Copyright 1994, Pieter van Beukering. All rights reserved. For more information contact author. SECTION 1605(b) A Voluntary Emission Reduction Reporting Program in the United States Pieter van Beukering Institute for Environmental Studies Amsterdam March 1994 Table of Content 1. Introduction 2. The Background of 1605(b) 2.1 Legislative History of 1605(b) 2.2 Description of 1605(b) 2.3 Potential Advantages/disadvantages of a voluntary program 2.4 Guiding principles of 1605(b) 3. Crosscutting Issues of 1605(b) 3.1 Reporting Entities 3.2 De minimis level 3.3 Joint production 3.4 International activities 3.5 Baseline 3.6 Leakages 3.7 Confidentiality 4. Evaluation and conclusions of 1605(b) 5. Recommendation for additional research 6. Acknowledgements 7. Methodology 8. References 1. Introduction Human activity is altering the composition of the atmosphere and patterns of global climate. There is now a widespread consensus in the scientific community that concentrations of greenhouse gases are increasing. This will most likely lead to an increase in average global temperature and a change in weather patterns. International and national policy makers have begun to act to reduce the threat of global warming. The United Nations Framework Convention on Climate Change (FCCC), singed in June 1992, marks the initial step toward more concerted international cooperation and action. Under the treaty, the participating industrialized nations are encouraged to stabilize their emissions at current levels by 2000. The previous U.S. President, George Bush, has generally been rather reluctant to accept the FCCC 'target'. The Clinton Administration, however, recently announced to stabilize national greenhouse gases at 1990 levels by the year 2000. Under the treaty, each signatory nation which is listed in Annex I, must develop a National Action Plan for Global Climate Change in which an emission inventory0 is given, and in which their stabilization strategies are set forth. In mid 1993, the Clinton Administration revised the original National Action Plan1. Central to this plan is to utilize fully previously enacted legislation, which is mainly based upon the Energy Policy Act of 1992. One provision of the EPAct is section 1605, the National Inventory and Voluntary Reporting of Greenhouse Gases. Under that provision utilities, industries and other emitters of greenhouse gases can voluntarily report to the Energy Information Administration, not only their greenhouse gas emissions, but also their successes in reducing or offsetting those emissions. This paper will in particular focus on this last category which is described in 1605(b). In order to understand the context and the general aim of the voluntary program, a brief overview of the history and the guiding principles of 1605(b) will be given in chapter 2. In the same chapter, the advantages and disadvantages of a voluntary approach will be discussed. In the following chapter, crosscutting issues with regard to 1605(b) will be explained in detail. Among others, these encompass problems with regard to the selection of an appropriate baseline, the question how to deal with international activities, and the determination of clear project boundaries to avoid leakages. A final evaluation of 1605(b) is made in chapter 4, in which special attention is given to the prospects of the program. Recommendations for additional research are made in chapter 6. 2 The background of 1605(b) 2.1 The legislative historic of 1605(b) On October 1993, U.S. President Clinton unveiled what he called a `detailed, realistic, and achievable' plan to return national greenhouse gas emissions to their 1990 levels by the year 20002. The strategy emphasizes measures that can be implemented rapidly and without Congress approval, although the program's success or failure will depend partly on whether Congress authorizes the $1.9 billion in new and redirected federal funds needed to implement the plan between 1994 and 2000. The new plan offers US industries a crucial chance to prove that they can control their emissions through voluntary measures and with a minimum of government intervention. If they fail, the government warns that it will propose `additional administrative, regulatory, or legislative actions. The development of the Clinton/Gore Climate Change Action Plan finds its origin in earlier initiatives of the U.S. government, such as U.S. Energy Policy Act (EPAct) from 1992. The purpose of Congress in establishing a voluntary reporting system for greenhouse gas emission reductions, was derived from the Carbon Dioxide Efficiency Act (also known as the Cooper-Synar bill) first introduced in 1991. That bill would have required major new sources of carbon dioxide emissions to provide offsets in the form of reductions of emissions at other sources or via energy consumption efficiency gains, or in the form of carbon sequestering activities. The provision was intended to remove a disincentive facing U.S. emitters to initiate early voluntary action. It would also help the United States to demonstrate conclusively the real reductions by U.S. firms. In order to guarantee the credibility of the reporting, the public would be permitted to review emission reduction claims. The provision also allowed reductions to be reported from anywhere in the world. In an early version of EPAct the mandatory provisions were removed and reporting was made voluntary. That version provided for the "certification of net greenhouse gas emissions reductions relative to the baseline for the purpose of receiving credit against any future Federal requirements that may apply to greenhouse gas emissions" (138 Cong. Rec. S 10558, 10616). This language was altered further to that which appears in the final legislation, section 1605(b). The guidelines for 1605(b) are currently being developed by the Department of Energy (DOE) in a procedure which is uncommon for U.S. policy making. Instead of defining the rules with own expertise, DOE send out a Notice of Inquiry (NOI), on July 27 1993, seeking public advice to facilitate program development. This public approach is indispensable because the program is primary dependent on voluntary actions of U.S. stakeholders. 2.2 Section 1605. Section 1605 consist of both a national inventory at an aggregated level (1605(a)) and an individual voluntary reporting of greenhouse gases program (1605(b)). The section is defined as following. (a) National inventory. -- Not later than one year after the date of the enactment of this Act, the Secretary, through the Energy Information Administration, shall develop, based on data available to, and obtained by, the Energy Information Administration, an inventory of the national aggregate emissions of each greenhouse gas for each calendar year of the baseline period of 1987 through 1990. The administrator of the Energy Information Administration shall annually update and analyze such inventory using available data. This subsection does not provide any new data collection authority. (b) Voluntary Reporting.-- (1) Issuance of guidelines. -- Not later than 18 months after the date of the enactment of this Act, the Secretary shall, after opportunity for public comment, issue guidelines for the voluntary collection and reporting of information on sources of greenhouse gases. Such guidelines shall establish procedures for the accurate voluntary reporting of information on -- (A) greenhouse gas emissions -- (i) for the baseline period of 1987 through 1990; and (ii) for subsequent calendar years on an annual basis; (B) 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, energy efficiency, methane recovery, cogeneration, chlorofluorocarbon capture and replacement, and power plant heat rate improvement; (C) Reductions in greenhouse gas emissions achieved as a result of -- (i) voluntary reduction; (ii) plant or facility closings; and (iii) State or Federal requirements; and (D) an aggregate calculation of greenhouse gas emissions by each reporting entity. Such guidelines shall also establish procedures for taking into account the differential radiative activity and atmospheric lifetimes of each greenhouse gas. (2) Reporting procedures. -- The Administrator of the Energy Information Admini-stration shall develop forms for voluntary reporting under the guidelines established under paragraph (1), 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. (3) Confidentiality. -- Trade secret and commercial or financial information that is privileged or confidential shall be protected as provided in section 552(b)(4) of title 5, United States Code. (4) Establishment of data base. -- Not later than 18 months after the date of the enactment of this Act, the Secretary, through the Administrator of the Energy Information Administration, 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 gases. (c) Consultation -- In carrying out this section, the Secretary shall consult, as appropriate, with the Administrator of the Environmental Protection Agency. Several questions arise after reading the above text of Section 1605. Why is a baseline defined for the period of 1987 through 1990, and not another period? Why is chlorofluorocarbon (CFC) included in the registration scheme, while the U.S., by signing the Montreal treaty, already agreed to ban CFC's by 1995? How are global warming potentials (GWP) taken into account? Some of these questions will be discussed in the following sections. 