record-the U.S. news media has devoted increasing attention to this issue over the last year or two.
In a television news report just last month, CBS correspondent Jim Axelrod reviewed some of the likely effects of global climate change-including rising sea levels and shifts in water resources. He also made note of a likely increase in global temperatures that he suggested, rightly or wrongly, was already evident in the early January hot spell that hit much of the country and had residents of Washington, DC, jogging in shorts and t-shirts. The correspondent concluded his report with this observation:
"Such thoughts used to be called "doom and gloom" by many. Now, however, a growing number of scientists are hearing the critics, looking at the data, and saying it's a forecast that can't be ignored."
The U.S. television networks are not alone in drawing fresh attention to the risks of global climate change. The Washington Post, in a January editorial entitled "Warming to Reality," issued its own warning that-quote-"reckless inaction in the face of global warming is the costliest of all options." And, in the American news media's turn-of-the-century rush to identify the critical issues of the new millennium, global climate change was always front and center.
No doubt in response to the news media's increasing attention to this issue, the American public is more willing than ever to accept that global climate change poses a real threat and that action is needed to avert a crisis.
A September 1998 survey conducted for the World Wildlife Fund revealed that nearly 60 percent of Americans believe global warming is happening now, and another 26 percent believe it will happen in the future. According to the survey, fully three-quarters of Americans want the United States to take action to reduce emissions of carbon dioxide as a way to address the problem.
In an effort to determine whether these opinions carry over into the realm of national decisionmakers and opinion leaders who influence U.S. policy, the Pew Center did its own survey in March 1999. We conducted nearly 450 interviews with staff members in Congress, industry association leaders, corporate decisionmakers in the affected industries, media representatives, economists, scientists and policy experts across the country-in short, a fairly comprehensive sample of the wide assortment of quote-unquote "elites" who are in a position to influence U.S. action-or inaction-on this topic.
What did we find? Well, to our surprise, we found that these elites are even more likely than the general public to believe that global warming is happening now. We also found broad support among elites for U.S. action to reduce carbon dioxide emissions. Even the Kyoto Protocol-the target of often-harsh criticism from many in Congress--attracted strong bipartisan support. More than one-third said the agreement actually would help our economy and create new jobs because we would develop new technologies that would help reduce our greenhouse emissions.
Business Accepts the Challenge
The belief that progress on this issue can be compatible with sustained economic growth in the United States-and may even contribute to that growth-is one reason there is increasing acceptance among U.S. businesses of the need for strong action to reduce emissions.
In late 1999, as many of you may know, the Ford Motor Company announced it was resigning from a coalition of oil companies, auto makers, electric utilities and others who stubbornly argue that we still don't have enough evidence to know whether or not global warming is real-and that we shouldn't do anything serious about it until more is known. Word of Ford's decision was followed closely by the news that Daimler Chrysler also would be leaving the group known as the Global Climate Coalition. The companies' moves were seen as an indication of the growing acceptance of the reality and the urgency of this issue-even in the nation's corporate boardrooms-and as yet another sign of a growing consensus for rational action to reduce U.S. greenhouse gas emissions.
But the fact is that many American businesses have long been way ahead of the U.S. government-and even ahead of the media and the general public-in their willingness to acknowledge and work on the issue of global climate change. This progressive stance became obvious when a large group of mostly Fortune 500 companies became affiliated with my organization, the Pew Center on Global Climate Change, to help forge a consensus response to the problem.
The Pew Center's Business Environmental Leadership Council now includes 21 companies with combined annual revenues of more than $550 billion. Working together, these companies developed a joint statement asserting that in the new millennium-quote-"one of our most important challenges at home and abroad will be addressing global climate change as we work to sustain a growing global economy."
"One of our most important challenges." That is an enormously powerful statement coming from these companies, which include such household names as American Electric Power, Boeing, BP Amoco, Lockheed Martin, Shell International, Toyota, Enron, United Technologies and Whirlpool. And, in making this statement, these companies announced publicly that they:
1) Accepted that there was enough known about the science of global climate change to warrant action;
2) Would establish their own emission reduction targets--and meet them;
3) Viewed the Kyoto Treaty as a first although incomplete step to addressing the issue internationally; and
4) Believed that addressing climate change can be compatible with sustained economic growth in the United States.
