Introduction

The purpose of this appendix is to identify some of the difficulties associated with measuring historical greenhouse gas emission reductions and to provide a rough level of the magnitude of the reductions that might be claimed according to the specifications of Section 203 of S.139. Section 203 states that an entity may register greenhouse gas emission reductions achieved after 1990 but before 2010 if it has established a historical baseline. Reductions are to be calculated as changes in direct greenhouse gas emissions relative to historical emission levels after accounting for increases in indirect emissions and/or increases in net carbon sequestration. It is difficult to estimate the amount of potential credits that might be claimed under Section 203, in part because specific rules remain to be developed, and also because it will be difficult to apply and verify the rules retroactively. Careful consideration of greenhouse gas accounting issues will be required, including the operational definition of an entity, greenhouse gas estimation techniques, double reporting of emissions, emissions verification, and the establishment of emissions baselines.

This appendix examines greenhouse gas accounting issues in the context of one potential source of emission reduction credits—the Energy Information Administration (EIA) Voluntary Reporting of Greenhouse Gas Program. The analysis of potential credits for early compliance in this appendix is not part of the analytical efforts reported in the main body of this report and is presented here as a supplement to that modeling effort. EIA’s 1605(b) Voluntary Reporting Program would not be the only source of potential credits under S.139. A number of other Government-sponsored voluntary programs and public/private partnerships also promote emission reductions that could qualify for early compliance credits, depending on the availability of data to verify the reductions claimed by program participants.

According to EIA’s 1605(b) database, 43 of the 97 entities that have reported entity-level emissions to the program have claimed net reductions in emissions relative to their base years. The 43 reporters that showed net reductions would have generated a total of 868 million metric tons carbon dioxide equivalent in reductions over the period 1991 through 2001. This total includes annual reductions that ranged from a low of 41 million metric tons carbon dioxide equivalent in 1991 to a high of 181 million metric tons in 2001. The analysis described here assumed that emission reductions are cumulative relative to a set base year, normally 1990, so that a reduction relative to the base year that was maintained in future years would continue to be counted each and every year it is maintained (e.g., a 5 ton reduction relative to the base year maintained over 10 years would equal a 50 ton reduction). Emission reductions estimates would be reduced if implementation required emission reductions to be calculated on a year-to-year basis (i.e., total emissions relative to the previous year’s emissions). Also, reductions qualifying for early compliance credits could be less than those shown here if reporters were required to establish that the reductions were beyond or “additional to” business-as-usual activities.

Voluntary Reporting of Greenhouse Gases Program:  Background and Accounting Issues

Title XVI, Section 1605(b) of the Energy Policy Act of 1992 (EPACT) directed EIA to establish a mechanism for “the voluntary collection and reporting of information on . . . annual reductions of greenhouse gas emissions and carbon fixation achieved through any measures, including fuel switching, forest management practices, tree planting, use of renewable energy, manufacture or use of vehicles with reduced greenhouse gas emissions, appliance efficiency, methane recovery, cogeneration, chlorofluorocarbon capture and replacement, and power plant heat rate improvement . . . .” The legislation further instructed EIA to create forms for the reporting of greenhouse gas emissions and reductions, and to establish a database of the information voluntarily reported under this subsection of EPACT. The reporting Forms EIA-1605 and EIA-1605EZ, “Voluntary Reporting of Greenhouse Gases,” were first made available to the public in July 1995, providing a vehicle for voluntary reporting on activities that occurred before and during 1994.

EIA’s Voluntary Reporting of Greenhouse Gases Program affords an opportunity for any company, organization, or individual to establish a public record of greenhouse gas emissions, reductions, or sequestration activities in a national database. In the most recent reporting cycle, a total of 228 U.S. companies and other organizations reported to the 1605(b) program that, during 2001, they had undertaken 1,705 projects to reduce or sequester greenhouse gases. Emission reductions reported for 2001 on the long form (Form EIA-1605) included 222 million metric tons carbon dioxide equivalent²²¹ in direct reductions, 71 million metric tons carbon dioxide equivalent in indirect reductions, and 8 million metric tons carbon dioxide equivalent in reductions from carbon sequestration activities. In addition, 15 million metric tons carbon dioxide equivalent of reductions were reported on the short form (Form EIA-1605EZ), which does not specify whether the reported reductions were direct or indirect. Since 1994, the number of entities reporting to the program has grown by 111 percent, and the number of projects reported has grown by 169 percent. Table C.1 summarizes a number of program reporting indicators over the period from 1994 to 2001.

