Testimony of Jay Hakes

Administrator, Energy Information Administration

U.S. Department of Energy

before the U.S. Senate Committee on Energy and Natural Resources

on

Senate Bills S.882 and S.1776 and Their Impact on EIA's Programs

March 30, 2000

Thank you for the opportunity to testify on S.882 and S.1776. I will be testifying on how these Bills relate to Energy Information Administration (EIA) programs, particularly the Voluntary Reporting of Greenhouse Gases Program. The 1605(b) Program, as it is sometimes called, can be viewed as an early step in reporting voluntary efforts to reduce greenhouse gas emissions and in calculating and reporting those emissions and reductions. As the program is entirely voluntary, the fact that over 230 companies and organizations have reported on more than 1,500 projects should be viewed as a mark of success. Along with the knowledge that they have done something positive to protect our environment, participants receive a letter and a certificate from the U.S. government recognizing their participation.

The Development of the Voluntary Reporting Program

The Voluntary Reporting Program is conducted pursuant to Section 1605(b) of the Energy Policy Act of 1992. The law requires the Secretary of Energy to "issue guidelines for the voluntary collection and reporting of information on sources of greenhouse gases." The guidelines are to cover reporting of emissions from "1987 through 1990; and for subsequent calendar years on an annual basis." In addition to emissions, the guidelines must also cover "annual reductions of greenhouse gas emissions and carbon fixation achieved through any measures, including....[a long list of specific measures]."

Once the Department of Energy's guidelines are in place, the statute requires that the EIA "shall develop forms for voluntary reporting under the guidelines...and shall make such forms available to entities wishing to report such information. Persons reporting under this subsection shall certify the accuracy of the information reported."

Finally, the EIA "shall establish a data base comprised of information voluntarily reported under this subsection. Such information may be used by the reporting entity to demonstrate achieved reductions of greenhouse gases."

The Department of Energy's Policy Office held a series of public hearings during 1993-1994 in order to develop the guidelines. As published (in October 1994) the guidelines took an inclusive view of what might be reported and how emissions and reductions should be reported. The guidelines counseled reporters to consider the full fuel cycle emissions of their activities and to report whatever portions of the fuel cycle emissions the reporter deemed necessary to produce an accurate portrayal of the full effects of their activity. The EIA developed reporting forms concurrently with the guidelines. After a public comment process, the forms were approved by U.S. Office of Management and Budget in May 1995.

At about the same time, many Climate Change Action Plan⁽¹⁾ voluntary program managers and participants felt the need for a registry to record and document their actions. Many participants in the electric utility Climate Challenge Program were also part of the 1605(b) public review process. In early 1995, Climate Challenge participants and program managers elected to forgo developing their own reporting system, and to rely instead on the 1605(b) program as their reporting mechanism. The Climate Wise Program for manufacturers subsequently did the same. Climate Challenge and Climate Wise participants are instructed to report their reductions to the Voluntary Reporting Program. Other U.S. government voluntary emissions reductions programs encourage, but do not require, participants to file reports with the EIA.

Features of the Voluntary Reporting Program

The most important features of the Voluntary Reporting Program are established by the language of the statute. "Who can report?" is answered in the statute with the word "entities," which has been interpreted to mean any U.S. legal person who wishes to report emissions or has taken action to reduce emissions. "Reporters shall certify the accuracy of their reports" has been taken to mean that the reporter is ultimately responsible for the accuracy of the information submitted. The numerous categories of reportable emissions and reductions listed in the statute require that the forms permit multiple approaches to accounting for emissions and reductions.

The Voluntary Reporting Program is intended to be a general purpose registry and reporting program for greenhouse gas emissions, reductions, and reduction actions. Its features allow for:

• Reporting of emissions of all greenhouse gases from 1987 onward, and emission reductions and sequestration achieved from 1991 onward. Each gas is separately reported. The EIA has made provision for reporting additional greenhouse gases as necessary.

• Three broad categories of reporting:

• Entity Reporting -- the emissions (and reductions) of an entire company or facility;

• Project Reporting -- the emissions consequences of specific actions; and,

• Commitments to reduce emissions in the future.

• A two-page short "EZ" form for small or less sophisticated reporters.