Some of the member companies of our Business Environmental Leadership Council already have announced their emission reduction targets, all of which are at least as stringent as those in the Kyoto Protocol. One large company affiliated with the Pew Center, DuPont, has established a goal of reducing emissions to 65-percent below 1990 levels by 2010, with an additional commitment of obtaining 10 percent of its energy needs from renewable sources. This is a stunning target, far in excess of the 7-percent reduction required for the United States as a whole in the Kyoto Protocol.
The commitment of DuPont and these other companies is an important reminder that there are many steps industry can and should be taking now to reduce greenhouse gas emissions. Unfortunately, however, the fact that these forward-thinking companies are acting of their own volition and without a clear sense that their actions will be rewarded in the marketplace is a reminder of something else. And that something else is the lack of leadership the U.S. government has taken on this issue, particularly at home, where a government framework for reducing U.S. emissions is sorely needed.
The U.S. Government: A Lack of Leadership
The U.S. government's lack of leadership is especially unfortunate because the United States is the largest emitter of greenhouse gases in the world--responsible for 25 percent of global emissions in a nation that comprises less than 5 percent of the global population. If leadership on this issue should come from anywhere, it should come from the United States.
But leadership is not coming from the United States. It is rare both in Washington and on the presidential campaign trail for the discussion of this issue to get past the question of whether to support the Kyoto Protocol or whether to declare it dead. What the discussion has not touched on-and should-is the further development and implementation of programs that would change the expected trajectory of our nation's greenhouse gas emissions. The U.S. Congress, in particular, appears determined to let absolutely nothing happen that would even remotely suggest that the United States is concerned about this issue. Virtually every budget item that deals with emission reductions is viewed by many in Congress as a quote-unquote "backdoor" attempt to implement the Kyoto Protocol and is therefore voted down or pushed aside.
What, you may ask, is driving the U.S. government's reluctance to deal with this issue in a serious way? I would like to suggest that there are two issues at the heart of the debate. And, while these issues are significant, my belief is that they have not been framed in ways that are honest or open to solution. The first issue relates to the economic costs of action to reduce emissions; the second centers on developing country participation. In my view, these are the chief stumbling blocks to serious action on this issue in the United States. Only by confronting them head-on will we be able to mount an effective response to the challenge of global climate change-both in the United States and throughout the world.
So let me begin with the economics. There is a popular joke in the United States that says economists have predicted nine of the last five U.S. recessions. And it is hard to argue with the premise of the joke when one looks at the varying predictions that have been made about the potential impacts of achieving the Kyoto targets on the U.S. economy. Interest groups across the ideological spectrum have produced markedly different results from economic models that are often not that different in their structure but that use very different assumptions to achieve the results these groups want to achieve. And the only result that is truly achieved is confusion.
How do we get beyond this confusion? We get beyond it by admitting that the models we are using-even when stripped of assumptions that bear no resemblance to reality-are not infallible. The complexity and time frame of the climate change problem stretches the capabilities of even the most sophisticated economic models on the benefits side. And the ability of models to quantify the value of reducing the risks of climate change is still in its infancy. On the cost side, models are still confronted with a series of challenges, the most important of which is anticipating the pace and direction of technological progress. As far as I know, no economic model would have predicted the information technology or communications revolutions that we are now witnessing. Nor have any models anticipated the decoupling of economic growth and carbon emissions that has occurred in the United States in recent years.
I am not mentioning these things to suggest there will be no costs to the United States should it act decisively to reduce emissions. There is almost always a cost associated with major changes to the economy. What I would like to suggest is that a fixation with 10 or 20-year-out predictions of increases or decreases in the U.S. GDP really misses the mark. To argue, as some have done, that the costs will be catastrophic and that entire industrial sectors will immediately be wiped out is as dishonest as the assertion that the economy can effortlessly achieve major emission reductions at no cost. What the United States should be concerned about are the impacts that are likely to occur in certain industries, certain labor categories, and certain regions of the country. The question is how these impacts can be minimized over time--and with careful transitional planning.
The second issue that has become a roadblock to progress in the United States is that of developing country commitments. I call this the "fairness issue." Is it fair, people ask, for the United States to have to abide by the Kyoto targets while competitors such as China, India and Mexico get a quote-unquote "free ride?" One fear is that American jobs will be lost to these and other countries because their production costs will be lower. But lost in the debate is the reality that fairness demands a decisive U.S. response for two reasons. First, because the United States is responsible, both historically and currently, for more emissions than anyone else. And second, because the United States has the ability to pay the costs of reducing our emissions.
