Transcript Verification of Early Reduction Credits

Verification of Early Reduction
Credits
Ned Helme, President
Center for Clean Air Policy
Pew Center Early Action Conference, Sept 1999
Center for Clean Air Policy September 1999
Overview
• Verifying voluntary emissions reductions
– Baselines
– Actual emissions
• Verifying 1605(b) credits
• An alternative approach to early crediting
Center for Clean Air Policy September 1999
Establishing Baselines
• Emissions reductions are measured against a
“baseline” or “reference case”
– e.g., historic emissions levels
• To prevent gaming, legislation should reward
credits for company-wide reductions only
– thus baselines must be company-wide
– Only significant sources/gases need be included
Center for Clean Air Policy September 1999
Baselines, II
• Companies should submit inventories
documenting base year emissions
– Like national inventories: Emissions = Fuel
consumption x emissions factor
– Direct measurement not needed
• Key verification issue centers on
establishing accurate historic baseline proxy available w/ fuel consumption record
Center for Clean Air Policy September 1999
Calculating Actual Emissions
• As with baselines, should be calculated on a
company-wide basis by multiplying activity
data by emissions factors
• Both baseline and actual emissions can be
converted to emissions/output if necessary more difficult to choose metric w/ nonelectricity sources
Center for Clean Air Policy September 1999
Verifying Reductions
• Baselines should be certified prior to
program inception - voluntary early redux
depend fundamentally on this step
• Actual emissions should be verified
annually
– Check math, activity data, emissions factors
– Check numbers back to invoices, other records
Center for Clean Air Policy September 1999
Private Sector Role in Verifying
Reductions
• May be useful to require third party
verification of credits
– Could be done by accounting firms (e.g., Big
6), verification firms (e.g., SGS)
– Auditors would have to be certified, follow preestablished guidelines
– Third party involvement would allow for more
comprehensive auditing (as opposed to
sampling a la IRS)
Center for Clean Air Policy September 1999
Verifying 1605(b) credits
• Will be necessary to separate legitimate
reductions from others
– Limit credit for single projects if company has not
reported on company-wide basis
• Process should be transparent, simple to
implement
– Not case by case analysis by implementing agency
- too costly and time-consuming
Center for Clean Air Policy September 1999
Verifying 1605(b) credits, II
• One alternative: Reward credits to
participants that surpass industry
benchmarks
– e.g., develop industry average for utility heat
rate improvements and reward above that
– bulk of redux so far are concentrated in certain
industries and sectors - would not require that
many benchmarks
– cap available credits at 1%
Center for Clean Air Policy September 1999
Problems with Voluntary
Approach
• Even rigorous verification will not ensure
that credits are “real” if program is not
structured properly
– Baselines may be set to allow for nonadditional tons
– Hard to use rate-based approach in sectors other
than power
– Participants may shift high-emissions assets
elsewhere
Center for Clean Air Policy September 1999
An Alternative Approach to Early
Crediting
• Early mandatory cap-and-trade program
with auction (RFF) is preferable alternative
• beginning in 2002, set overall cap equal to
1996 annual emissions level, auction
permits with point of regulation upstream
• allows “escape hatch” where companies can
choose to pay $25/ton carbon in lieu of
making full reductions
Center for Clean Air Policy September 1999
Alternative Approach (cont)
• provides greater environmental benefits
– no questions about whether redux are real
– less prone to gaming - transfer of assets does
not avoid regulation or bolster early credit
claims
– assists in moving economy more smoothly
toward Kyoto compliance
Center for Clean Air Policy September 1999
Alternative Approach (cont)
• simplifies verification problems
– no issues regarding historic baseline
– upstream so fewer entities to audit
Center for Clean Air Policy September 1999
Conclusion
• Verification of emissions should be
straightforward if company-wide approach
to early crediting is taken
– Review activity data, verify emissions factors
• Even so, the voluntary nature of the
program introduces questions about credit
quality
• A mandatory approach to early crediting
would be environmentally superior
Center for Clean Air Policy September 1999