• Emissions and reductions are divided into two categories: "direct" and "indirect." Direct emissions are those emitted by equipment or facilities owned by the reporter. Indirect emissions and reductions are caused, but not owned, by the reporter. All emissions and reductions in the Voluntary Reporting Database are defined as either direct or indirect.

• Reporters must calculate their emission reductions against a baseline. Two kinds of baselines are permitted: an absolute baseline (emissions this year are less than emissions in some prior year, usually 1990) and a relative baseline (emissions less than they would have been in the absence of some specified action). Participants must identify the baseline used to calculate every reduction reported to the program.

• Collateral information is collected for ten categories of projects, including electricity generation and transmission, cogeneration energy end use, transportation, methane capture, halogenated substances, and carbon sequestration from forestry or agricultural soils. The additional information includes energy consumed, saved, or switched by fuel, relevant operating data, participation in other U.S. government voluntary programs, other firms that might be able to report the reduction, information on estimation methods and a free-form text entry section for project details.

• While reporting is limited to U.S. legal persons, both domestic and foreign emissions may be reported. However, the reporter must clearly segregate and distinguish between domestic and foreign emissions and reductions.

The EIA has developed an integrated software system, comprising an electronic form used by reporters to fill out, edit check, and file their reports electronically, and a public use database of the reports received. The electronic form and database are distributed via the Internet and CD-ROM. The EIA also prepares an annual report, Voluntary Reporting of Greenhouse Gases. The Voluntary Reporting Program's portion of the EIA web site (http://www.eia.doe.gov/oiaf/1605/frntvrgg.html) contains the reporting software, public use database, annual report, and other useful documents and calculation aids.

Results of the Program

Since the program's inception in 1995, participation in the Voluntary Reporting Program has steadily increased (see Table 1).

Table 1. Indicators of Participation in the Voluntary Reporting Program, Data Years 1994-1998

Source: Energy Information Administration, Forms EIA-1605 and EIA-1605EZ

Many reporters (about 71 percent) are electric utilities, and almost all electric utilities are participants in Climate Challenge (Figure 1). The Voluntary Reporting Program covers about two-thirds of the emissions of the electric utility industry, but a much smaller fraction of the emissions of the rest of the economy, with the exception of a very specialized group: landfill methane operators, who, as an industry, have chosen to embrace the Voluntary Reporting Program. The balance includes an array of firms: large manufacturers who participate in the Climate Wise voluntary program such as General Motors, Johnson & Johnson, BP Amoco, IBM, Dupont, and The Dow Chemical Company; aluminum smelters, semiconductor manufacturers, cement plants, coal mining companies such as Peabody and Consol, two trade associations (the Minnesota Resource Recovery Association and the Integrated Waste Services Association), several private voluntary organizations such as American Forests, two universities (Rochester Institute of Technology and Oregon State University) and one household. Some reporters are single facilities, such as Alcan's Sebree (Kentucky) aluminum smelting plant. Most reporters participate in other U.S. government voluntary programs.

Most reporters used the Voluntary Reporting Program to report on emissions reductions projects. In 1998, more than 1,500 projects were reported to the EIA, with emissions reductions and sequestration claims totaling some 212 million tons of carbon dioxide equivalent. Some 65 companies reported on entity-wide emissions and reductions totaling 178 million metric tons of carbon dioxide equivalent. Since 52 companies reported on both project-related and entity reductions, the two figures are not additive. Rather, they correspond to alternative approaches to estimating and reporting emissions and reductions.

In 1998, 43 reporters used the two page short or "EZ" form. The short form is intended to provide a simple reporting format for individuals, small businesses, and voluntary organizations. In practice, the short form is also occasionally used by large organizations who wish to limit their reporting burden.