Also lost in the debate about global climate change in the United States-and this may be even more important-is the question of what the problem actually is, and how it can most effectively be addressed. As I suggested earlier, emissions in developing countries will grow as these nations industrialize, and the infrastructure that will support this growth--for power generation and transportation, in particular--will set in place the global emissions trajectory for decades to come. So the real issue is not how to pressure these countries into accepting binding emission reduction targets in this decade. Rather, the issue should be how to influence the character of this infrastructure investment so that it becomes more climate friendly. We should look to our export credit agencies and to private investors for the tools to accomplish these objectives.
So what is the world to do? We have all these difficult issues on the table, and yet we all understand-or at least most of us do-that we need to start acting to address this global challenge as soon as possible. I already have laid out some of the steps I believe need to be taken in order for this discussion to move forward and in order for Germany, the United States and other nations to move from discussion to action. These include being honest about the Kyoto targets and timetables even while working to complete the Kyoto framework; devoting more attention to encouraging progress on this issue in the developing world; and fostering discussion in the United States and elsewhere of some of the fairness and economic issues that must be resolved in order to build support for strong and decisive action.
But what about the Kyoto Protocol itself? I would not be honest if I didn't tell you there are many voices in the United States that have proclaimed that Kyoto is dead-some of them with the same satisfaction as the characters in the American movie "The Wizard of Oz" who dance and sing to celebrate the demise of the wicked old witch. But I believe it is important for all of us to remember that while some of those who have said Kyoto is dead come from industries that would be negatively affected by any regime to control greenhouse gases, others have much less, if anything, at stake. At issue for these critics are the complexity of the Kyoto framework, and the stringency of its targets and timetables.
Of course, the reality about the fate of the Kyoto Protocol is that it is unlikely to be cast aside even if it does not deliver on its first set of emission reduction targets. But at the same time, we all must accept that Kyoto remains a work in progress.
This leads me to one final reality check: Making the Kyoto Protocol into an agreement that can deliver on the promise of reducing the risk of global climate change will, in all likelihood, take longer than from now until the meeting this November in The Hague. The delegates should do what they can at that meeting, but they cannot and should not expect that all of these issues will be resolved. And, just because it takes longer than everyone hoped does not mean the Kyoto framework is not valuable and ultimately viable. In fact, I believe that structuring the framework more definitively into one that has realistic timetables and targets and is environmentally effective, economically sound, and-yes-fair will go a long way to improving its chances of success, whether we have agreement this year, next year or the year after that.
In the meantime, I am not suggesting that the governments of the world stand around and wait for a better document on which to base their work on this issue. The reality is that the United States and other governments should be implementing substantive programs now that seriously respond to the overall Convention goal of stabilizing atmospheric concentrations of greenhouse gases at levels that will prevent dangerous interference with the climate system. And it is heartening to see the initiatives that have been taken by Germany since the negotiation of the Kyoto Protocol.
A priority for the United States, I believe, should be to design a straightforward system that will recognize and give credit to corporations that want to take early action to reduce greenhouse gas emissions. Put very simply, these companies need to know that reducing their emissions now won't put them at a competitive disadvantage down the line.
In addition to addressing the early action issue, the United States must start planning seriously for how it will reduce greenhouse gas emissions over the long haul. I cannot state more emphatically that what is most important now is the trying. In the United States, in Germany, and throughout the world, we need to experiment with different approaches to reducing greenhouse gas emissions-for example, by testing both national and company-specific emissions-trading regimes, or by imposing carbon taxes. We need to establish clear procedures for inventorying and verifying emission reductions, something that many in the private sector are already working on. And we must begin to build the capabilities and the institutions we will need when a full-fledged international regime does come into effect.
These will not be easy or painless goals to achieve, but the reality is that we need to achieve them. There is no escaping our responsibility to address the challenge of global climate change in an effective and, of course, an honest way. We all have a higher authority to answer to on this issue. That's right, our mothers. And we all need to work together to make them proud.
Thank you very much.
For Immediate Release:
September 13, 1999
Contact: Kelly Sullivan/Heather Fass (202) 289-5900 (Pew)
Lori Fenimore (302)-773-0220 (DuPont )
DuPont Announces New Targets to Reduce Greenhouse Gas Emissions: Pledge Made at Pew Center on Global Climate Change Early Action Conference
WASHINGTON, D.C. — DuPont, a member of the Pew Center on Global Climate Change's Business Environmental Leadership Council, today announced an ambitious set of new targets to address the challenge of climate change.