2.3 Potential Advantages/Disadvantages of a voluntary reporting program The voluntary aspect of 1605(b) partly originates from the previous experience with the acid rain provisions of the 1990 amendments to the Clean Air Act that required each affected utility to measure reductions from a baseline emissions3. In 1989 the Administration proposed that 1985-1987 be adopted as the baseline years, on which in some States a system of tradeable emission permit would be based. Some companies had planned for expansion by building low-emission nuclear power plants in the early years of the decade and chose to switch to newer plants immediately to meet baseload demand and to meet new and peak demands from older, more polluting, plants. They did this, at least in part, for the environmental benefits of running the older plants less. However, for those that made the transition during or before the baseline years 1985-1987, their allocation of annual emissions was based on a much lower level of emissions. In other words, in stead of rewarding early emission reduction measures, these initiatives got penalized by denying them credit for these reductions. Under a regulation that permits the trading of allowances, these utilities lost valuable resources by reducing emissions earlier than required. Congress apparently learned from this experience by allowing entities to report their emission reductions in an early stage. If, for instance, a system of tradeable emission permits would be introduced, proactive behaviour would not be penalized since credits can be given for reductions in the past. The major difference between the U.S. Acid Rain Control Allowance Trading System and the 1605(b) programma, is the fact that Congress is not committing to give emission reduction actions any credit against future requirements. The previous experience with selecting a baseline was clearly meant for a trading scheme, whereas, at present, 1605(b) only aims at creating a database for emission reductions in order to create awareness and social learning benefits. Although, President Clinton clearly demonstrated his concern with regard to climate change by presenting the Climate Change Action Plan, the political strength of his intentions is constrained by the lack of economic growth in the U.S.. Consequently, setting up a system of tradeable permits for greenhouse gas emissions not feasible4. A benefit of this opportunity for companies to report their early emission reduction may be that future regulation of greenhouse gases can be avoided. But also if, for whatever reason, Congress eventually decides to introduce a mandatory reduction program the registration system can be of use to potential reporters. By compensating the participants, the voluntary reporting program may provide an opportunity to soften the impact of potential future regulations without delaying their effectiveness. Another advantage of the program is to use the reported emission reductions to demonstrate the climate policy achievements of the U.S. in international negotiations. If the U.S. can demonstrate that it can make significant reductions in greenhouse gases through voluntary actions, international pressure to take immediate actions may decrease. This would provide more opportunity to refine the understanding of technological and policy tools that can be used to address the climate change issue. However, a voluntary program can not be used as an aggregate achievement of the nation, since entities who choose not to report are not captured by the program. Therefore the distinction between 1605(a) and 1605(b) is very important. Beside the advantage for politicians of nationally and internationally demonstrating emission reduction achievements, the voluntary reporting program can also be used for private image building. In particular, electricity suppliers in the United States are increasingly dependent on public goodwill. By demonstrating emission reductions, the image of industries can significantly improve. Finally, data reported under a voluntary reporting program may provide a social learning benefit by serving as a resource for those who are seeking examples and ideas for ways to reduce their own emissions. Through sharing of information, available knowledge will be better disseminated and applied and new means of reducing emissions and sequestering carbon may be discovered. Although this voluntary program creates several potential advantages, disadvantages also exist. Section 1605(b) only deals with the voluntary reporting of emission reductions. Aggregate emission levels of the entities or emission increases are not registered. Therefore, 1605(b) may give an impression that substantial reductions are achieved whereas in reality aggregate emissions still increase. Another risk for the success of section 1605(b) arises from the fact that the main incentive for the entities is the threat of a more stringent future mandatory climate policy. Yet, so far Congress did not demonstrate any intention to carry through such rigorous legislative measures. Therefore, potential reporting entities may be reluctant to report under 1605(b), because this would mean additional burden in already difficult economic conditions. Finally, participation may be limited because several private stakeholders consider 1605(b) as superfluous. Some of them already report greenhouse gas emissions under other mandatory requirements, such as the Clean Air Act. Therefore, these parties argue that DOE should consult other governmental agencies to gather the information, instead of setting up a separate reporting system. However, this argument is not fully valid since most parallel reporting programs only aggregate data. These could not serve for the social learning objective of 1605(b) as this is mainly achieved through the exchange of individual experiences, and not through aggregated information. 2.4 Guiding principles of 1605(b) In order to realize these potential benefits two main principles must be maintained. On the one hand, the program should encourage participation. This will maximize the social learning benefits. The enhancement of participation is clearly linked to the crucial issue of private parties' reasons for reducing greenhouse gas emissions. These may originate from a desire to reduce costs by increasing energy efficiency, the belief that it may be the right thing to do, requirements from other regulatory agencies and programs, the expectation that the reductions will eventually have value under a mandatory reductions program, economic incentives such as energy taxes, and public relations benefits. The opportunity to report these actions may be an additional incentive to initiate actions with positive effects from a climate change perspective. Hence, it is desirable to design the program to be more inclusive rather than less. However, the data must also be credible. Preserving information within the database serves multiple purposes. Among these is providing a comprehensive resource for policy making use in evaluating mitigation efforts and developing future reduction strategies. Furthermore, the program must be sufficiently detailed to separate substantive claims from those that are more questionable. The development of data to measure achievements within the voluntary components of the Climate Change Action Plan and for use in international negotiations requires a level of data quality and reliability that is capable of withstanding scrutiny by other parties of the Framework Convention on Climate Change. The two guiding principles of maximum participation and optimum quality of data conflict considerably. If the guidelines of the voluntary program require high levels of data quality, reporting entities may decide not to take the trouble to report their achievements. If, on the other hand, the guidelines do not demand a certain level of data quality, the reported information may be useless in terms of social learning experience or as a potential use for international negotiations. Whatever the outcome of the guidelines for 1605(b) will be, it will constrain one or both of the guiding principles. In order to develop guidelines which reflect maximum societal support Department of Energy organized a series of workshops to discuss a range of possible scenarios of 1605(b). In order to decide on the optimal trade off between quality of data and participation, the major stakeholders, varying from key industries to environmental action groups, were invited to give their views on the options. An detailed overview of the relevant issues which were discussed are described in the following chapter. 