Figure 1. Participation in the Voluntary Reporting of Greenhouse Gases Program, Data Years 1994-1998

The Voluntary Reporting Program is unique among the many voluntary programs initiated during the early 1990's in its diversity of project types, participation, and approaches. The Voluntary Reporting Program's database provides a wealth of examples of the types of concrete actions that organizations can undertake to reduce greenhouse gas emissions. Some of the most important benefits of the Voluntary Reporting Program:

• The program has served to teach staff at many of the largest corporations in the United States how to estimate their greenhouse gas emissions, and educated them on a range of possible measures to limit their emissions. This is an important requirement for future action to reduce emissions;

• The program has provided information for the evaluation of the activities reported to many of the government voluntary programs launched since 1993;

• Reporters can learn about innovative emission reduction activities from the experiences of their peers. This potential has been illustrated for gases with very strong heat trapping capacities. The first reporting cycle included one project that reduced emissions of sulfur hexafluoride, which electric utilities use as an insulator for circuit breakers and switch gear. As more reporters realized that avoiding emissions of one pound of sulfur hexafluoride, with its heat trapping capacity 23,900 times as large as that of carbon dioxide, holds the same benefit as reducing 12 tons of carbon dioxide emissions, reporting on these projects has increased. By the 1998 data reporting cycle, ten utilities reported using more vigilant maintenance and leak prevention programs to eliminate 90 metric tons of sulfur hexafluoride emissions between 1991 and 1998, equivalent to 2.2 million metric tons of carbon dioxide.

• The program has created a "test" database of approaches to emission reductions that can be used to evaluate future emissions limitation policy instruments; and

• The program has helped to illuminate many of the important emissions accounting issues that must be addressed in designing any future approaches to emission limitations.

Accounting Issues Raised by The Program

The Voluntary Reporting Program has been the subject of increasing interest since the White House announced, in October 1997, that the President favored some form of "credit for early action." The interest in "credit for early action" has generated evaluations of the features of the Voluntary Reporting Program as a possible vehicle for providing regulatory credit. For example, the Chafee-Lieberman bill (S. 547, the Credit for Voluntary Reductions Act) would empower the President to offer credit for voluntary reporting participants, providing the President finds that the reductions reported to the EIA "represent actual reductions," are "accurately reported," and "not double counted."

It should be noted that the EIA's Voluntary Reporting Program never was designed as an emissions trading program or as a "credit for early reductions" program. It was primarily designed as a registry for claims of reductions. Neither the Department of Energy nor the EIA have attempted to resolve the many contentious issues that would arise in attempting to construct a set of reporting rules that would create a set of comparable, verifiable, auditable emission and reduction reports that represent "actual reductions" and are "not double counted."⁽²⁾

Rather than attempt to resolve these issues, the Voluntary Reporting Program permits multiple alternative answers to a few simple questions.

Who Can Report?

The original legislation mentioned only "entities." In the public hearings, several overlapping concepts of "who can report" surfaced. These included:

• A legal person: i.e., an individual, household, corporation, or trade association. In this approach, emissions and reductions would be calculated and reported at the corporate level. This approach mimics the approach historically used by state or local public utilities commissions to regulate electric utilities. It is also the approach adopted by S.547, the Chafee-Lieberman bill.

• 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 emission and reductions through ownership of one or more specified facilities. This is the approach adopted to regulate sulfur dioxide emissions under the Clean Air Act.

• A "project" or activity. Reductions are defined by comparing the emissions from some set of sources deemed relevant by the analyst with an estimate of what emissions would have been if a particular action or bundle of actions had not been undertaken. This approach, with origins in cost-benefit analysis, has been used for Activities Implemented Jointly (AIJ) under the Framework Convention, could be used for the Clean Development Mechanism (climate change mitigation projects in developing countries) and has also been widely adopted for evaluating electric utility demand side management programs by state public utility commissions.

All of these approaches are permitted in the Voluntary Reporting Program, and all are actually used by reporters. Some reporters use more than one approach. Each approach has advantages and disadvantages for particular types of programs. However, if multiple approaches are permitted to coexist, then it is possible to legitimately account for emissions in more than one way.

What is a Reduction?

Reporters use multiple and not necessarily consistent concepts of the nature of a reduction, and each concept has differing consequences.

The most intuitive definition of a reduction is a reduction against an historical baseline, or using a "historical reference case." In this case, the emissions of a corporation (legal person) or facility in a current year are less than in a prior, baseline year, usually 1990. The reduction is defined as the difference between current year and baseline year emissions. This approach is best suited to reporters defined as corporations or facilities 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. Start-up 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, since 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 "hypothetical reference case" or a "hypothetical baseline."