In accordance with the guidelines developed by the U.S. Department of Energy (DOE) in 1994, the Voluntary Reporting Program allows reporters considerable flexibility in the scope and content of their reports. As a result, companies can report their emissions and reductions in several different ways. This flexibility was built into the guidelines to promote increased participation in voluntary reporting. It can be viewed as a useful attribute in evaluating the design and consequences of any proposed program of credits for early action. The 1605(b) database of real-world emission reduction actions and actors can be used to gain insight into the incentive effects and beneficiaries of various credit for early action and related proposals. In evaluating any credit for early action approach, a number of pertinent greenhouse gas accounting issues need to be addressed, including the following: (1) what is the appropriate reporting level (entity-level reporting versus project-level reporting); (2) how should ownership issues be handled for direct versus indirect emissions; (3) against what baseline (historical, business-as-usual, unit of production, etc.) should reductions be calculated; and (4) how should emissions and emission reductions be verified?

S.139 specifies in its provisions on credit for early action that credits would be based on the difference between direct entity-level emissions and a historical emissions baseline, reduced by increases in indirect emissions from the entity’s baseline indirect emissions and increased by carbon sequestration activities. Because almost one-half (109) of the reporters to the Voluntary Reporting Program submit entity-wide reports, including data on indirect emissions and carbon sequestration, the 1605(b) database represents an available resource to evaluate the credit for early action provisions of S.139.

In using the 1605(b) database, two caveats in the areas of “reporting entity” and “verification” should be mentioned. In terms of “reporting entity,” Section 1605(b) mentions only “entities” and “persons” as prospective reporters. Several of the entity-level 1605(b) reports examined for this analysis involved facilities or groups of facilities within a corporation, which might not be considered entities under S.139. In terms of verification, DOE decided not to require verification by an independent third party after considering this issue during the development of the guidelines for the Voluntary Reporting Program. Rather, reporters are required to “self-certify” the accuracy of their reports. EIA reviews each report received for comprehensiveness, arithmetic accuracy, internal consistency, and plausibility and makes suggestions for improving the accuracy and clarity of reports; however, the reporter is ultimately responsible for the accuracy of any report submitted. Meaningful verification of submitted data would require putting in place common baselines and accounting standards that dictate what information should be included in reports and how estimates of greenhouse gas emissions and reductions and carbon sequestration should be calculated. A number of these accounting issues are being addressed under the President’s Climate Change Initiative, which among other things directs DOE to improve the measurement accuracy, data quality, and verfiability of data reported to the Voluntary Reporting Program, with the intent to grant transferable credits for real reductions.

Accounting Issues for Voluntary Reporting and Beyond

The Voluntary Reporting Program was designed primarily to serve as a mechanism by which entities could report voluntary actions intended to reduce greenhouse gas emissions and sequester carbon.²²² EIA has the responsibility, among other things, for establishing and maintaining a database of reported greenhouse reductions that also serves as a national registry of reported reductions. While the information in the database may be used by the reporting entity to demonstrate achieved reductions of greenhouse gases, the program was not primarily designed to support credit for early reductions or emissions trading programs. The program guidelines did not attempt to resolve the issues that arise in constructing the required reporting rules that would create a set of comparable, verifiable, auditable emission and reduction reports.

The 1605(b) database provides a mechanism for identifying some of the issues that would have to be resolved in developing an accounting system for quantifying emissions, emission reductions, and sequestration. Such an accounting system may have to answer the following questions:

• Who can report?
• What is a reduction?
• Who owns the reduction?
• Would the reduction have happened anyway?
• How does one verify reports?

A. Who Can Report?

Section 1605(b) of the Energy Policy Act of 1992 mentioned only “entities” and “persons” as prospective reporters. Several overlapping concepts of “who can report” surfaced at the public hearings for the guidelines for the Voluntary Reporting Program, all of which were accommodated. These included:

• A legal person: i.e., an individual, household, corporation, or trade association. In this  approach, emissions and reductions are calculated and reported for the entire entity.
• A facility or group of facilities. Emissions and reductions are calculated as those of a particular facility, defined as a single plant in a specified location, or perhaps even a single stack within a plant. A corporation or legal person acquires responsibility for emissions and reductions through ownership of one or more specified facilities.
• A “project” or activity. Reductions are defined by comparing the emissions from some set of sources deemed relevant with an estimate of what emissions would have been if a particular action or bundle of actions had not been undertaken.