3. Crosscutting Issues of 1605(b) Developing a reporting program that optimizes across the typical characteristics of a voluntary approach presents a significant challenge. The process accommodates numerous political and economical dimensions. It interacts with nearly every sector in the national and foreign economies. The group of stakeholders consist of entities varying from small individuals up to major multinational industries. Therefore, a sizeable range of feasible options with regard to the design of 1605(b) exist. In the following, this range will be described. At the same time, the perception of the various stakeholders of these so-called cross-cutting institutional issues will be elaborated5. 3.1 Reporting entities How should the "reporting entity" be defined. Who or what constitutes a reporting entity has implications for how the program is constructed and administered. How broad should the legal structure of the reporting entity be described? This question gives rise to issues of aggregation for reporting purposes (such as: should participants report at the most aggregated entity-wide level possible, or should they report at some less aggregated level?). Possible candidates for "entity" include the representing association of the specific sector, the firm, the parent company, the subsidiary company, the facility, the emitting unit, and an individual person. If the reporting entity is not well defined, reductions can be achieved by shifting emitting activities from one subsidiary to another or by shifting certain activities to subcontractors. Three possible options for defining the reporting entity were defined by DOE: Option 1: Define the reporting entity according to its status as a legal entity. Specify the level of aggregation for reporting purposes. Under this option , Federal state and local government agencies; firms; businesses; trade associations; and individuals would be allowed to report as legal entities. This option would preclude reporting by plant, as this is not a legal entity. If the guidelines demand a reporting entity to report at the highest aggregated level, individuals or organizations with more than one facility would be required aggregate all their facilities for reporting purposes. Consequently, they would not be able to report selectively on those operations where reductions are achieved while ignoring increases that may occur elsewhere in their operations. The disadvantage of this approach may be that more aggregate reports generate less social learning incentives. In addition, aggregation may lead to boundary problems, such as in the case of conglomerates. Option 2: Define the reporting entity according to its status as a legal entity. Do not specify the level of aggregation for reporting purposes. This approach, which is consistent with the definition employed by the U.S. Initiate on Joint Implementation described by the Climate Change Action Plan, would permit the reporting entity to choose to report at the aggregate level or to permit its legally defined subsidiaries or affiliates to report independently. Although this option increases flexibility of reporting, it also allows reporting entities to report selectively on those operations where reductions were achieved while ignoring increases that may occur elsewhere in the operations. Option 3: Allow flexibility in the definition of the reporting entity to permit reporting by subparts of legal entities and by off-site activities. This approach would permit plants, households, or emitting units as the appropriate reporting entities. In the case of certain businesses operating from only location, the reporting entity would be the same under this approach as under the legal approach. This flexible approach which enhances participation will on the other hand also increase activity shifting and thus double counting. Opinions In general, potential reporting entities prefer option 3. They emphasize that a voluntary program should not limit participation by constraining flexibility of reporting, since this would lead to a failure of 1605(b). Only the Iron and Steel trade association supported option 1 because it is already gathering aggregate data on emission performance of several industries in the steel sector. They stress that sectorwide reporting would increase participation because the problem of confidentiality related to emission reporting would significantly reduce. Confidentiality, which is discussed in more detailed in the following sections, is particularly manifest in the industrial sector, and thus threatens the participation of major individual industries. Another argument for a sectorwide approach is the fact that the association could act as an intermediate entity by dividing the possible future credits among the reporting industries. This would also save a lot of paperwork for the different governmental agencies. Nevertheless, the quality of the aggregated data will be of less use for social learning purposes since individual initiatives are excluded in sectorwide reporting. Since associate-level reporting is only scarcely discussed, other industrial sectors do not have any specific opinions or plans regarding this concept. Environmental organizations mainly focus on the data quality argument. They believe that if entities are allowed to define their own reporting entity, double counting and leakages will be dominating the data base. 3.2 De minimis level Closely linked to the reporting entity issue is the appropriateness of setting a de minimis reportable level of emissions, emission reduction, or carbon sequestered. DOE defined the following options concerning a de minimis level of reporting. Option 1: Set a de minimis threshold for the size of the reported reductions. Setting a de minimis threshold could reduce the inefficiencies and paperwork burden that could result from accepting reports on a vast number of tiny increments of emissions reductions. Certain additional rules may be designed to encourage the aggregation of small individual increments of change occurring among large populations of individuals or small firms that fall below the de minimis level. The above discussed iron and steel trade association is a typical example of such an approach. Option 2: Do not set a de minimis level. In order to maximize participation in the program and thus reflect more realistic estimates of greenhouse gas reductions, this would allow reports of greenhouse gas emissions reductions, no matter how small. The paperwork burden on the Energy Information Administration (EIA) that will administer the reporting program may not overwhelming if enough smaller entities with fewer emissions reductions do not find it worth their while to report. A possible disadvantage of not setting a de minimis threshold might be that entities with significant emission reductions may feel that their effort will not be appropriately acknowledged if they are treated equivalent to relatively small reductions. Opinions Environmental organizations are divided among themselves with regard to this issue. One the one hand they believe that a de minimis level should be introduced to avoid undue administrative burden for EIA. Also they emphasize the importance of high-quality data which will be difficult to maintain under the inclusion of small reportings (large claims deserve more attention). On the other hand they expect consumers to be reluctant to report because of the burdensome procedure. Under this assumption a de minimis level would be dispensable and discouraging emission reduction. Still the question remains what to do with neglectable reportings (the "boy scouts" case). During the workshops it was suggested to acknowledge such small activities with some kind of certificate without registering the emission reduction into the database. Also the electricity supply sector emphasized not to include a de minimis level in order to encourage a high degree of participation in the program. They stress that, "there is nothing driving an inflexible regulatory reporting system, and nothing that requires strict scrutiny of reporting entities' reportable activities". After all, there is no guarantee that the program will eventually create credits for reductions, or sequestration. Participation must be encouraged through simplicity and flexibility, and accounting considerations of credibility and accuracy must be balanced against a program that is voluntary and broad and that invites participation. Moreover, additional unnecessary costs for measurement purposes must be balanced against the effects that they will have on participation in the program. They believe that the "additional paperwork" of such an approach should not be a reason to include a de minimis level. 