What should I make of the U.S. Department of Energy’s new §1605(b) Reporting Guidelines?

What should I make of the U.S. Department of Energy’s new §1605(b) Reporting Guidelines?

In February 2002, President Bush asked U.S. DOE to propose improvements to the voluntary GHG emissions reduction registry established by the1992 Energy Policy Act, the so-called §1605(b) program. In March 2005, DOE released the latest draft of the revised §1605(b) Reporting Guidelines. The question is, what do these new guidelines really mean?

The answer to this question requires some understanding of the history of §1605(b). On the one hand, the revised guidelines are the result of an intensive drafting and review process; dozens of stakeholders filed comments on this new draft. So it is fair to say there is a lot of interest in the future direction of the program. On the other hand, participants to this process want §1605(b) to accomplish widely divergent objectives. The process can't please everyone.

During the promulgation of the original §1605(b) guidelines more than a decade ago, stakeholders and observers already had very different views of what the voluntary registry should accomplish. There was considerable tension between those who wanted to encourage broad participation in the program, and those who wanted to create a sufficiently rigorous process so that registrants would earn "credits" against subsequent regulatory mandates. At the time, Secretary of Energy Hazel O'Leary made a clear political decision in favor of maximizing participation. The result was a §1605(b) registry that has encompassed a lot of "emissions reductions," but very little “validity checking.” Hundreds of companies have registered reductions - sometimes at considerable reporting effort and expense - but environmentalists have largely dismissed the legitimacy of those reductions. Perceived weaknesses in the §1605(b) program have contributed to the promulgation of alternative protocols and registries by nonprofits and state agencies, such as the GHG Protocol developed jointly by the World Resources Institute and the World Business Council for Sustainable Development, and the California Climate Action Registry.

As the likelihood that companies would receive consideration for their annual §1605(b) filings declined, the pressure built for a “new and improved” §1605(b) registry. This ultimately led to the President’s 2002 announcement and the recently released draft revised guidelines.

The announcement of the revised guidelines includes a statement by the Chairman of the Council on Environmental Quality (CEQ) that the rules provide “recognition…that will be acknowledged and recognized with respect to any future climate policy.” So do the new guidelines give participating companies reason to believe they will be rewarded for continued participation in the registry?

The new guidelines do make a lot of changes. There is a focus on entity-level reporting to reduce the potential for reductions at one corporate facility being compensated for by increased emissions at another facility. There is a focus on intensity-based reduction reporting metrics (e.g., CO2/kWh) to reduce the potential for reported reductions reflecting reductions in a company’s overall production levels, rather than being the results of affirmative emissions reduction efforts. Many other changes are proposed to try and strengthen the reporting guidelines. Notably, however, DOE will still not place much emphasis on checking §1605(b) submittals for quality and validity. Moreover, self-selection bias will remain a huge problem in who reports and who doesn’t.

I should point out that I have strongly advocated some of the approaches DOE has taken in the revised guidelines. Back in 1998, when several GHG early action crediting programs were proposed, TC+ES developed an intensity-based crediting metric on behalf of the CEO Coalition for the Advancement of Sustainable Technologies (CEO CAST). We saw this approach as the only way to encourage rapidly growing companies, arguably a key target for emissions reduction efforts, to participate in any kind of a voluntary emissions reduction-crediting program. The same logic still holds true today.

This doesn’t change the fact that DOE is still trying to unravel the same Gordian knot we faced in 1992 with the original guidelines and in 1998 with early action crediting. Section 1605(b) is still a voluntary program, and DOE still wants to encourage voluntary participation. The new guidelines seem likely to make participation in the program more onerous, and thus will probably dissuade many participants. Comments submitted last year made this point clearly. At the same time, DOE is still unable to promise any “credits” in return for companies’ participation. The simple fact is that it is virtually impossible to design a totally voluntary program with sufficient rigor around issues of additionality, leakage, and ownership so as to realistically talk about issuing credits that would be valid under future emissions reduction mandates.

In other words, companies that can relatively easily report reductions that might count will do so in the hope of getting future consideration, regardless of how “real” those reductions really are. Companies that can’t, won’t. This is a basic axiom of this kind of voluntary reporting program. The net effect is that the pool of §1605(b) reductions, even under the revised guidelines, will remain fundamentally suspect to environmental observers. Companies would be wise to be skeptical of any suggestion that their efforts will be rewarded by future credits. Indeed, a number of the comments noted that the Revised Guidelines’ establishment of a 2002 baseline year (which appears to invalidate even potentially legitimate emissions reduction claims of registrants under the current registry) undercuts companies’ confidence that the rules of the game won’t change again in the future.

The bottom line? There’s probably no harm in continuing to participate in the §1605(b) program, if you perceive it to be in your self-interest. But don’t expect too much in return in terms of credits. Absent a legislatively established baseline protection and early action crediting program (proposals for which crashed and burned in 1998), there’s little DOE can do with §1605(b) to promise companies such an outcome.

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Dr. Mark C. Trexler has more than 25 years of energy and environmental experience, and has focused on global climate change since joining the World Resources Institute in 1988. He is now president of Trexler Climate + Energy Services, which provides strategic, market, and project services to clients around the world.

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