The "unit of production" approach is a variant of the fixed historical baseline. In a unit-of-production approach, the reporter measures emissions per unit of output, if his emissions per unit of output have declined, either by comparison with levels in a prior year or by comparison 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 homogenous across companies and over time: for example, kiloWatt-hours generated or sold, or 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.

As indicated in Figure 2, the choice of reference case defines the reduction. A historical reference case produces a reduction only if reporting year emissions are lower than historical baseline emissions (for example, emissions in 1990). A hypothetical case allows a company whose emissions have risen due to increased production to take credit for the actions it has taken to reduce emissions compared to what they would have been had the company not taken the actions. As in the case of defining the reporting entity, these alternative measures of reductions have their advantages and disadvantages. Historical reference cases are objective and relatively easily verifiable. On the other hand, absolute reductions are often the product of circumstance rather than action, while hypothetical reference cases (which are more difficult to verify) explicitly measure the results of actions. Unit-of-production reference cases are only useful in a limited number of cases, and can combine some of the disadvantages of both historic and hypothetical reference cases.

Figure 2. The Choice of Reference Case Defines the Reduction

Most of the reductions reported to the EIA use a hypothetical reference case. Among the 65 firms that reported on entity-level emissions (the emissions of the entire organization) only 12 claimed reductions against a historical baseline. Almost all of the project reductions reported used a hypothetical baseline.

Who Owns the Reduction?

Another issue addressed in the development of the Voluntary Reporting Program was the question of ownership of emissions and reductions. Two theories of emissions ownership coexist in the Voluntary Reporting Program. The most intuitive, and commonplace, is called "direct emissions" and "direct reductions." More simply, if a reporter owns or uses (e.g., leases) the emission source, the reporter owns the emission as well as any reductions from this source.

However, there is an alternative theory of ownership based on causation. This theory holds that if a firm causes an emission or reduction, it is responsible for that emission, even if it does not own the emission source. When one reporter causes an emission or reduction from a source it does not own, it is called an indirect emission or reduction. The most important example of indirect emissions are emissions arising from the consumption of electricity. If firms and households reduce their consumption of electricity, they cause their electric utility to reduce its emissions.

This approach has both advantages and problems. It places responsibility for emissions with firms and households that can affect emissions, and permits reporting of actions that have a significant influence on national emissions. On the other hand, the concept of "causing an emission" is inherently more ambiguous than "owning the smoke stack," and, consequently, more than one firm may have helped to cause an emission or reduction.

Some electric utilities define "their" emissions as the emissions from facilities that they own. Other utilities define their emissions as emissions from plants that they own, plus indirect emissions from electricity that they purchase. Still other utilities define their emissions as emissions from plants that they own, plus net emissions from electricity purchases minus electricity sales. Each of these definitions would provide a different figure for the emissions of the company, and different estimates of emissions and reductions. No single definition is obviously more correct or accurate than the others.

The advantage of limiting ownership to direct emissions is that it generally prevents multiple ownership of the same emission or reduction, and reporters can usually know the actual level of their emissions. On the other hand, public utilities with an obligation to serve have less than complete control over their direct emissions.

Further, limiting the ownership of emissions and reductions to direct emissions 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.

Definitions that incorporate indirect emissions and reductions are potentially or actually subject to multiple or overlapping ownership, since one person's indirect emissions is generally another person's direct emission, and there may be multiple sources of causation. Thus, duplicative reporting of emissions and reductions is possible. Since the EIA requires that reporters explicitly identify all emissions and reductions as either direct or indirect, potentially double-reported reductions can be identified.

Would the Reduction Have Happened Anyway?

This issue has often been discussed in the context of Joint Implementation and the Clean Development Mechanism under the term "additionality." It is sometimes argued that many of the projects reported to the EIA don't represent "real" reductions because the companies would have done them "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. The activities that reporters are currently undertaking are the kinds of activities that would be required to limit national greenhouse gas emissions. The current level of activity limits the growth of emissions, and an even higher level of the same activities would be required to stabilize or reduce emissions. For the purposes of the Voluntary Reporting Program, this distinction is unnecessary. The learning and incentive benefits of voluntary reporting do not depend on being able to identify individual projects as "business as usual" or "additional." For the purposes of an early credit program, it might be necessary to revisit this issue.