3.3 Joint production of emissions There may be a number of activities to reduce or fixate greenhouse gas emissions that involve several parties. Some end use measures that may result in less energy use and less CO2 emissions can be viewed as resulting from actions taken by the utility, the manufacturer of more efficient equipment and the consumer who employs the more efficient equipment6. How can multi-party activities that reduce emissions or fix carbon be appropriately reported. And how can double counting be avoided? In conjunction with multi-party activities is the subject of indirect emission consequences and `shifted' activity actions, such as reduced facility utilization or shutdown, that essentially mask the shifting of emission from the reporting facility to another. Two types of joint production of nett-emission reduction may be an issue. First, one-time transaction may be sufficiently large to require negotiation before exchange takes place. These agreements usually involve a written contract. The demand-side management programs and the tree planting programs are examples of these large one-time exchanges. Second, transactions may take place repeatedly between manufacturers an consumers here explicit contracts are generally not involved. In contrast to the relatively easy situations were contracts are involved, the continuous market exchanges are more difficult to deal with. How should this presumptive ability be assigned? Generally, efficiency would dictate that the party that can most easily register, and aggregate the reportable reductions (such as manufacturers of high efficiency automobiles or efficient appliances) should have the ability to report. On the other hand, for some technologies, the consumer is in a better position to estimate actual accomplishments. For example, new automobile owners may be better able to estimate their annual vehicles miles travelled, and hence the fuel and emissions savings associated with the purchase of a high efficiency automobile. In general, a trade-off exists between accuracy and easiness (simplicity): either the party may report that can most easily register the reductions, or more accurately, the consumer reports which is more difficult to achieve. DOE has identified six options for resolving the duplication of reports that could result from joint activities: Option 1: Do not determine reporting status and accept double reporting. Since this program is about reporting accomplishments and not about giving credit, participation in the program should not be hindered by extra restrictions. In this options a clear distinction is made between double counting and double reporting. Yet, this distinction does not guarantee that double reporting will eventually not lead to double counting. The credibility of the program could be adversely affected since total voluntary emissions reductions may not be able to be counted. Therefore, it may be an advantage to be resolve duplications prior to registration. Option 2: Accept reports based on the ease of aggregation of estimates or measurements. This option would suggest that the manufacturer in stead of the consumer would report the reductions. As explained this method does not necessarily lead to the most accurate emissions estimates. Option 3: Accept reports based on accuracy of estimates or measurements. In this case the consumer is most likely to report. In theory, this method will be most accurate. In practice, however, it could result in a database of an unwieldy size because of the number of reporting entities. Alternatively, the emissions reductions associated with any individual consumer may be so small that no one would bother to report. Option 4: Accept reports from the entity whose actions directly result in the change in GHG. This definition excludes, in the first instance, reporting of indirect actions. Thus, the consumer of fuel-efficient automobiles, instead of the manufacturers, will be entitled to report. This option not only eliminates the problem of dual reporting, but also eliminates the issue of whether certain activities with intractable problems of measuring results (such as educational activities) should not be permitted to report under the guidelines. Option 5: When the entity who performs activities is different from the entity who pays for them, accept reports from the entity who pays for the emissions-reduction activity. This is a variation on the fourth method that takes into account special cases where the entity performing the action may not be the entity paying for it. Option 6: Allow submission of a single report by multiple entities. The parties must enter into a formal agreement regarding the percentage of ownership, and this agreement must be submitted with the report. Opinions Most environmental organizations stress that the guidelines should try to minimize overlapping reporting. Likewise, each party which participates in a joint project should both report the separate reduction and the total reductions resulting of the project. They believe that in a dynamic and growing economy, the guidelines should presume that reduced or discontinued facility utilization, and the resulting emissions reductions, are replaced elsewhere. Therefore, it is necessary that each reporting entity identifies other parties that might have participated. This view will be elaborated further in section 3.6, which deals with emission leakages. The electricity supply sector believes that DOE should not be concerned with multiple or overlapping reductions or fixations. Encouragement should be the main goal, at some future point, such issues can be sorted out. Therefore, multiple parties should be allowed to report. The multiple parties will determine their reduction allocations, either through contracts or on an informal basis. Although, in general, this issue has not been given much thought, this view is supported by most of the industries. It is not clear whether the transaction costs associated with this approach, will threaten participation. An important example of a multi- party case is the demand side management (DSM) program, such as energy saving campaigns. The electricity supply sector thinks that there are sufficient methods to estimate the reductions. Most environmental groups, on the other hand, is more reserved. They believe that present methods are unable to estimate, for instance, the accurate impact of educational or informational activities. Consequently, these two activities are not reportable. Also it was recommended that, in order to avoid double counting, emission reductions from the equipment manufacturers be reported by direct emitters, rather than equipment manufacturers. Only by reporting at the end-user level can the full effects of fuel switching, changes in usage patterns (e.g. vehicle miles travelled), as well as equipment efficiency be taken into account. Non- utility entities in the industrial residential/commercial, and transportation sector would only report CO2 emissions associated with their fuel combustion. 