139 East Fourth Street

P.O. Box 960

Cincinnati, OH 45201-0960

# February 17, 2004

> ![](media/image1.wmf)

Electronic submission to <1605bgeneralguidelines.comments@hq.doe.gov>

> Re: Comments to Department of Energy, Federal Register Notice (68203),
> 10 CFR Part 300, General Guidelines for Voluntary Greenhouse Gas
> Reporting; Proposed Rule.

Cinergy Corp. (Cinergy) is pleased to offer the following comments
regarding the proposed revisions to the General Guidelines for governing
voluntary reporting of greenhouse gases (GHG) under the Energy Policy
Act of 1992 ("1605(b)").

Cinergy is a public utility holding company that has a balanced,
integrated portfolio consisting of two core businesses: regulated
operations and energy merchant. Cinergy's regulated delivery operations
in Ohio, Indiana, and Kentucky serve 1.5 million electric customers and
about 500,000 gas customers. In addition, its Indiana regulated
operations own 7,000 megawatts of generation. Cinergy's energy merchant
business is a Midwest leader in low-cost generation owning 6,300
megawatts of capacity with a profitable balance of stable existing
customer portfolios, new customer origination, marketing and trading,
and industrial-site cogeneration. The "into Cinergy" power-trading hub
is the most liquid trading hub in the nation.

On September 10, 2003 Cinergy announced a voluntary plan to reduce its
greenhouse gas emissions (GHG) to an average of five percent below our
2000 level of GHG emissions during the period 2010 through 2012. Cinergy
currently plans on spending \$21 million between 2004 and 2010 on
projects to reduce or offset its emissions. We will continue to assess
additional expenditures that may be necessary to meet our voluntary
goal.

In the implementation of our voluntary program, Cinergy will work with
Environmental Defense, a national environmental group that has been a
supporter of the use of market mechanisms to achieve environmental
objectives.

As a participant in the Climate Leaders Program and a supporter of
President Bush's voluntary climate change challenge VISION program to
business and industry, we believe that this goal is the right course of
action at the right time. We recognize the potential significance of
climate change and believe that voluntary programs can be implemented
more quickly than traditional regulatory programs.

As part of its commitment to reduce the long-term implications of
climate change, Cinergy will support research and development for new
technologies that address GHG emissions. Cinergy will strive to
concentrate its voluntary efforts to reduce its GHG emissions on its
electric generating system rather than through primary reliance on
emissions offsets.

To meet its GHG emission reduction goal, Cinergy plans to use a
combination of programs that will include new technologies, carbon
sequestration, demand-side management, energy conservation, improved
efficiency of its existing generating fleet, and emission offsets.

These comments by Cinergy are written in response to the notice of
inquiry by the U.S. Department of Energy (DOE) regarding the "General
Guidelines for Voluntary Greenhouse Gas Reporting; Proposed Rule" (68
Fed. Reg. 68204 (December 5, 2003)). Cinergy appreciates the opportunity
to comment on this important issue.

Cinergy has the following comments concerning DOE's proposed 1605(b)
general guidelines.

-   The proposed 1605(b) guidelines published by the Department of
    Energy (DOE) are vague and incomplete. The published guidelines do
    not include much of the technical detail that is necessary to be
    able to determine how the guidelines will impact Cinergy. DOE has
    said that they intend this to be an "iterative" process and will
    publish the technical guidelines as they are completed. DOE
    anticipates that the technical guidelines will be published in two
    or three separate announcements each having its own public comment
    period. This process will make it much more difficult to evaluate
    the intent and impact of the entire program compared to issuing the
    proposed rules at one time or allowing the comment period to extend
    the appropriate amount of time past the publication of the last set
    of proposed guidelines.

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-   The proposed guidelines establish a two-tiered reporting system for
    both GHG emissions and reductions. The two tiers are distinguished
    in that one tier is designed for just the reporting of entity
    emissions and reductions. However the proposed rules are unclear
    about what or how an entity reports. The other tier allows a company
    to register its GHG reductions. Registering the reductions provides
    "recognition," although the legal significance of such registration
    is unclear. The registration of reductions is limited to reductions
    that occur after 2002. By setting such a date, DOE is suggesting
    that a 2002 baseline is appropriate. This further suggests that
    entities that have taken earlier actions to reduce GHG will not
    receive any "credit" for such reductions.

The proposed guidelines do not define the term "recognition." It is
Cinergy's understanding that the intent of registering reductions is to
provide some assurance that the registered reductions will qualify for
any future regulatory program. In addition, recognizing reductions
provides entities with incentives to implement early actions that would
result in GHG reductions. By not allowing entities the option of
"screening" GHG reductions from early reductions achieved between 1990
and 2003, the proposed guidelines will have a dampening effect rather
than encouraging entities to take early actions post-2002 and go through
the process of registering those reductions. Companies that have
historically pursued an aggressive program of voluntary reductions
should be rewarded rather than penalized.