Dennis H. Reilley, Executive Vice President and Chief Operating Officer at DuPont, made the announcement today in a keynote address at the Pew Center's Early Action Conference in Washington D.C. The Pew Center, in cooperation with the H. John Heinz III Center for Science, Economics and the Environment, is hosting the two-day conference to examine issues related to credit for early action by companies to reduce greenhouse gas emissions.
Specifically the new goals for 2010 unveiled by Reilley include:
- Reducing global carbon equivalent greenhouse gas emissions by 65 percent, using 1990 as a base year;
- Holding total energy use flat, using 1990 as a base year; and,
- Using renewable resources for ten percent of global energy use.
"We applaud DuPont's leadership in rising to meet the challenge of climate change," said Eileen Claussen, Executive Director, Pew Center on Global Climate Change. "DuPont's commitment is an important reminder that there are steps companies can take now to reduce emissions. A legal framework for early action would only inspire more businesses to take similar voluntary steps."
The Pew Center's Early Action Conference is exploring why the United States should seriously consider a framework to recognize companies' voluntary efforts; what policymakers must do to ensure that companies acting in advance of an international agreement are not penalized; and how to create an early action crediting program that avoids putting climate-conscious companies at a competitive disadvantage, yet does not reward phantom emission reductions.
In his address, Reilley pointed to the value of an early action framework. "Credit for early action and other incentives offer the possibility of eliminating cost penalties and encouraging, and possibly accelerating, the growth of cost-effective sources of renewable energy."
DuPont's work on climate change is part of a long-standing commitment. As a result of an earlier initiative to reduce greenhouse gas emissions, by the year 2000 DuPont will have reduced emissions for global operations by 45 percent and improved energy efficiency by 15 percent below 1990 levels. DuPont also has succeeded in holding energy use constant for the last ten years.
DuPont's work on climate change will be highlighted in a Pew Center-sponsored advertisement under the banner headline of "a leap forward on climate change." The print advertisement will appear in Newsweek, Business Week, The Washington Post, The Wall Street Journal, The Philadelphia Inquirer and The Wilmington News Journal.
In addition to the address by Reilley, the Pew Center Early Action Conference will include presentations from proponents of current early action proposals, as well as discussion on the complex legal, policy, and technical issues that confront the architects of early action programs.
"By bringing business leaders, policymakers and others with a stake in the climate change debate together, we hope the conference will provide new and balanced insight on the need for a legal framework on early action," said Claussen.
DuPont is a science company, delivering science-based solutions that make a difference in people's lives in food and nutrition; health care; apparel; home and construction; electronics; and transportation. Founded in 1802, the company operates in 65 countries and has 92,000 employees.
The Pew Center was established in May 1998 by the Pew Charitable Trusts, one of the nation's largest philanthropies and an influential voice in efforts to improve the quality of America's environment. The Pew Center supports businesses in developing marketplace solutions to reduce greenhouse gases, produces analytical reports on the science, and economic and environmental impacts of climate change, launches public education efforts and promotes better understanding of market mechanisms globally. Eileen Claussen, former U.S. Assistant Secretary of State for Oceans and International Environmental and Scientific Affairs, is the executive director of the Pew Center.
The Pew Center includes the Business Environmental Leadership Council, which is composed of 21 major, largely Fortune 500 corporations all working with the Pew Center to address issues related to climate change. The companies do not contribute financially to the Pew Center - it is solely supported by contributions from charitable foundations.
Early Action Conference
The Pew Center on Global Climate Change, in cooperation with The H. John Heinz III Center for Science, Economics and the Environment, held a conference to explore the subject of credit for early action. The conference featured a keynote address by DuPont Executive Vice President and Chief Operating Officer, Dennis H. Reilley, announcing the company's rigorous new greenhouse gas reduction targets. Another conference highlight was luncheon speaker Robert Luft, Chairman of Entergy Corp., speaking on the importance of an early action crediting program in the United States to facilitate reductions in greenhouse gas emissions.
The conference offered an overview of the early action issue from the perspectives of various industry sectors (including oil and gas, and manufacturing), electric utility, Congressional staff, state and city government; a review of current proposals; and roundtable discussions of the legal, policy, and technical issues that confront the architects of early action programs. Valuable participation by the audience contributed to a balanced and well-informed discussion.