Another way of understanding the issue of additionality, though not at the project level, is by looking at the carbon forecasts provided in the EIA's Annual Energy Outlook (AEO). Frequently that forecast is used as a measure of the level of carbon emissions in 2010, from which the reductions specified in the Kyoto Protocol are measured. As such, it serves as a "baseline" of future carbon emission levels. Within that baseline are actions that industry has undertaken, such as increasing performance of nuclear units, building renewable capacity, or increasing automobile efficiency, which serve to reduce the level of carbon emissions that would otherwise have occurred. These actions occur even without the implementation of a carbon reduction program because they are generally economic for industry to implement. These actions reduce emissions from the level they would have been if the action had not occurred, and are accounted for in the AEO baseline. Because the AEO represents very aggregate regional depictions of the United States, it should not be used to determine whether an individual project would be economic. Individual project economics depend on the fuel, labor, and material costs of the location in which the project is situated and on the specific equipment design.

How Does One Verify Reports?

Another topic that generated considerable discussion when the program was first developed and now is generally described under the heading of "third party verification." It is sometimes argued that reports cannot be considered reliable unless they are verified by an independent third party. This issue was considered in the guidelines development process, and the Department of Energy decided not to require third party verification. A report submitted to EIA requires that the respondent certify its accuracy and filing a false statement on a U.S. government form is illegal. The key issue, however, is not verification, but verifiability.

If the accounting treatment for indirect emissions from electricity purchases is undefined, then a particular set of facts about a reporter would support 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 say whether or not indirect emissions from electricity purchases ought to be included, and consequently cannot say whether the bottom-line total is correct or not.

If a reporter uses a "hypothetical reference case," then the reduction is calculated against a counter factual reference case, which (since it never happened) cannot be objectively shown to be true or false. The third party verifier can characterize the reference case as "more likely" or "less likely," but cannot verify its accuracy.

Therefore, verifying the accuracy of 1605(b) reporting would not merely be a matter of whether the verifier is independent or objective, but also of putting in place common baselines and accounting standards that would limit the scope for the application of judgment in preparing and reviewing claims of emission reductions.

The Purposes of the Voluntary Reporting Program

The Voluntary Reporting Program has achieved considerable success in the purposes for which it was intended. It is a working example of a completely voluntary emissions and reductions registry. It has generated a considerable body of useful information about various approaches to reducing emissions and sequestering carbon. It has also helped to educate business leaders, policy makers, and the public about a set of difficult issues.

Because the issues described above have not been resolved, it is possible for the same company to report its emissions and reductions in several different ways, and for more than one reporter to claim the same reduction. Some commentators on the Voluntary Reporting Program have characterized this aspect of the program as a defect: a problem needing a solution. On the other hand, it can be viewed as an important attribute of the program because:

• The educational and public recognition aspects of the program do not require a complete and fully defined system of baselines, accounting rules and property rights.
• The Voluntary Reporting Program can be viewed as a survey of emission accounting methods and theories actually in use, and a set of illustrations of the potential accounting and baseline problems that must be confronted in designing future policy instruments. A more structured approach would have been less useful for identifying and analyzing accounting issues.
• The Voluntary Reporting database illustrates the range and diversity of concrete actions that firms can undertake to limit greenhouse gas emissions, including many not imagined by the designers of the program. A more structured approach would have excluded many of the more original and innovative projects reported to the program.

These features make the voluntary reporting program particularly useful in evaluating the design and consequences of various proposed policy initiatives aimed at limiting greenhouse gas emissions. As a database of real world emission reduction actions and actors, the Voluntary Reporting data can provide insight into the incentive effects and beneficiaries of such initiatives. The Voluntary Reporting database also provides a mechanism, as we have seen, for identifying some of the issues that need to be to resolved if the purpose of the program were to change.

Implications of S.882 and S.1776 for EIA Programs

The Senate bills under consideration here today, S.882 "Energy and Climate Policy Act of 1999," and S.1776, "Climate Change Energy Policy Response Act," contain language that addresses some of the issues outlined above with the intent of strengthening the EIA's Voluntary Reporting of Greenhouse Gases Program.

