By Roy S. Belden

The US Senate is starting work this month on legislation to reward companies that take voluntary actions to reduce greenhouse gas emissions or sequester carbon.

The US has committed to the international community to reduce greenhouse gas emissions to a level seven percent below 1990 emissions by the 2008 to 2012 time frame.  It is expected eventually to have to take strong measures to reach this goal.  The legislation addresses how to ensure that companies that take early voluntary actions receive credit against any mandatory measures that are put in place later.  Credits would be awarded for such activities as fuel switching, derating or shutting down power plants, or reforestation projects.

Background

The United States and 76 other countries committed in a Kyoto protocol to the “United Nations Framework Convention on Climate Change” to specific deadlines for reducing gas emissions below a 1990 baseline.  The targets vary by country.  The US target is for average annual emissions during the period 2008 to 2012 to be at a level that is seven percent below 1990 emissions.  This actually translates into a 37% reduction in US emissions after taking into account the increase in emissions that would otherwise be expected to occur due to growth in the economy.  The US signed the protocol in November 1998 but has not yet formally ratified it.  Ratification requires a vote in the US Senate.

Many US companies have already taken steps to reduce greenhouse gas emissions or have pledged to take such action in future in response to a voluntary US government climate change action plan.  The US Department of Energy keeps track of any voluntary reductions that are reported to it under section 1065(b) of the “Energy Policy Act of 1992.” Many companies are seeking legally binding assurances that these early actions will receive credit and that they will not be penalized if a future greenhouse gas regulatory program is put in place.

The overall concept of awarding credit for voluntary early actions has wide support in the business and environmental communities.  However, there is a significant divergence of opinion on how to implement any such program.  Key issues include 1) what activities qualify for credit — for example, whether carbon sequestration and “business as usual” reductions should qualify — 2) from what baseline to calculate reductions, 3) how growth industries, such as the computer industry, can qualify for credit, and 4) what federal agency will run the program.

Senate Action

Senators John Chafee (R.-Rhode Island), chairman of the Senate Environment Committee, and Max Baucus (D.-Mont.), the ranking democrat on the committee, introduced a bill on March 4 to award credits for voluntary actions to reduce greenhouse gas emissions and sequester carbon through 2007.  The bill is S. 547.  The committee has scheduled a hearing on it for March 22.  A similar measure is expected to be introduced in the House.  The bill deals only with credit for early actions and does not address the broader issue of how the US should reach its emissions target.

Key Concerns

Many view the bill as merely a starting point for the debate on several critical issues.  First, some members of Congress see it as a sign of support for the Kyoto protocol, which has been widely criticized as too costly and unfair to US businesses.  While the bill was expressly drafted to be “Kyoto-free,” the underlying assumption is that some form of greenhouse gas emission reduction program will be enacted in the future.  Second, the US General Accounting Office has identified the following four issues that need to be resolved: 1) Should reductions in emissions be measured against an historical baseline or a projected-growth baseline? 2) How should ownership of the emissions reductions be determined? 3) Should the emissions reduction claims be reported at the organization, project, or some other level? 4) How should emissions reduction claims be verified? Each of these issues is fairly complex.

Environmental groups support the overall concept of an early credit program, but they oppose S. 547 as being too generous to industry.  In particular, they object to language that awards credits for activities that take place outside the United States, grants credit for activities reported under section 1605(b) without prior screening, provides credits for certain carbon sequestration activities without other emissions reductions, and potentially awards credits for “business as usual” activities.  Environmental groups are also pushing to incorporate requirements for interim reductions in greenhouse gas emissions from the electric utility sector.  It is still early in the debate.  A consensus bill may emerge after hearings in the House and Senate later this year.

It is still early in the debate.  A consensus bill may emerge after hearings in the House and Senate later this year.

By Roy S.  Belden, in Washington