B. What is a Reduction?

Perhaps the most intuitive definition of a reduction is one measured against an historical baseline, which represents the use of a “basic reference case.” In this approach, the reduction is defined as the difference between the emissions of an entity or facility in a prior, baseline year, usually 1990, and in the current year. This approach is best suited to reporters whose activities have not appreciably changed since the baseline year. It presents particular problems for firms that have participated in mergers, acquisitions, or divestitures, or have made significant changes in the composition of their business. Startup companies or new facilities that have no history cannot use historical baselines. The historical baseline approach is also not well suited to measuring the reductions achieved by projects, because projects are often entirely new activities with no history.

Alternatively, many reporters define their reductions by comparison with what would have happened in the absence of a specified set of actions. Thus, corporate emissions may have risen, but they are less than they would have been in the absence of corporate action. This approach is called, in the Voluntary Reporting Program, a “modified reference case” or a “hypothetical baseline.” It is important to point out, however, that a hypothetical baseline is a best guess of what would have happened in the absence of a project, and there is no way per se to prove or disprove it. Most of the projects reported to the Voluntary Reporting Program use a hypothetical baseline to calculate emission reductions or sequestration.

The “unit of production” approach is a variant of the fixed historical baseline, where the reporter normalizes baseline emissions to reflect changes in production. If emissions per unit of output have declined, by comparison either with levels in a prior year or with what they would have been in the absence of some actions, then the reporter has a reduction. This approach works reasonably well for organizations that have a well-defined product that is homogeneous across companies and over time: for example, kilowatt-hours generated or sold, tons of steel, or barrels of crude oil. As products increase in complexity, this approach gradually breaks down. Tons of semiconductors, for example, is a meaningless measure of output.

The alternative measures of reductions have their advantages and disadvantages. Basic reference cases are objective and relatively easily verifiable. On the other hand, absolute reductions are often the product of circumstance rather than action, while modified reference cases (which are more difficult to verify) explicitly measure the results of actions. Unit-of-production reference cases are useful only in a limited number of cases, and they can combine some of the disadvantages of both basic and modified reference cases.

C. Who Owns the Reduction?

Two theories of emissions ownership coexist in the Voluntary Reporting Program. The most intuitive, and commonplace, is called “direct emissions” and “direct reductions.” If a reporter owns or uses (e.g., leases) the emission source, that reporter owns the emission as well as any reductions from this source. The advantage of limiting ownership to direct emissions is that it generally prevents multiple ownership of the same emission or reduction. However, this approach excludes many important emission reduction methods, including all activities that tend to reduce electricity consumption, the activities of energy service companies, and the provision of energy-efficient or emission reducing capital goods.

The alternative theory of ownership is based on causation: if an organization causes an emission or reduction, it is responsible for that emission, even if it does not own the emission source. Emissions or reductions from sources not owned by the reporter are referred to as “indirect.” The most important example of an indirect emission is one produced through the consumption of electricity. If entities reduce their consumption of electricity, they cause their electricity supplier to reduce its emissions. This approach permits reporting of any action that has an influence on national emissions. However, the concept of “causing an emission” is inherently more ambiguous than “owning the smoke stack,” and in many cases more than one firm may credibly claim to have helped cause an emission reduction.

EIA requires that reporters using Form EIA-1605 explicitly identify all emissions and reductions as either direct or indirect so that potentially double-counted reductions can be identified.

D. Would the Reduction Have Happened Anyway?

This issue is often discussed in other contexts under the term “additionality.” It has been suggested that many emission reduction projects do not represent “real” reductions because they would have been undertaken “anyway” in the normal course of business. However, creating an operational definition of additionality is difficult, because the “normal course of business” is a hypothetical concept. For the purposes of voluntary reporting—which include publicizing the types of actions that limit national greenhouse gas emissions and providing recognition for the companies that undertake those actions voluntarily—determining the additionality of projects is unnecessary. For the purposes of a credit for early reduction program, however, additionality is an issue that needs to be considered.