The two-tiered reporting system will have the effect of creating two
classes of GHG reductions, a "first class" and a "second class." The
vast majority of tons reported will most likely fall into the second
class of reported reductions. Far fewer tons will receive the first
class entitlement of registered reductions,. principally because the
proposed guidelines require that reductions be the result of entity-wide
reductions based on emission rates.

-   *[Defining Reporting Entities:]{.underline}* The proposed guidelines
    allow any reporting entities to be defined in such a way as to allow
    flexibility in the determination of what will be included within the
    boundary of the reporting entity. The reporting entity should have
    the option of reporting as a corporate entity or as individual
    subsidiary companies. In addition, an entity should have the option
    of reporting emissions based either on equity (percentage ownership
    of the emitting facility) or on a control basis (a reporting entity
    would be required to have both an ownership position and be
    responsible for the operation of the emitting facility.)

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-   *[Trade Associations as Reporting Entities:]{.underline}* Trade
    associations and third party aggregators should be allowed to report
    on a project basis and should not be required to submit the same
    data (i.e., data for each of its members) that a corporate entity is
    required to report. Trade associations should be allowed to
    "register emission reductions" just as individuals are allowed to
    "register emission reductions." It is more likely that most trade
    association members will want to register their pro-rated share of
    the reductions rather than allow the trade associations to do it for
    them. The guidelines should have sufficient flexibility to permit
    this.

-   *[Defining Entity Boundaries:]{.underline}* The definition of
    "entity boundaries" should be based on emitting facilities,
    regardless of whether they are deminimis or owned and operated by
    the reporting entity. Because this program is a voluntary program,
    it will be difficult to assure that there is no double reporting and
    double accounting occurring as the result of the method chosen to
    define an entity's boundaries.

-   *[Baselines:]{.underline}* The proposed guidelines are written to
    allow an entity to adopt a baseline year of its choosing. However,
    since the proposed guidelines only allow an entity to register
    reductions that occur after 2002, DOE is by default laying the
    foundation for the adoption of 2002 as a baseline year.

Also, there is no discussion of baseline protection in the proposed
guidelines to ensure that any "registered" reductions would be
recognized under a future program. Baseline protection is important to
encourage entities to take early actions to reduce GHG emissions.
Without some sort of baseline protection, entities are at risk of having
the baseline in some future regulatory programset at a date after which
their early actions have been taken, thus causing the entity to forego
any credit for those early actions.

-   *[Absolute Reduction in Emission:]{.underline}* The proposed
    guidelines "strongly encourage" reporting entities to use an
    intensity metric in the calculation of GHG emission reductions that
    are to be registered. The intensity metric is based on entity-wide
    emissions. The proposed guidelines state that the intensity metric
    is being used to ensure that emission reductions are not due to
    lower production levels. The proposed guidelines do not include any
    technical detail about how intensity is to be calculated other than
    to say for the electric sector that "emissions per KWh is the
    obvious metric."

The proposed guidelines do not allow emitters to report project level
reductions.. \[For Cinergy, this could mean that absolute GHG emission
reductions achieved by Cinergy due to actions designed to reduce GHG
emissions would not be registered. Consequently, Cinergy would not
receive any credit for reducing its GHG emissions under either tier of
reporting.

> For example, Cinergy might choose a baseline year of 2000 for
> calculating its CO~2~ intensity per net MWh. (Net MWh are used because
> net MWh are reported to DOE and that is the data that is made public.)
> Additional pollution control equipment, as required by the Clean Air
> Act might be added in future years to Cinergy's electric generating
> units. The added pollution control equipment would cause Cinergy's
> CO~2~ emission rate per MWh to increase because of the added
> equipment's parasitic electric usage. Cinergy might initiate a project
> or activity that reduces its absolute CO~2~ emissions on an
> entity-wide basis and also reduces its CO~2~ intensity, but not below
> the base year 2000 level. Utilizing an intensity basis as preferred
> under the proposed 1605(b) guidelines, Cinergy would not be able to
> show a reduction in CO~2~ emissions under either reporting tier
> because our emission rate would not be lower than our baseline year
> emission rate per MWh.
>
> Another way of looking at the inequity of encouraging use of an
> intensity metric for reporting reductions is to view the baseline year
> as a cap on an entity's emissions. Under other air emission programs
> that have a cap (e.g., SO~2~ or NO~X~), the affected entity receives a
> number of allowances equal to that cap. If emission levels are lower
> than the cap in any given year the company is allowed to carry those
> reductions or unused allowances forward to future years. The CO~2~
> program should allow for the same flexibility. An entity should be
> allowed to report emissions below its baseline at least at the tier
> one level reporting. We recognize that reductions that occur because
> of lower production levels and are not due to a specific action taken
> to reduce CO~2~ emissions should not be registered under tier two
> reporting.
>
> Any reduction of GHG emissions into the atmosphere, regardless of the
> reason for the reductions, is a benefit. If total GHG emissions over
> time into the atmosphere are treated as budget, then the reduction is
> a benefit to the environment. The reductions represent GHG emissions
> that were not emitted to the atmosphere and will never be emitted.