Keynote Address by Dennis H. Reilley
Executive Vice President and Chief Operating Officer, DuPont
Luncheon Speech by Robert Luft
Chairman, Entergy Corp.
Press Release: ABB, Entergy and Shell International Join Growing Corporate Effort to Address Climate Change
For Immediate Release:
February 10, 1999
Contact: Kelly Sullivan (Pew Center), (202) 289-5900
Bill Kelly (ABB), (203) 750-2246
Carol Clawson (Entergy), (504) 576-4238
James Herbert (Shell), 011-44-171-934-2713
ABB, Entergy and Shell International Join Growing Corporate Effort to Address Climate Change: Move Signals Growing Shift in Climate Change Debate
WASHINGTON, D.C. — The Pew Center on Global Climate Change announced today that ABB, the international engineering and technology group; Entergy, a global energy company; and Shell International, a unit of the Royal Dutch/Shell Group of companies; are joining the Pew Center's growing efforts to address the problem of climate change.
As new members of the Pew Center's Business Environmental Leadership Council, ABB, Entergy and Shell International join 19 other companies, many of which rank in the Fortune 500. The group represents a diverse group of corporate interests - including auto manufacturing, energy and major appliance and technology producers.
"The decision by these three global leaders to join our effort continues to signal a growing shift in the climate change debate. These businesses, representing diverse sectors, have recognized the serious challenges created by climate change and have committed to working towards solutions that can keep both the environment and the economy healthy," said Eileen Claussen, executive director of the Pew Center on Global Climate Change.
The Pew Center was established in May 1998 by the Pew Charitable Trusts, one of the nation's largest philanthropies and an influential voice in efforts to improve the quality of America's environment. The Pew Center is conducting studies, launching public education efforts, promoting climate change solutions globally and working with businesses to develop marketplace solutions to reduce greenhouse gasses.
As with the current members of the Business Environmental Leadership Council, ABB, Entergy and Shell International have a significant stake in the climate change debate. At the World Energy Congress in Houston last fall, and in the European press, ABB has called on industry to join a market-based pilot project to reduce carbon dioxide emissions.
Entergy has consistently demonstrated its commitment to clean energy and clean air. As an active participant in the U.S. Department of Energy's Climate Challenge program, Entergy has committed to eliminating over five million metric tons of carbon dioxide emissions by 2000 through improvements in nuclear unit availability, capacity upgrades, fossil plant efficiency upgrades, CFC recovery and recycling efforts, renewable generation, and energy efficiency services.
"This is a natural step for us," said Aidan Murphy, Climate Change Adviser for the Royal Dutch/Shell Group of companies. "Before COP4 in Buenos Aires, we set out our commitment to reduce greenhouse gas emissions from our operations by 10% by 2002, and we will do that. We also committed to play our part in the public policy debate and the Pew Center is ideally placed to help us do that. Its study on the need for legislation to ensure companies are given credit for actions taken in response to the climate change issue is an important example of the enabling framework that will be needed to encourage early action in reducing greenhouse gas emissions."
"Cooperation is the key to making realistic progress on this issue," said Peter Janson, president and chief executive officer of ABB Inc. (USA). "We are delighted to join the strong coalition the Pew Center has put together."
"As a premier global energy company, Entergy must take a leadership role in establishing public policies surrounding global climate change issues that effectively minimize greenhouse gas emissions yet maintain a healthy business environment. Entergy currently has one of the best environmental records in the region and continues to factor environmental stewardship into its business decisions. The Pew Center on Global Climate Change has quickly become a significant voice in this important debate and Entergy is pleased to be part of the Pew Center's Business Environmental Leadership Council, said Robert v.d. Luft, Entergy Chairman. All members of the Business Environmental Leadership Council are committed to the founding principles of the Pew Center:
- First, we accept the views of most scientists that enough is known about the science and environmental impacts of climate change for us to take actions to address its consequences.
- Second, businesses can and should take concrete steps now in the U.S. and abroad to assess their opportunities for emission reductions, establish and meet their emission reduction objectives, and invest in new, more energy-efficient products, practices and technology.
- Third, the Kyoto agreement represents a first step in the international process, but more must be done both to implement the market-based mechanisms that were adopted in principle in Kyoto and to more fully involve the rest of the world in the solution.