E. How Does One Verify Reports?

In general, reports submitted to EIA are judged to be factually accurate. Meaningful verification of the accuracy of 1605(b) reporting would require putting in place common baselines and accounting standards that dictate what information should be included in 1605(b) reports and how estimates of greenhouse gas emissions and reductions and carbon sequestration should be calculated. For example, if the accounting treatment for indirect emissions from electricity purchases is undefined, then a particular set of facts about a reporter could result in two different estimates of emissions: one including electricity purchases and one excluding electricity purchases. A third-party verifier can verify the facts about the reporter but cannot determine whether or not indirect emissions from electricity purchases ought to be included and, consequently, cannot determine whether the total emissions reported are correct or not.

Other Potential Sources of Credits Under S.139

Currently, a broad array of efforts are underway to build corporate awareness about greenhouse gas mitigation and develop comprehensive methods for tracking and reporting corporate greenhouse gas inventories. Included among them are the Pew Center’s Business Environmental Leadership Council, Climate VISION, Climate Leaders, the Environmental Resources Trust (ERT) GHG Registry, the Chicago Climate Exchange, Natural Gas STAR, the Landfill Methane Outreach Program, the Coalbed Methane Outreach Program, the Voluntary Aluminum Industrial Partnership, and the Sulfur Hexafluoride (SF6) Emissions Reduction Partnership for Electrical Systems. Further, carbon dioxide emissions are reported to the U.S. Environmental Protection Agency (EPA) by utilities required to implement Continuous Emissions Monitoring under the Clean Air Act. Finally, many firms have undertaken emission reduction targets and have achieved emission reductions on a private basis. Some of these initiatives are described below.

• Climate VISION, a new voluntary partnership to reduce greenhouse gas emissions launched by DOE on behalf of the Bush Administration, is a public-private partnership to pursue cost effective initiatives that will reduce the projected growth in U.S. greenhouse gas emissions. The "VISION" in the title stands for “Voluntary Innovative Sector Initiatives: Opportunities Now.” It is administered through DOE’s Office of Policy and International Affairs. A summary of initial industry sector commitments can be found at http://www.energy.gov/HQPress/releases03/febpr/       ClimateFactSheet.pdf.

• Climate Leaders is a voluntary EPA industry-government partnership that encourages companies to develop long-term comprehensive climate change strategies. Climate Leaders gives companies the opportunity to set corporate-wide greenhouse gas reduction goals and inventory their emissions to measure progress. By reporting inventory data to EPA, partners create a lasting record of their accomplishments. Partners also identify themselves as corporate environmental leaders and strategically position themselves as climate change policy continues to unfold. A listing of the emission reduction goals adopted by 10 Climate Leaders partners can be found at http://www.epa.gov/climateleaders/goals.html.

• The Pew Center’s Business Environmental Leadership Council (BELC) includes 38 major companies, most in the Fortune 500, that are working together through the Center to educate the public on climate change risks, challenges, and solutions. In addition to agreeing to a Joint Statement of Principles, the corporate members of the BELC serve in an advisory role, offering suggestions and input regarding the Center’s activities. The Pew Center provides a searchable database containing case studies of State and local greenhouse gas reduction initiatives at www.pewclimate.org/states/index.cfm.

• The ERT GHG Registry and its associated services provide support for the key infrastructure requirements needed for a robust greenhouse gas emissions reductions trading market: defining the commodity that will be exchanged (emissions units), establishing the accounting language and protocols by which market participants will measure and verify their emissions performance, and providing early actors with third-party validation of their emissions performance, including individually serialized records to provide evidence of their accomplishments. As a nonprofit organization, ERT is committed to promoting an emissions trading market that can drive ambitious greenhouse gas reductions at low cost. Summary data on emissions performance of ERT GHG Registry members is available to the public at http://www.ecoregistry.org/. Companyspecific data are available only to individual members of the Registry or others they have authorized to view their data.

• The Chicago Climate Exchange (CCX) is a voluntary cap and trade program for reducing and trading greenhouse gas emissions. CCX will administer this pilot program for emission sources, farm and forest carbon sinks, offset projects, and liquidity providers in North America. To foster international emissions trading, offset providers in Brazil can also participate. CCX does not provide publicly accessible data on the emissions of its participants.