3.4 International activities Considerable interest has been generated in the potential for cooperation between firms in industrialized countries and governments, firms, or individuals in less developed countries. Because there are many opportunities to sequester carbon and reduce global carbon emissions at a lower cost than domestic activities, it may be desirable to allow for the reporting by U.S. entities of international activities that meet the criteria for the database. The legislative history of the program is vague about whether international activities should be included. While an earlier version of the bill provided explicit inclusion of joint implementation, that provision was stricken in the final version, which is silent on the issue. The United Nation Framework Convention on Climate Change, Article 4, paragraph 2(A), requires parties to take measures to mitigate climate change. That paragraph allows parties to "implement such policy measures jointly with other parties." Because at present, no final decision has been taken by the Conference of Parties with regard to the status of international activities, it is impossible to ensure that guidelines for voluntary reporting of actions taken by U.S. entities in other countries will be consistent with the requirements for joint implementation under the Framework Convention. In defining options, two issues have to be considered. First, the program should not encourage purposeful movement of activities from reporting to non-reporting entities. Second, if the voluntary reporting program's database is to be used in international negotiations as a U.S. measurement of voluntary emission reduction achievements, "international" double counting should be avoided. Therefore, foreign governments would have to acknowledge that share of the reduction reported to the U.S. voluntary program. DOE has considered the following options: Option 1: Preclude reporting of emissions reductions achieved outside of the US. Based on the absents of specific guidelines on joint implementation in the EPAct 1605(b), international activities may be precluded from reporting. This option, however, provides a disincentive for U.S. entities to engage in cost- effective emission reductions activities abroad. In fact, this option contradicts with the Climate Change Action Plan which calls for projects recognized by the U.S. Initiative on Joint Implementation to be recorded in the Section 1605(b) database. Option 2: Postpone publication of guidelines relating to reporting of emissions reductions achieved outside the US until the COP reaches agreement on the form of JI. Under this approach DOE may wait for international agreement to occur. Whether this option is feasible is not clear, as this option may not be legally available to DOE under the requirements of EPAct and may therefore not be acceptable to either the Administration or Congress. Option 3: Issue guidelines that include provisions for reporting emissions reductions achieved by US entities outside of US territorial boundaries, potentially modifying these to reflect COP agreements on JI. In addition to avoiding the drawbacks associated with the preceding options, this option emphasizes the leadership role for the U.S. as described in the Climate Change Action Plan. Alternatively, it may be interpreted in other countries as a U.S. attempt to preempt the decisions of the Conference of Parties. However, while the program could record these activities, verification and other requirements of the Framework Convention could be subsequently performed. Opinions Although overseas actions is not considered the most important issue, the vast majority of the stakeholders agree on this issue. Overseas actions should be applicable to the program, as a rich variety of emission reduction opportunities are available abroad. Environmental organizations, however, emphasize that the promise of joint implementation could prove to be completely hollow unless the U.S. approach to it is carefully designed7. U.S. joint implementation projects must also be compatible with the interests of local cultures and populations in host areas. In addition, they believe that joint implementation should more often focus on energy efficiency in stead of forestry, since the latter encompasses much more technical and political complications. Some electricity utilities who currently are involved with joint implementation wonder whether, as long as mitigation is not mandatory, international activities will ever develop. Although their experiences so far are positive, they do not expect to expand their international projects. So far, projects have been initiated to increase public goodwill within the U.S.. Yet, as long their activities are not credited, no incentive exists to start addition international ventures. The U.S. forestry sector stresses that the benefit- cost ratio of foreign forestry projects compared to the domestic ratio, is highly overestimated. Opportunities within the U.S. are still abundant for sequestering carbon.8 3.5 Baselines and reference lines EPAct 1605(b) specifies the baseline period 1987-1990 (the "historical baseline"), but does not specify the benchmark relative to which emissions reductions and carbon sequestration are to be measured. In this report the term "baseline" will be defined as the emissions that entities are required to report for the years 1987 to 1990 under Section 1605(b)1(A). The term "reference line" will be defined as the emissions level against which annual reductions are measured under Section 1605(b)1(B). Several approaches could be adopted. The guidelines might require that all emissions reductions be reported relative to the reporting entity's historic baseline. For this approach the baseline could be defined as the highest, lowest, or average of the annual emissions from 1987 to 1990. The use of the historic baseline raises concerns about the treatment of newly formed reporting entities or those with growing emissions, as a result of mergers, acquisitions, increased production, and general economic growth. Alternatives to use historic baselines include (a) measuring the reduction relative to an estimated level of emissions without the reduction activity, (b) reporting reductions in emissions per unit of production output, or (c) reporting on a project or activity basis. Option 1: Use a historic reference line The historic reference line assumes that emissions are constant; they would be the same in the reporting year as in the year(s) used as the reference line if steps to reduce had not been taken. The historic reference line can be determined in several ways: emission monitoring, materials flow, engineering estimates, and modelling. Once the reference line is established, this approach does not require any other calculations to be made. The major disadvantage of this approach is that it could limit participation by not offering appropriate incentives to growing entities. Simply subtracting current emissions from a historic reference line without taking other factors into account discourages companies whose aggregate emissions have increased as a result of increased sales or acquisition of new products. Even if these companies have taken steps to reduce the rate of their emission growth, these reductions will not be recognized if their current emissions are above their reference line (see figure 1; although the entrepreneur increased his emission efficiency, total emissions are still a above the historic baseline). Figure 1; Historic, Projected and Unit Production Reference Approaches Option 2: Use a projected reference line Under this approach, entities combine historic data with other information to estimate, either through extrapolation or modelling, what emissions would be in the reporting year if steps had not been taken. It offers incentives for growing entities to participate in the program, since factors such as company growth, economic trends, demographics, and weather data, that may cause total emission to exceed the historic reference line in spite of efforts to reduce emissions, are taken into consideration (see figure 1; the entity is allowed to report b, in spite of his still growing emissions). The projected reference line could have credibility problems. There are many ways that the projections could be estimated. Generally, the reporting entity will select the method that casts the most favourable light on their efforts. Furthermore, this approach does not eliminate the difficulties involved with the historic baseline, since it is needed as the starting point from which to project the reference line. Option 3: Use a unit production reference line The unit production approach calculates the reference line by multiplying emissions from the baseline period by the ratio of annual production in the reporting year to annual production in the baseline years (see figure 1; the emissions-per-unit baseline is, for convenience sake, equal to the projected reference line but this doesn't necessarily have to be so). The benefits of this approach is that is one of the least complicated ways to model emissions, and it offers growing entities to participate in the program. The major difficulty associated with unit production method is that its success depends on how the product is defined. Over time the quality and the users-value of products can change. Can emissions associated with new and improved products be compared with those of older versions? Option 4: Use a project-by-project reference line This approach focuses on specific projects by which emissions are reduced. Entities would be required to describe how the project was implemented and what was accomplished compared to a reference case project. Such a reference case may be difficult to design, since it is not