Duplicative Reporting. One of the key issues that both of these bills address is how to resolve duplicative claims to emissions reductions. Duplicative claims result from unresolved property rights. At present there are neither specific laws nor judicial precedents that establish property rights to reductions in greenhouse gas emissions. Nor does EIA possess the authority to resolve disputes or conflicts concerning rights to reported emissions reductions. Therefore, EIA treats reports of emissions reductions on Form EIA-1605 as claims to those reductions. The mere reporting of emissions reductions on Form EIA-1605 does not, in EIA's view, establish a legal right to (or ownership of) the reductions; rather Form EIA-1605 serves merely as a public registry of claims to reductions. But, by allowing all parties to report reasonable claims to emissions reductions, EIA has created a public database of information that may help Congress, the Administration, and the courts understand, analyze and possibly resolve overlapping claims in the future.

The development of official Guidelines to resolve duplicative claims would have important implications for who might participate in the program. Take for example the case where such rules give rights of ownership to only those claiming direct emission reductions. Restricting claims to only direct reductions would exclude utilities that purchase electricity generated at landfills from reporting methane reductions and automobile manufacturers who increase mileage per gallon from reporting those reductions.

Eliminating duplicative reporting could be accomplished through establishing well-defined property rights for emission reductions. If ownership of the reduction is based on ownership of the source, establishing these rights would be straightforward. Competing claims for reductions would be more likely if ownership was based on causation. This might make it necessary to adopt some kind of tie-breaker, such as the "first to certify" provision, to arbitrate competing claims for the same emission reduction. The "first to certify" approach may have clear utility if a report was received for an annual reporting cycle one or more years in advance of a subsequent claim. However, for multiple claims received during the same reporting cycle, the "first to certify" approach becomes more arbitrary. A clear set of metrics to determine who is "first" would need to be established. Three possibilities immediately present themselves. "First" could mean the first report received by EIA with a defined project containing the emission reduction in question. This could result in a flood of inaccurate or incomplete reports requiring considerable additional review and technical assistance on behalf of EIA. Alternatively, "first" could mean the report with the defined project containing the emissions reduction in question that is accompanied by the earliest certification date. This could provide incentive for reporters to alter the certification dates on their reports. Both of these options disregard quality and completeness of data as originally submitted, which could complicate the review process. A third option would define "first" as the first report containing the defined project and emission reduction that EIA validates during the normal review process. However, this could be complicated by the chronology of reviews needed to "verify" the data.

Voluntary Reporting Program and Emissions Inventory Data. S.882 proposes to amend Section 1605 of the Energy Policy Act to require that the annual emissions inventory identify the amount of emission reductions attributed to those reported under the Voluntary Reporting Program. The EIA emissions inventory does not currently report reductions but only focuses on annual emission totals. These emission totals already include, by definition, any reductions reported to the 1605(b) program. Determining which reductions reported to the Voluntary Program were additional (that is, reductions that would not have been undertaken under a business as usual scenario) would require a significant reporting burden, including data on investment hurdles, market position and standard data for estimating emission reductions.

To make the total emission reductions reported under the Voluntary Reporting Program comparable with the emissions inventory total would require that the accounting procedures dealing with duplicative reporting and the other issues discussed above be resolved. Aggregation of all the reductions reported to the Voluntary Reporting Program would require that no reduction accounted for on the project-level could also be accounted for at the entity-level. No direct emission reduction reported by the owner of the emissions source could also be accounted for by an entity who did not own the emissions source but did cause the reduction. This would require a well-defined set of property rights or similarly clear guidance as to who is entitled to claim reductions. It would also be necessary to exclude project level reductions that are not additional. Further, the boundaries of each reporting entity or project could not overlap with the boundaries of any other entity or project but would have to encompass all of the actions and results of actions that alter total emission levels, including outsourcing of emissions producing activities, changes in product manufacturing, divestiture of facilities, and declines in production due to loss of market share. Changes in emissions due to these factors would be included in the emissions of other entities, and would not necessarily be reflected in these entities' 1605(b) reports even if they were to participate in the Voluntary Program.