• The Natural Gas STAR Program is a voluntary partnership that encourages companies across the natural gas industry to adopt cost-effective technologies and practices that improve operational efficiency and reduce emissions of methane. Methane, the primary component of natural gas, is a potent greenhouse gas. Natural Gas STAR has three component programs, each of which works with a different sector of the industry: the transmission and distribution program; the producers program; and the gathering and processing program. According to the program’s web site, Natural Gas STAR partners have eliminated more than 176 billion cubic feet of methane emissions since 1993. Because the program views the reductions reported as proprietary data, no public database is available.

• The Landfill Methane Outreach Program (LMOP) is a voluntary assistance and partnership program that promotes the use of landfill gas as a renewable energy source. By preventing emissions of methane through the development of landfill gas energy projects, LMOP strives to help businesses, States, and communities protect the environment and build a sustainable future.  LMOP provides a database of operational, under construction, and planned landfill gas utilization projects at http://www.epa.gov/lmop/projects/lmopdata.xls.

• The Coalbed Methane Outreach Program (CMOP) is a voluntary program whose goal is to reduce methane emissions from coal mining activities. Its mission is to promote the profitable recovery and use of coal mine methane. By working cooperatively with coal companies and related industries, CMOP helps to identify and implement methods to use coal mine methane productively. In turn, these actions mitigate climate change, improve mine safety and productivity, and result in financial profits. Since CMOP’s inception in 1994, U.S. coal mines have recovered 292 billion cubic feet of gas. The CMOP web site contains summary data on coal mine methane emissions and recovery at http://www.epa.gov/cmop/images/newchart3.gif. CMOP also maintains mine-by-mine data that are not publicly available; however, a large portion of the data (methane emissions from ventilation systems) can be obtained from the Mine Safety and Health Administration.

• The Voluntary Aluminum Industrial Partnership (VAIP) is an innovative prevention program developed jointly by the EPA and the primary aluminum industry. Participating companies work with EPA to improve aluminum production efficiency while reducing emissions of perfluorocarbons, which are potent greenhouse gases that may remain in the atmosphere for thousands of years. According to EPA, between 1990 and 1998, VAIP partners representing 94 percent of U.S. aluminum production capacity reduced perfluorocarbon emissions by 44 percent. There is no readily apparent public database of the partners’ emissions improvements.

• The SF6 Emissions Reduction Partnership for Electric Power Systems works with the electric power industry to pursue technically and economically feasible actions aimed at minimizing SF6 emissions and reducing the threat of global climate change. SF6 is a gaseous dielectric used by the electric power industry in circuit breakers, gas-insulated substations, and switchgear. It is a highly potent greenhouse gas. Over a 100-year period, SF6 is 23,900 times more effective at trapping infrared radiation than an equivalent amount of carbon dioxide. SF6 is also a very stable chemical, with an atmospheric lifetime of 3,200 years. Thus, a relatively small amount can have an important impact on global climate change. Estimated emission reductions associated with this program can be found in its annual report at http://www.epa.gov/highgwp1/sf6/pdf/ eps_program_report_2002.pdf.

Approach and General Trends

In order to produce an estimate of potential credits for early compliance under S.139, EIA examined the emissions and sequestration data reported on Form EIA-1605²²³ in light of the requirements contained in S.139 for calculating emission reductions. Section 203 of the bill explicitly focuses on entity-wide reductions and states that the reductions must be calculated by comparing annual emission levels to a historical emission level. Thus, EIA reviewed emissions data reported on an entity-wide basis back to 1990.²²⁴ Because the 1605(b) database is not economy-wide it does not include all the firms that would be eligible for early compliance credits (see box below).

During the 2001 1605(b) reporting cycle, 97 entities reported direct emissions, indirect emissions, and/or achieved carbon sequestration at the entity level (41 electric power producers and 56 entities representing other sectors).²²⁵ Forty-five of the 97 entities reported data for 1990 and were, for the purpose of this analysis, assigned 1990 as the baseline year for comparing annual emission levels (Table C.2). The remaining 52 firms that reported initial data for a year subsequent to 1990 were assigned their first year’s emissions levels as a baseline.²²⁶ This appears consistent with Section 203(C)(2)(B)(ii) of S.139, which seems to apply to entity-wide reductions achieved relative to the year preceding the first year data are submitted.