always possible to estimate what the emissions would have been without the project implementation. Credibility not only depends on emissions measurements, but on the plausibility of the reference case to which those emissions are compared. Although the project approach can be burdensome, participation can be encouraged because entities have an incentive to take on that reduce emissions, regardless of increases in emissions from other parts of the entity's operations. Option 5: Allow reporting entities to choose their reference line approach The advantage of this approach is that participation would increase. The management of the database, however, would be a lot more complicated. Also standardization would be more difficult. Finally, entities would choose the method that most enhances their emission reductions. Option 6: Use a mix of the other options. Opinions Most environmental organizations find a historical baseline essential as a matter of policy to ensure that `reductions' has a consistent meaning in all database entries, and to avoid `gaming' in which entities attempt to inflate their recorded reductions by projected artificially high emissions that might have occurred in the absence of actions to reduce them. Such hypothetical projections are inherently unverifiable, and their use would undermine the credibility of the database. In addition, it was stresses that both the database of reported information and the information reported by each reporting entity must be structured according to the exact requirements of the four paragraphs of subsections (b) of the NOI, revealing historical emissions, reductions resulting from specific measures, reduction resulting from shutdowns and compliance and contemporary aggregate emissions. Creating these different `tiers' for each reporting entity and building them into the structure of the database maximizes both the utility of the database and the potential appeal to a variety of reporting entities. Also it was suggested to acknowledge the need for different methodologies for different types of emission reduction measures. Each methodology, however, must be designed to guarantee the integrity of the reductions reported. Accuracy of information is essential. The electricity suppliers believe that the baseline should be defined as the highest or average of the entity's annual emissions from 1987-1990, and the benchmark should be defined as the emissions level immediately preceding the reduction or fixation activity. In addition, an approach was endorsed which recognizes avoidance or prevention activities. Electricity suppliers submit that actions taken in years prior to the year of reporting, but after the baseline period of 1987-1990, should be eligible for reporting. This will assure that activities taken by reporting entities prior to the enactment of section 1605 and the effective date of DOE's implementing guidelines can be counted. It will also assure that entities can retroactively report on activities that they were previously unaware of or whose greenhouse gas impact had not been previously recognized. Most industries prefer a project-by-project approach. In their opinion, the difficulty of defining an appropriate reference case is of minor importance. More important is the social learning aspect, which is enhanced by a project-by-project approach. Also, emission reducing activities are expected increase on project-by-project basis rather than on a gradual base. Moreover, historic baseline or projected baseline approaches are considered unsuitable since the methodology is lacking to predict a proper reference line. 3.6 Leakages A phenomenon which could seriously impair the credibility of the program is leakage. Leakage is referred to as a situation in which activities that reduce greenhouse gas emissions at one site, affect emissions at other sites. DOE could require reporting entities to include estimates of these secondary effects, however, this could lead to a great burden in calculating reductions and may discourage participation of the program. Four types of leakages, or secondary effects, can be recognized: - Activity shifting within a company, a cooperation and governments can occur as a result of a emission reducing initiative. For example, a company with subsidiaries could consolidate all of its emissions-reducing activities in one subsidiary while grouping the emissions-increasing activities in another. The subsidiary with the emissions-reducing activities could then report reductions, even though the net emissions of the parent company have not changed at all. - The second source of leakage, outsourcing, or contracting out emissions-producing activities, is essentially the same as activity shifting, but involves moving activities to a location that is outside the reporting entity's control. For example, a manufacturer that is a reporting entity could purchase, instead of producing, the product or part. - Life-cycle emissions shifting is a more subtle form of outsourcing. Materials can be switched so that the emissions burden falls on the inputs to the process. For example, manufacturers can switch from using steel to aluminum; reductions could be reported because working with aluminum results in fewer emissions. However, producing aluminum in the first place results in more emission than processing steel. - Market leakage may occur if emission reductions at a given site are partly or completely offset because of residual market demand. For example, extending the rotation length or precluding harvesting completely at a given forest location increases the carbon storage services of that site. However, the added sequestration may be largely offset by earlier harvesting on non-reporting sites induced by the unmet market demand for timber. DOE has identified three options addressing leakage: Option 1: Ignore the secondary effects of leakage. Although this is probably the simplest approach, there will be a inappropriate tendency for over-reporting of emission reduction accomplishments. Option 2: Employ life-cycle analysis of the impacts of emission reduction activities. This comprehensive approach will capture more of the real achievements. Yet, the burden of reporting would likely preclude participation. In addition, it may be questioned whether current methods of life-cycle analysis are sufficiently reliable to estimate the real emission reduction or increase. Option 3: Include only large and easy identified leakage. The guidelines could provide specific examples of leakage that should be analyzed, such as certain types of materials substitution or increased transportation requirements. Conversion factors expressing average emissions associated with off-site activities (e.g. tons of carbon dioxide per rail freight ton-mile, pounds of perfluorocarbon per ton of aluminum, etc.). Opinions The majority of the stakeholders believe that, if guidelines would require a comprehensive life-cycle analyses, participation in the program is considerably threatened. The impact of emission reduction measures can be complex to such an extent that it is impossible to capture the full range of secondary effects. Yet, especially the environmental organizations stressed that the ignoring of secondary effects is incorrect and harming the credibility of the reports. Therefore, they propose to, at least, capture the large and easy identifiable leakages. The petroleum industry, however, strongly recommended that alternative fuels would be evaluated on a life-cycle basis so that their true effect on decreasing or increasing greenhouse gas emissions could be determined and factored into policy decisions. 