Simplification of Forms vs. Accuracy and Reliability of Data. A third issue deals with the contradictory nature of the simplification of reporting to encourage broader participation by small businesses and farmers, as proposed in S.882 and S.1776, and the desire expressed in these bills to improve the accuracy and reliability of the information reported. During the design phase of the program, EIA developed Form EIA-1605EZ, or the short form, to accommodate less sophisticated reporters. Because of its simplicity, however, this form does not allow for the reporting rigor necessary to address many of the issues raised by S.882 and S.1776, including the question of property rights and identification of duplicative reporting. In contrast, introducing rules, accounting guidelines, and strict legal definitions generally necessitates the use of more complex reporting mechanisms. Thus, strengthening the rules of the program is likely to make the reporting requirements more complex, rather than simpler. Added complexity will generally discourage participation, especially among the smaller, less sophisticated groups cited in the proposed legislation.

One way to ease the difficulty of dealing with the form's complexity is found in Section 4(a)(6)(B) of S.882, that would instruct the Secretary to consider establishing "a range of reference cases for reporting of project-based activities ... and the inclusion of benchmark and default methodologies..." The establishment of government-approved estimation methodologies and reference cases, combined with creation of simplified worksheets or automated calculating tools, would ease the burden, particularly on the smaller reporter. Further, targeted training sessions to these groups of reporters, and additional technical support as they complete their forms, could be offered. Farmers, in particular, face some of the more complicated reporting issues and would benefit from such established guidance and training.

Review of Previously Submitted Reports for Adherence to New Guidelines. A further issue deals with Section 801(D) of S.1776 that would require the EIA to re-review all reports previously received by the Voluntary Reporting Program to verify their conformity with any newly established reporting Guidelines. At the conclusion of the 1998 data reporting cycle, there were 232 unique entities in the Voluntary Reporting database. These entities had submitted a total of 756 unique reports, including reports filed on Form EIA-1605 (long form) and Form EIA-1605EZ (short form). Because the short form does not ask questions about baselines and direct versus indirect reductions, and because it does not allow for entity-level reporting, it does not provide sufficient data to be reviewed against new guideline standards. Thus only the long-form reporters can be considered for the re-review process unless short-form reporters were allowed, or perhaps required, to resubmit their reductions using the long form. Since it is impossible to identify cases of indirect entity-wide reduction claims of one entity duplicating direct entity-level reduction claims of a second entity using data already submitted, a re-review that seeks to identify duplicate reporting would either need to preclude indirect entity-wide reductions or require re-submission of the reports.

EIA's Non-Policy Role. It should also be emphasized that because EIA does not take policy positions, any legislative language should make it clear that the Secretary of Energy is responsible for policy decisions in terms of specific guidelines to improve data accuracy and reliability. In this context EIA would recommend the language "through the administrator" be replaced with "in consultation with" in S.882, Section 4(a)(6) and any other circumstances where a policy position may be required.

Resource Implication. Efforts to improve accuracy, reliability, and conformity to newly established guidelines will result in additional burden and will require additional EIA resources. EIA will need to determine what additional resources will be required when the specifics of the legislation are established and the guidelines are determined.

Lastly, S.1776, Section 1604A, Assessment of Alternative Energy-Related Policies for Addressing Greenhouse Gas Emissions, requires EIA to produce an initial draft of reports that contain a critical analysis and assessment of energy-related policies for responding to potential global climate change policies that the Secretary must submit to the President and Congress. The language is unclear as to whether the initial drafts are independent EIA assessments of the policies or whether collaborative work arrangements are being sought. Also, since these are biannual assessments of specific policies covering the short term (5 years) and long-term (up to 50 years), additional resources will be required, both to do the reports and to extend the forecast period of our models beyond the current 20-year horizon.

1. The Climate Change Action Plan (CCAP), released by President Clinton in October 1993, was developed to meet U.S. commitments under the United Nations Framework Convention on Climate Change (FCCC). The Plan contains a set of actions designed to reduce emissions in the industrial, residential, commercial, agricultural, and transportation sectors through voluntary private/public partnerships. Two of the partnerships established by CCAP are Climate Challenge, a partnership between the Department of Energy and the electric utility sector, and the Climate Wise program, operated jointly by the DOE and the Environmental Protection Agency (EPA), which targets the industrial sector.

2. For an in-depth discussion of these issues, see Robert R. Nordhaus and Stephen C. Fotis, Analysis of Early Action Crediting Proposals, Pew Center on Climate Change, Washington, DC, October 1998.