Emission levels for the 45 entities assigned a 1990 baseline rose by an aggregate 242 million metric tons carbon dioxide equivalent between 1991 and 2001. However, the results show a discernible trend over time. Until 1996, emissions were nearly unchanged or below 1990 levels. For example, 1992 emission levels were 39 million metric tons carbon dioxide equivalent lower than 1990 levels. Emissions then increased to levels well above 1990 levels, peaking at 96 million metric tons carbon dioxide equivalent above 1990 levels in 1998. In 2001, emissions were once again 26 million metric tons carbon dioxide equivalent below 1990 levels. This trend correlates with economic growth trends and general national emission trends. Emissions growth was centered in the electric power sector. The 14 firms that reported 1990 data and were not electric power producers showed an aggregate decline of 224 million metric tons carbon dioxide equivalent from 1990 levels and were below 1990 emission levels for all years from 1991 through 2001.

The 52 firms that reported initial data for a year subsequent to 1990 showed similar results against their assigned baselines. The 10 electric power producers showed an aggregate increase of 51 million metric tons carbon dioxide equivalent against their baseline emission levels between 1992 and 2001, and other entities showed an aggregate decrease of 15 million metric tons carbon dioxide equivalent against their baseline emission levels between 1992 and 2001.

Quantification of Reductions from Early Compliance

Because S.139 specifically offers the opportunity to register emission reductions achieved after 1990, the remainder of this appendix focuses only on those entities showing net emission reductions against their assigned baseline years, in accordance with the guidelines outlined in S.139. After comparing annual reported emissions data to a 1990 baseline, or the first year of data reported by a participant in the 1605(b) program, EIA generated tables of annual changes in greenhouse gas emissions relative to the base year by reporting entity (Tables C.3 and C.4).

For the purposes of S.139, and as outlined in Tables C.3 and C.4, “changes in greenhouse gas emissions” are equal to the sum of: (1) changes in direct emissions; (2) carbon sequestration (recorded as a negative number because sequestration denotes an activity where carbon is taken from the atmosphere and sequestered in a carbon sink); and (3) increases in indirect emissions (set to zero if indirect emissions are not increasing). All the data shown in Tables C.3 and C.4 are evaluated relative to the base year. Positive numbers denote emissions increases, and negative numbers denote emissions reductions.

Magnitude of Emission Reductions

Forty-three of the 97 entities reporting direct emissions, indirect emissions, or sequestration at the entity level showed net reductions in emissions relative to the base year after adding in increases in carbon sequestration and any increases in indirect emissions. The 43 reporters that showed net reductions of direct emissions after accounting for increases in net sequestration and increases in indirect emissions would have generated a total of 868 million metric tons carbon dioxide equivalent in reductions over the period 1991 through 2001 (Table C.4). This total includes annual reductions that ranged from a low of 41 million metric tons carbon dioxide equivalent in 1991 to a high of 181 million metric tons in 2001.²³² Of the 868 million metric tons carbon dioxide equivalent reduced over the 11-year period, 58 million metric tons (6.7 percent) is attributable to increases in sequestration. Overall reductions in direct emissions would have been 44 million metric tons carbon dioxide equivalent (5.3 percent) higher if they had not been offset by increases in indirect emissions.

Of the 43 reporters showing net emission reductions in one or more years between 1991 and 2001, 19 showed emissions data for a 1990 base year and 24 used a subsequent year as their initial base year. Nine of the 15 electric power producers showing net decreases in emissions provided data for a 1990 base year (Table C.2). A preponderance of reductions (797 million metric tons carbon dioxide equivalent or 91.9 percent) was generated against a 1990 base year, with 70 million metric tons carbon dioxide equivalent (8.1 percent) generated against a subsequent baseline year (Tables C.3 and C.4). Of that 70 million metric tons carbon dioxide equivalent, 39 million metric tons was attributable to 18 entities from industries other than electric power production.

Distribution of Emission Reductions

Electric power producers represented 67 percent of the 868 million metric tons carbon dioxide equivalent in reductions generated from 1991 through 2001. This share did not remain consistent over time however. In 1994, 1995, and 1996, electric power producers showed 68, 72, and 67 percent of all reductions, respectively, as compared with only 45, 44, and 51 percent of reductions in 1998, 1999, and 2000.²³³ While reductions from other sectors grew between 1996 and 2000, reductions from the electricity sector declined (Table C.4). This was partially a reporting-related phenomenon, in that 17 of 28 reporters showing reductions outside the electric power sector had a base year of 1996 or later, while all but 6 electric power producers used a 1990 baseline.