- Fourth, we can make significant progress in addressing climate change and sustaining economic growth in the United States by adopting reasonable policies, programs and transition strategies.
"ABB, Entergy and Shell International should be applauded for stepping forward and demonstrating that businesses can take steps to address climate change. The Pew Center is looking forward to working with government, industry and the public to find fair and equitable solutions to this very serious problem," said Claussen. Claussen is the former U.S. Assistant Secretary of State for Oceans and International Environmental and Scientific Affairs.
The additional members of the Business Environmental Leadership Council include: Air Products and Chemicals, Inc.; American Electric Power Company; Baxter International Inc.; Boeing; BP America; CH2M HILL; DuPont; Enron Corp.; Holnam Inc.; Intercontinental Energy Corporation; International Paper; Lockheed Martin; Maytag; The Sun Company; Toyota; United Technologies; U.S. Generating Company; Weyerhaeuser and Whirlpool.
More information about global climate change and the Pew Center's activities can be found at their web site, located at www.c2es.org.
For Immediate Release:
October 29, 1998
Contact: Kelly Sullivan (Pew Center), (202) 289-5900
Andre Armstrong (CH2M HILL), (303)-713-2425
Lori Fenimore (DuPont), (302)-773-0220
CH2M HILL and DuPont Join Growing Corporate Effort to Address Climate Change : Move Signals Growing Shift in Climate Change Debate
WASHINGTON, D.C. — The Pew Center on Global Climate Change announced today that CH2M HILL, a global leader in sustainable design, construction and infrastructure management, and DuPont (NYSE: DD), a global research and technology-based company, are joining the Pew Centerís growing efforts to address the problem of climate change.
As new members of the Pew Centerís Business Environmental Leadership Council, CH2M HILL and DuPont join 18 other companies, many of which rank in the Fortune 500. The group represents a diverse group of corporate interestsincluding auto manufacturing, energy and major appliance and technology producers.
"The decision by DuPont and CH2M HILL to join our effort continues to signal a growing shift in the climate change debate. Although the businesses of these two companies may differ, they recognize that there are solutions to climate change that can keep both the environment and the economy healthy," said Eileen Claussen, executive director of the Pew Center on Global Climate Change.
The Pew Center was established in May 1998 by the Pew Charitable Trusts, one of the nation's largest philanthropies and an influential voice in efforts to improve the quality of America's environment. The Pew Center is conducting studies, launching public education efforts, promoting climate change solutions globally and working with businesses to develop marketplace solutions to reduce greenhouse gasses.
As with the current members of the Business Environmental Leadership Council, both DuPont and CH2M HILL have a significant stake in the climate change debate. CH2M HILL helps public and private clients worldwide realize a greater return on their investment in energy and environmental technologies. In 1991, DuPont voluntarily stepped forward to address the problem of global climate change and is on track to achieve a 50% reduction in greenhouse gas emissions for operations by the year 2000.
"DuPont is pleased to be joining the Business Environmental Leadership Council and looks forward to playing an active role," said Dr. Paul Tebo, Vice PresidentSafety, Health and the Environment at DuPont. "Global climate change is a complicated issue that must be dealt with responsibly. The Pew Center serves an invaluable purpose by creating a positive, constructive forum in which we in the business community can act to solve this problem."
"There can be no more important work over the next decade than joining with like-minded businesses to address global climate change in ways that heighten the competitiveness of U.S. industry," said James J. Ferris, president CH2M HILL Energy, Environment & Systems. "We expect the engineering, construction and management skill sets we bring to the Business Environmental Leadership Council to add a unique perspective to this already impressive group."
All members of the Business Environmental Leadership Council are committed to the founding principles of the Pew Center:
First, we accept the views of most scientists that enough is known about the science and environmental impacts of climate change for us to take actions to address its consequences.
Second, businesses can and should take concrete steps now in the U.S. and abroad to assess their opportunities for emission reductions, establish and meet their emission reduction objectives, and invest in new, more energy-efficient products, practices and technology.
Third, the Kyoto agreement represents a first step in the international process, but more must be done both to implement the market-based mechanisms that were adopted in principle in Kyoto and to more fully involve the rest of the world in the solution.
Fourth, we can make significant progress in addressing climate change and sustaining economic growth in the United States by adopting reasonable policies, programs and transition strategies.