3.7 Confidentiality Emission reductions often result from standard improvements which are generally known and available to most stakeholders. Yet, sometimes emission reducing innovations involve valuable trade secrets which are not voluntarily reported in public. Especially, industrial stakeholders consider this confidentiality aspect of 1605(b) as most important. Section 1605(b)(4) stipulates that "Trade secret and commercial information that is privileged or confidential shall be protected as provided in section 552(b)(4) of title 5, United States Code." Some concerns has been expressed that these provisions may not be sufficient to encourage participation on the part of potential reporting entities that are concerned about the protection of information that they feel gives them a competitive advantage. DOE identified two options for addressing confidentiality:Option 1: Offer confidentiality assurances that reflect the language of Section 1605(b)(4) Under this option two purposed could be met. First, the quality of the data can be verified because the Environmental Information Administration (EIA) would have direct access to all reported information on how reductions are achieved. Second, social learning impacts could be enhanced by sharing the information, while maintaining secrets anonymous and aggregate. Those reporting entities that are particularly sensitive to confidentiality may be able to aggregate reports of several activities through a trade association, contractor, or parent company in order to avoid identification of data from a single plant. Option 2: Offer additional confidentiality assurances to increase participation Under this option the information is first reported to Bureau of Census, which aggregates the data before turning it over to the EIA. By doing this, respondents feel more comfortable with reporting to the program, and thus participation is enhanced. However, this method also has considerable disadvantages. In contrast to the previous option ,the social learning aspect of the reporting is significantly reduced since more detailed and/or relevant information is left out. In addition, verification of the reports will be more difficult. Opinions As mentioned, industry is considering this subject as a major issue. They feel that 1605(b) may be insufficient to protect the proprietary, commercial information of reporting entities. It is thought that DOE should not require the revealing of cost or other proprietary information. Otherwise, industries feel that they could face a significant competitive disadvantage in reporting data. Several industries propose to report through the Bureau of Census, which is the only statistical agency of the Federal Government that is legislatively prohibited from releasing confidential information to other agencies of the government. Obviously, environmental organizations feel different about this matter. They support a fully public reporting procedure which enables them to verify the reported emission reductions. This would maintain accuracy of the reports. Finally, reducing public availability of the reports would also contradict with the demonstrating purpose of 1605(b), which leads to less "public relation" benefits for the private sector and less political gains for the U.S. government in international negotiations. 4. Evaluation and Conclusions of 1605(b) Clinton's Climate Action Plan asks industry to sacrifice a measure of short-term self interest in favour of long-term self-interest. The Administration says that the real incentives to participate in the voluntary programs, apart from financial rewards of energy savings, is the opportunity to avoid costly government regulations in the future. In addition, entities may be encouraged to participate because the voluntary reporting program may eventually form the basis of a tradeable emission permit system. Whether these incentives are sufficiently appealing for the industries will have to be experienced in the future. First, however, it is of crucial importance that appropriate guidelines are developed to administer the voluntary actions. Developing a voluntary emission reduction reporting program which aims at achieving maximum participation as well as accurate data, is a very difficult, if not an impossible task. The range of stakeholders involved in this program is immense, and so are the complexities. Department of Energy will have to define guidelines which at the same time will satisfy environmental parties who represent U.S. citizen, as well as the industries and utilities who will eventually have to report. The success or failure of section 1605(b) will mainly depend on the trade-off DOE will make between maximum participation and accuracy of the reported data. As far as the industry is concerned maximum participation should be strived for. The environmentalist, however, stress the need for accuracy. The large diversity of stakeholders can also be recognized in the varying degree of interests specific economic sectors have in the above crosscutting institutional issues. Environmentalist stress the importance of the principle that a reported emission reduction must unconditionally be an emission reduction in practice (do not allow double reporting). For them the leakage issue has a high priority. The electricity suppliers, emphasized the importance of international activities to be included in the program. They recognize only limited opportunities to reduce domestic greenhouse gas emissions. The forestry sector, on the other hand, claims that domestic forestry projects are as cheap and effective as forestry projects in developing countries, and have the additional advantage of political stability. For them the reference line issue is most relevant. Furthermore, the industrial sector is very anxious about the confidentiality issue. They claim that trade secrets form the basis for their competitive advantages, and therefore must be kept confidential. The agriculture sector, who considered this program as "just another administrative burden for the already overburdened farmer", insisted on the exclusion of a de minimis level. DOE has the difficult task to design a program which covers all these crosscutting issues but at the same time satisfies hurts as few stakeholders as possible. Beside internal factors of impact to the voluntary reporting program, some significant external elements exist. First, the development of national climate policies will have a substantial impact on the proactive behaviour of U.S. industries. The Climate Change Action Plan is based on a voluntary strategy which emphasizes measures that can be implemented rapidly and without Congressional approval. However, whether the threat of additional administrative, regulatory, or legislative actions is realistic can be doubted. The inconvenient timing of the next presidential elections9 and the recent reckless and failing attempt of the Clinton administration to introduce an energy tax (BTU tax)10, will probably hinder the introduction of mandatory measures in the coming years. Yet, this threat for legislative measures as a result of lacking public response forms the heart of the U.S. climate policy. The second external factor which will have major consequences for the voluntary reporting program is the international development of more specific guidelines of the Framework Convention of Climate Change. Especially the issue of joint implementation can be of considerable impact to 1605(b). Whereas nearly every U.S. stakeholder involved in the 1605(b) feels that joint implementation should be reportable, the international consensus concerning this issue, is still far from being achieved. The Cooper-Synar bill, from which section 1605(b) originates, was intended to remove a disincentive for greenhouse gas emitters to voluntarily reduce their emissions in an early stage before mandatory measures are implemented. In addition, the reports were meant to be used for demonstrating the international political community the advantages of a voluntary approach. Whether these two purposes can be realized by the implementation of Section 1605(b), is doubtful. Flexible guidelines will definitely increase participation, but it will also reduce the accuracy of the database. Emitters may be challenged to creatively account emissions reductions, instead of creatively achieve emissions reductions. Subsequently, this may diminish the international status of the U.S. reports. In July 1994, DOE hopes to finish the final guidelines of the voluntary reporting program 1605(b). Until then, more stakeholders will be asked for their opinion by DOE, in order to design a program which will get maximum public support. 