Together, 7 entities generated 74 percent of all emission reductions from 1991 through 2001. The largest was FirstEnergy Corporation of Akron, Ohio, with 187 million metric tons carbon dioxide equivalent in reductions, or 21.6 percent of all reductions generated between 1991 and 2001. FirstEnergy’s share of overall reductions ranged from 10.3 percent in 1998 to 51.1 percent in 1991.²³⁴ Next, Consol Coal Company showed 121 million metric tons carbon dioxide equivalent in reductions, or 14.0 percent of the overall total. Consol’s share of overall reductions ranged from a high of 27.9 percent in 1999 to a low of 10.4 percent in 2001. Consol did not report emissions for 1991 through 1993. Together, 5 other entities— Southern Company (12.3), Jim Walters Resources (8.6 percent), Niagara Mohawk (6.7 percent), KeySpan (5.6 percent), and the AES companies (5.2 percent)—were responsible for an additional 38.2 percent of total reductions.

Characterization of Emission Reductions

Because a small group of entities represents a large share of total emission reductions that could be registered under S.139, the nature of those entities and their emission reductions are described below. The discussion below also highlights a number of accounting issues germane to greenhouse gas accounting in a flexible system such as the Voluntary Reporting Program.

FirstEnergy. The seven electric utility operating companies held by FirstEnergy²³⁵ have a combined generating capacity of 13,000 megawatts and serve 4.3 million customers across Ohio, Pennsylvania, and New Jersey. FirstEnergy also holds interest in 7,700 oil and gas wells and owns some 5,000 miles of gas pipeline. FirstEnergy reported direct emissions from eight power plants owned by Ohio Edison and its subsidiary Penn Power, as well as fossil plants owned by the Cleveland Electric Illuminating Company and Toledo Edison. FirstEnergy’s direct stationary combustion emissions peaked at 51.2 million metric tons carbon dioxide equivalent in 1990 and have been lower in every subsequent year by as much as 22.2 million metric tons carbon dioxide equivalent, or 43.4 percent (reported for 1995). FirstEnergy has embarked on a comprehensive emissions mitigation program that has included heat rate improvements, fuel switching, transmission and distribution improvements, and a host of demand-side management measures. Capacity improvements at three nuclear generating facilities (Perry, Davis-Besse, and Beaver Valley) are likely to have had the biggest effects on overall emission levels. Other large emission changes may be attributable to the evolving nature of the holding company’s assets, which cannot be traced using the existing data.

CONSOL Coal Group. CONSOL Coal Group has 22 coal mining complexes in the United States, 20 of which are underground mines. CONSOL reports direct emissions of methane associated with mine ventilation systems, degasification wells, inactive mines, and post-mining sources. CONSOL reduced its emissions significantly through alterations in mining techniques, the capture and sale of methane from degasification wells, and the internal use of coalbed methane as a fuel. Post-1993 emissions data are increased for the acquisition of Island Creek Coal Company in 1993, Rochester and Pittsburgh Coal in 1998, and AEP’s mining operations in mid-2001. If the baseline were restated, emission reductions would increase accordingly. Because the emissions reduced are methane, the benefit in carbon dioxide equivalent is 23 times that of carbon dioxide reductions (due to the greater heat trapping capacity of
methane).

Southern Company. As the owner of five electric utilities in the Southeast, Southern Company operates over 36,000 megawatts of capacity. It has more than 26,000 employees and generated $1.3 billion in net income for 2002. Ninety-one percent (97 million metric tons carbon dioxide equivalent) of Southern Company’s reductions from its 1990 baseline accrued in 2001. This large single-year change in emission rates does not appear to represent an “actual” change in emissions as envisaged under S.139 but rather the exclusion of a large portion of the company’s coal-fired fleet from emissions reported for 2001. Southern Company chose to discontinue reporting on these emission sources, because it had removed emission reduction projects at the plants from the scope of its voluntary report.²³⁶

Jim Walters Resources. As the owner-operator of three underground coal mines in Tuscaloosa County, Alabama, Jim Walters has a productive capacity of approximately 7 million short tons of coal annually. Jim Walters reported direct methane emissions from ventilation systems at these coal mines. Emissions peaked in 1990 at 662,119 metric tons methane and have declined steadily to 238,821 metric tons methane in 2001. About half of this decrease can be traced to the application of improved methane control techniques, including horizontal drilling, gobwell,²³⁷ and standard well degasification systems. The source of the remainder is undetermined. Because the emissions reduced are methane, the benefit in carbon dioxide equivalent is 23 times that of carbon dioxide reductions.