"We applaud DuPont and CH2M HILL for stepping forward and demonstrating there are steps businesses can and should be taking to address climate change. The Pew Center is looking forward to working with government, industry and the public to find fair and equitable solutions to this very serious problem," said Claussen. Claussen is the former U.S. Assistant Secretary of State for Oceans and International Environmental and Scientific Affairs.
The additional members of the Business Environmental Leadership Council include: Air Products and Chemicals, Inc.; American Electric Power Company; Baxter International Inc.; Boeing; BP America; Enron Corp.; Holnam Inc.; Intercontinental Energy Corporation; International Paper; Lockheed Martin; Maytag; The Sun Company; 3M; Toyota; United Technologies; U.S. Generating Company; Weyerhaeuser and Whirlpool.
More information about global climate change and the Pew Centerís activities can be found at their web site, located at www.c2es.org.
Early Action and Global Climate Change: An Analysis of Early Action Crediting Proposals
Robert R. Nordhaus and Stephen C. Fotis
Eileen Claussen, Executive Director, Pew Center on Global Climate Change
The challenge of our generation will be addressing climate change while sustaining a growing economy. We need to take concrete actions to reduce emissions, both here and abroad. The sooner we begin, the more likely we are to succeed in stabilizing atmospheric concentrations at a level that will prevent dangerous anthropogenic interference with the climate.
This report, which analyzes proposals to credit early, voluntary actions to mitigate greenhouse gas emissions, is the first in a series to be published by the Center. The Pew Center was established in 1998 by the Pew Charitable Trusts to bring a new cooperative approach and critical scientific, economic, and technological expertise to the global climate change debate. Some U.S. companies have indicated support for early action programs in keeping with their desire to take immediate action to reduce greenhouse gases and their need for assurance that such actions will be rewarded and not punished.
This report addresses the issues that policy makers will face in designing a domestic early action program, analyzes current proposals, and suggests a set of principles to guide an effective program. It suggests that, regardless of any eventual international framework, the U.S. can take steps to credit reductions in gases now, and therefore encourage and reward companies that act to minimize their emissions. The longer we wait to address climate change, the more it is likely to cost—both environmentally and economically. The Pew Center concludes:
- The cost of delay is significant. Steps taken now represent an investment that will pay environmental and economic dividends into the future. Conversely, continued inaction will result in greater environmental challenges and increased costs down the line.
- U.S. Leadership is imperative. Since the U.S. has both the highest greenhouse gas emissions and per capita income, implementing a voluntary early action program demonstrates to the world our commitment to address the problem of climate change.
- Leadership must start with Congress. Congress must provide the legislative framework to encourage early action.
The Pew Center and its Business Environmental Leadership Council believe climate change is serious business. Our effort is founded on the belief that enough is known about the science and environmental impacts of climate change for us to take action now to address its consequences. Awarding credit for early action is an important first step.
The ultimate objective of the Rio Convention, which the United States ratified in 1992, is to stabilize atmospheric concentrations of greenhouse gases (ghg) at levels that will prevent dangerous anthropogenic interference with the climate system. Such stabilization will require significant reductions in ghg emissions by the United States and other countries. One mechanism proposed for encouraging U.S. companies to begin reducing ghg emissions now is an early action crediting program. Such a program would provide U.S. companies with credits for ghg reductions achieved prior to the year 2008 (i.e., before the first budget period under the proposed Kyoto Protocol) that would be usable by those companies for compliance with any future domestic ghg regulatory program.
This paper analyzes the legal, policy, and technical issues that policy makers may wish to consider in designing an early action crediting program. Although many of these issues are quite complex and cannot be fully addressed with simple and uniform crediting rules for all industry sectors, the paper attempts to formulate a set of general principles to guide policy makers in fashioning an administratively workable and effective program. The paper begins with a review of current U.S. efforts to mitigate ghg emissions through voluntary actions and programs and provides an analysis of five early action crediting proposals publicly available as of July 1998.
Voluntary GHG Mitigation Efforts in the United States. The Rio Convention's non-binding goal for developed countries was to return ghg emissions to 1990 levels by 2000. To meet this goal, the Clinton Administration developed the Climate Change Action Plan (CCAP), which outlined a portfolio of about 50 ghg mitigation actions. The plan applied to all sectors of the economy that emit ghg emissions and was intended to foster voluntary partnerships with the private sector and local governments. Generally speaking, the CCAP initiatives were designed to provide information and tools to encourage participants to voluntarily undertake physical or operational changes that will reduce ghg emissions. Although they demonstrate that industry and government can work together to achieve cost-effective ghg reductions, the CCAP initiatives have not achieved the level of reductions necessary to return U.S. emissions to 1990 levels, as contemplated by the Rio Convention.