5. Recommendations for additional research Environmental policy in the Netherlands is characterized by the attempt to create maximum consensus between policy makers and other societal stakeholders. Therefore, voluntary measures play an important role. At present, voluntary agreements such as covenants, do exist in approximately every sector of the economy. It is not impossible that the Dutch climate policy will include voluntary aspects, similar to the U.S. Climate Change Action Plan. Similarly, a voluntary emission reporting program may have to be developed in order to facilitate the Dutch emission reduction targets or to enhance the social learning process. In that case, the Dutch government could benefit from the U.S. experience. Although, differences do exist between the U.S. and the Dutch situations, technically speaking, similar issues arise in developing a reporting structure. From this perspective, several research questions exist which may be relevant for Dutch policy makers. What do stakeholders in the Netherlands think about a voluntary emission reduction and reporting program? What type of guidelines would they prefer? Parallel to national policy making, international guidelines are being developed for joint implementation activities. Dutch policy makers are strongly promoting this debate. Observing this development, comparable issues and problems arise as occur in the U.S. situation. It all comes down to the question, how to accurately register emission reductions. If entities are ever to be rewarded for their achievements, proper registration must take place. So far, the international discussion has mainly centred around the political feasibility of joint implementation. Debate concerning purely practical issues such as registration have been lacking. Therefore, it could be a useful exercise to take bearing among J.I. stakeholders in the Netherlands of the feasibility concerning the forementioned crosscutting issues (such as leakages, reference line, etc.). Finally, a registration program of individual emission achievements could leave open the possibility to start some kind of tradeable emission permit system, without penalizing proactive entrepreneurs. The Netherlands might be to small for a tradeable permit system; for such a system to be successful, many market participants are needed in order to create an active and forceful trade. Yet, perhaps European Integration might result into an emission market which is large enough to meet these criteria.11 In that case, the Netherlands could propose to compensate emission reducing activities by introducing a similar registration (or banking) system as applied in the U.S.. 6. Acknowledgements The author hereby expresses his appreciation for the constructive discussion by Huib Jansen, Roebijn Heintz, Henk Merkus and Martin van Ossewaarde. The author is also very grateful to Jean Vernet and Debbie Stowell (U.S. Department of Energy), because of their enormous generous and hospitable support. Finally, the author would like to thank the interviewed for the valuable time they made available. 7. Methodology The preceding report is the result of a study which has been conducted under supervision of Huib Jansen (Senior Economist; Institute for Environmental Studies) and Henk Merkus (Senior Economist; Climate Change Division, Ministry of Environment, Physical Planning and Housing), by order of the Ministry of Environment, Physical Planning and Housing of the Netherlands. In the first phase, literature was gathered with regarding experiences offsets in the U.S.. Following, written comments by industries, environmental organizations, and other stakeholders on the Notice of Inquiry send out by DOE, were analyzed. Based on these results, a questionnaire was designed for the purpose of interviewing the participants. A study-trip was made to Atlanta and Washington, DC, to visit several public workshops and conduct the interviews. Beside featuring the technological aspects of a voluntary reporting process, emphasis was put on the impact of the program 1605(b) with regard to incentives for stakeholders to report (and to reduce emissions). 8. References The following written comments on the DOE's Notice of Inquiry were used in the report: - Beck, Robert A. (1993), Edison Electric Institute, Washington, DC., September 27. - Coffey, F.G. (1993), Boeing, Seattle, September 24. - Dudek, Dan; Alice Leblanc; and Joseph Goffman (1993), Environmental Defence Fund, New York, September 29. - Guggenheim, David E. (1993), EcoAnalysis, Ojai, September 17. - Heaton, Kate (1993), Rainforest Alliance, New York, September 27. - Klimisch, Richard L. (1993), American Automobile Manufacturers Association (AAMA), Washington, DC., September 27. - Lashof, Daniel A. (1993), Natural Resources Defense Council (NRDC), Washington, DC., September 27. - Lilly, Amy (1993), Association of International Automobile Manufacturers. Inc., Arlington, September 22. - Murphy, Edward H. (1993), Americanm Petroleum Institute, Washington, DC., September 27. - Ohlsen, Michael (1993), The Solid Waste Association of North America, Maryland, September 27. - Steiner, Bruce A. (1993), American Iron and Steel Institute, Washington, DC., September 20. - Stolpman, Paul M. (1993), Office of Atmospheric Programs (OAP) of the U.S. Environmental Protection Agency (EPA), Washington, DC., September 29. Interview were conducted with: - Ms. Connie Holmes, National Coal Association, Washington, DC. - Dr. Daniel A. Lashof, Natural Defense Council, Washington, DC. - Mr. Thomas Parker, Jr., Chemical Manufacturers Association, Washington, DC. - Mr. Neil Sampson, American Forests, Washington, DC. - Mr. Bruce A. Steiner, American Iron and Steel Institute, Washington, DC. - Mr. John Shlaes, Global Climate Coalition, Washington, DC. - Ms. Janet Gille, Center for Clean Air Policy, Washington, DC. - Mr. Ted Williams, Department of Energy, Washington, DC. - Ms. Jean Vernet, Department of Energy, Washington, DC. - Mr. Jonathan C. Pershing, Department of State, Wshington, DC. - Mr. Timothy A. Hayes, PSI-Energy, Indiana. - Mr. Robert A. Reinstein, Washington International Energy Group, Washington, DC. 0 The U.S. Energy Information Administration (EIA) recently published a national inventory on U.S. emissions of greenhouse gases (EIA (1993), Emission of Greenhouse Gases in the United States 1985-1990, Washington, DC., September). 1 Bureau of Oceans and International Environmental and Scientific Affairs (1992), National Action Plan for Global Climate Change, Washington, DC, December 1992. 2 William J. Clinton and Albert Gore, Jr. (1993), The Climate Change Action Plan, Washington, DC. 3 Nancy Kete (1992), The U.S. rain control allowance trading system, in OECD, Climate Change; designing a tradeable permit system, Paris, p. 78-108. 4 Also technical reasons exist which prevent the use of such instruments. SO2 emissions are relatively easy to monitor because of the limited amount of sources. The atmospheric CO2 concentration, on the other hand, is controlled by numerous sources and sinks. This hampers the process of administering a monitoring system. 5 Department of Energy (1993), Crosscutting Institutional Issues; Options Identification Paper for the EPAct Section 1605 Voluntary Reporting Program, Washington, DC., October. 6 Consider for instance , the case of a more energy efficient refrigerator: a manufacturer produces the refrigerator which is more energy efficient than previous models; a utility provides a customer rebate to provide an incentive for purchase; and a consumer buys the refrigerator using the utility rebate but still paying an up-front premium when compared to continued use of his existing appliance. There is a potential for triple reporting. 7 The Environmental Defense Fund suggests that joint implementation (JI) projects which report at the DOE, look at the following project-specific criteria: 1. To qualify, JI investments would have to be for actions not required by law. 2. Verification, and if possible, continuous monitoring, should be a regular part of the project. 3. Each project should have a specific baseline. 4. For assessment, the reporting must confine itself to annual, after-the-fact emissions monitoring and verification reports. In addition, some possible international criteria may be adopted by the Conference of Parties, which the US investors will also be subject to. 1. Projects subject to identifiable risks of failure must include demonstrable "insurance" elements or strategies. 2. A firm initiating a project must be required to establish a firm-wide baseline and report regularly its firm- wide emissions. Thereby, the overall emissions impact of overseas projects can be evaluated. 3. The host country should also commit to establishing a greenhouse gas emission system. In addition, a double-entry book-keeping system should be established, for verification purposes. 8 Peter J. Parks, Susan R. Brame, and James E. Mitchell (1992), Opportunities to increase forest area and timber growth on marginal crop and pasture land; In R. Neil Sampson and Dwight Hair, Forests and Global Change; volume 1: opportunities for increasing forest cover, American Forests, Washington, D.C., p. 97-121. 9 By the time, the first results of the Climate Change Action Plan are known to the public, the new Presidential election will be at its peak. In those circumstances, the Clinton Administration cannot afford to introduce rigorous legislative measures, since this will probably reduce their public support enormously (personal communication with B. Reinstein). 10 Public Affairs Office (1993), Clinton Administration Proposed BTU Tax, United States Mission to the European Communities, Brussels, April 7. 11 P.R. Koutstaal (1992), Verhandelbare CO2 emissierechten in Nederland en de EG, Ministry of Economic Affairs for the Netherlands, Groningen, December.