Niagara Mohawk. A subsidiary of National Grid USA, Niagara Mohawk provides electric service to approximately 1.5 million customers in upstate New York. Niagara Mohawk’s direct emissions from stationary combustion peaked at 15.2 million metric tons carbon dioxide equivalent in 1990. This number declined rapidly and steadily to 0.1 million metric tons carbon dioxide equivalent in 2001. The reductions were partially offset by increased indirect emissions from power purchases, which grew from 3.6 million metric tons carbon dioxide equivalent in 1990 to 7.2 million metric tons in 2001. Nearly all the remaining reductions prior to 1999 can be attributed to increased generation at the Nine Mile Point nuclear generation plant. The remaining reductions after 1998 are attributable to Niagara Mohawk’s divestiture of fossil-fueled generating facilities.

AES. AES owns and operates 158 power generation facilities in the United States and worldwide, with 55,000 megawatts of electric generation capacity. AES does not report emissions for all of its U.S. plants but rather for a set of four, each presented as an individual entity. Nearly all of AES’s reductions are the result of increases in sequestration activities undertaken overseas to offset emissions from each of the plants.²³⁸

KeySpan. KeySpan was formed in 1998 as the result of the merger of KeySpan Energy, the parent company of Brooklyn Union Gas, and portions of Long Island Lighting Company (LILCO), including LILCO generating assets. KeySpan is the largest distributor of natural gas in the Northeast and the largest investor-owned utility in New York State. KeySpan’s total electric power system requirements increased somewhat from its 1990 levels. However, the company was able to reduce its direct emission levels by moving away from oil- and gas-fired generation at LILCO plants to generation from the Nine Mile Point nuclear power plant and, to a greater extent, outside power purchases. It appears possible that KeySpan does not capture all the carbon dioxide emissions associated with outside power purchases in its voluntary report. If it did report all its indirect emissions, KeySpan’s overall reductions between 1990 and 2001 could be smaller.

Summary of Findings

In aggregate, total net greenhouse gas emissions reported by the 97 entities that reported direct emissions, indirect emissions, or sequestration at the entity level to the Voluntary Reporting Program increased by 241.8 to 276.9 million metric tons carbon dioxide equivalent between 1990 and 2001.²³⁹ The net increase includes a total increase of 1,039.0 to 1,144.6 million metric tons carbon dioxide equivalent for the 54 companies reporting increased entity-level emissions and a total decrease of 797.2 to 867.7 million metric tons carbon dioxide equivalent for 43 companies reporting decreased entity-level emissions. The dichotomy between companies reporting increases and those reporting decreases illustrates how it is possible for entities to qualify for credits for early action in the face of increases in total emissions. To put these reductions in perspective, total reported reductions by only 97 entities out of thousands of possible emitting entities represent from 1.1 to 1.2 percent of total U.S. greenhouse gas emissions (72,568 million metric tons carbon dioxide equivalent) during the 1991 to 2001 time period.²⁴⁰

The characterization of emission reductions above also serves to highlight some of the important greenhouse gas accounting issues that must be considered in implementing a program of credits for early compliance. The operational definition of an entity would have important ramifications for early action credits. How aggregated or subaggregated an entity could become could be the difference between qualifying for credits and not pursuing such action. Additionally, how a firm’s actual emissions and reductions are calculated would also come in to play, particularly where activities and emissions sources do not always have a straightforward or certain calculation methodology (unlike fossil fuel combustion, for example). The issue of direct and indirect emissions would also have to be addressed. The bill requiresthat indirect emissions must come into consideration if they are not reported by another entity. Safeguards would need to be put in place to ensure that all indirect emissions were properly reported. Implementation of the credit for early compliance would also require consideration of the issue of verification. Namely, how can it be determined that past and current emission levels reported by individual firms are accurate?

Special Topics

Appendix C. Potential Credits for Early Compliance: Assessment of Emissions Reported to EIA's Voluntary Reporting of Greenhouse Gases Program - Tables

Notes