Review of Design Issues and of Current Extant Early Action Crediting Proposals. The paper provides an analysis of the legal, policy, and technical issues raised in the early action crediting proposals developed by the Environmental Defense Fund, the Coalition to Advance Sustainable Technology, the Center for Clean Air Policy, Resources for the Future, and Niagara Mohawk Power Corporation. Key issues include the legal framework for the program, source of credits, flexibility, actions eligible for credit, and technical design of the program.
Principles for Designing An Early Action Program. Based on the review of these issues, the paper identifies the following general principles that may be useful as a guide to policy makers in fashioning a workable and effective program:
1. Provide a predictable credit mechanism and clear legal framework for the program. The principal purpose of an early action crediting program is to encourage voluntary ghg reductions in the near term. The program should provide a substantial and reliable incentive that will stimulate immediate efforts to slow down the increase of, and, ultimately, to decrease, ghg emissions levels in the United States. For such an incentive to be effective, participants must know in advance the credits they will earn for particular ghg reductions or sequestration activities and be given clear assurances that they possess a legally enforceable right to receive earned credits. Existing law does not provide the legal framework to give participants that right. For that reason, the crediting mechanism should be clearly delineated by statute or in agreements authorized by statute.
2. Keep the program simple and flexible. Any early action crediting program will be voluntary. The extent of participation in the program will depend, among other things, on whether potential participants perceive benefits of participation to exceed the costs of complying with the requirements of the program. Simplicity and flexibility are key components of minimizing transaction and compliance costs. Because of the range of potential participants, the agency administering the program will need flexibility to tailor the program to the needs and circumstances of particular industries and companies. The program will also need the flexibility to encourage innovation and reward efficiency. The best mechanism for doing this is through agreements between the participants and the government that spell out the specifics of the crediting mechanism for that participant, or industry. Model agreements for particular industries may be useful tools in this regard.
3. Reward real reductions, not gaming. An early action crediting program takes ghg credits otherwise available to U.S. companies during the initial period of domestic ghg regulation and gives them to participants in the early action program as a spur to reducing ghg emissions before that initial period. It is important that credits be used to reward real net reductions in ghg emissions, rather than paper reductions. The program needs to incorporate safeguards that give the public and other emitters confidence that the system will not be gamed.
4. Provide some form of recognition of past voluntary ghg reductions. Voluntary ghg reductions achieved between 1990 and 1998 and reported to the federal government should be recognized either in the form of a baseline adjustment or as a direct credit. It is important to maintain the principle that companies will not be disadvantaged because of prior voluntary reductions. However, the reward for past mitigation efforts should be provided only to the extent that the ghg reductions are real, quantifiable, verified, and not double-counted.
5. Don't predetermine the eventual domestic regulatory program. An early action crediting program should be designed to operate within the framework of any likely domestic regulatory or tax program that might be fashioned to control domestic ghg emissions. This includes a range of regulatory options such as carbon taxes, direct regulatory programs, and marketable permit schemes (implemented through, for example, an auction or administrative allocation of allowances).
6. Don't make the early action crediting program contingent upon ratification of the kyoto protocol. The early action program should not depend upon Senate ratification of the Kyoto Protocol in its present form. Rather, it should be designed to operate in the context of whatever international control regime may eventually be adopted and ratified by the U.S.
7. Focus principally on domestic early action. The allocation of credits to the U.S. under Kyoto or any other international agreement is an asset that should be carefully husbanded for use by the U.S. economy. For that reason, the principal but not exclusive focus of the program should be on rewarding early domestic actions to mitigate ghg emissions. There are, however, a number of circumstances where credit for actions outside the U.S. should be considered.
8. Don't over-mortgage the U.S. ghg allocation. The Kyoto Protocol, if ratified, will not provide international credit for reductions attained prior to 2008 in developed countries. Early action credits for ghg reductions within the United States thus would have to come out of the U.S. first budget allocation under the Protocol. Careful consideration needs to be given to the impact of an early action credit program on the availability of credits to non-participants once domestic regulation commences, and the extent to which credit should be given for action outside the U.S.