-   *[Report Certification and Verification:]{.underline}* There is no
    need for DOE to require independent verification of emission
    reductions. There is no regulatory program that establishes a market
    for reductions or imposes any other legal requirements for
    verification. Any entities seeking to sell their reductions will
    have to meet whatever contractual requirements exist between the
    buyer and the seller. Even if the "registered" reductions are
    recognized in a future regulatory program, the reductions will still
    have to meet whatever conditions are established by the program or
    the market in which they are sold.

> In addition, the proposed guidelines "...strongly encourage
> *(entities)* to obtain independent verification of their reports."
> Cinergy feels that having the "...chief executive officer, ...or
> person responsible for the reporting Entity's compliance with
> environmental regulations..." certify the report with "sufficient"
> documentation retained for three years is more that sufficient for
> verification. Assuming that the documents are to be made available for
> inspection, it is inappropriate for DOE to imply that reports that are
> not independently verified are somehow less credible than those that
> are independently verified.
>
> The proposed guidelines require certification that none of the
> reported emission reductions are double-counted by any reporting
> entity. Although, Cinergy can take every precaution to eliminate such
> double-counting of reductions, it cannot guarantee that another
> independent entity will not also report the same reductions. Even
> limiting the certification to the entity's knowledge implies that the
> certifying entity may have access to information held by an
> independent party. Therefore, it is unreasonable to expect Cinergy to
> "certify" that no other entity is reporting the same emission
> reductions.

-   *[Starting to Report:]{.underline}* As the proposed guidelines read,
    an entity can choose a year to begin reporting emissions and choose
    that year as its baseline year or use an average of up to four years
    as its baseline. Cinergy advocates maximum flexibility in the
    choosing of a baseline. In a voluntary program, having a maximum
    amount of flexibility will encourage participation and encourage
    entities to identify an appropriate baseline from which reductions
    will be measured. However, to encourage maximum participation in a
    voluntary program, DOE needs to address baseline protection issues
    as discussed above.

-   *[Registering Reductions:]{.underline}* The proposed guidelines
    allow entities to report reductions from the earlier 1605(b)
    program, 1991 through 2002, but do not allow the registration of
    those emission reductions. The proposed guidelines only allow the
    registration of reductions that occur after 2002. This ignores the
    early efforts of entities that reduced emissions and recorded them
    in the earlier 1605(b) program that was initiated in 1994. In light
    of the earlier 1605(b) program, it would seem reasonable that if an
    entity chooses a baseline year anywhere between 1994 and 2002 and
    any reductions recorded after the baseline year meet the same
    rigorous test for "real reductions" in the proposed 1605(b)
    guidelines, DOE should allow the "registration" of those emission
    reductions as well.

-   *[Sustaining Entity Reports of Emission and Emission
    Reductions:]{.underline}* The proposed guidelines require an entity
    to submit emission and reduction reports annually *(without any
    reference to the duration of such reporting obligations)* in order
    to continue to receive "recognition" for its past and future
    reductions. The proposed guidelines reference reducing future year
    registered reductions if an entity "...experiences a net increase in
    output-adjusted emissions after beginning to report." Yet the
    proposed guidelines are silent concerning the "accrued" reductions
    from previous years. The proposed guidelines should recognize the
    concept of "borrowing and banking." If an entity experiences a net
    increase in output-adjusted emissions it should be allowed to reduce
    its previous years "banked" registered reductions, as well as
    "borrow" from future years. *(See discussion in the section
    [Absolute Reduction in Emissions]{.underline} above.)*

-   *[Entity-wide v. Sub-entity or Project--only
    Reporting:]{.underline}* DOE needs to preserve the ability of an
    entity, regardless of the amount of its emissions, to report
    emission-reducing activities under 1605(b). Even if an entity does
    not achieve a net reduction in its entity-wide emissions it is
    important to capture project or activity related reductions because
    the climate change issue is global and any reduction may potentially
    be significant. Regardless of the impact on an entity's total
    emissions, a project-specific reduction still reduces the amount of
    anthropogenic carbon emissions entering the atmosphere. If the
    proposed guidelines do not allow project or activity-related
    reporting, entities will be discouraged from reporting in a
    voluntary program such as the proposed 1605(b) guidelines, and any
    record of overall reductions in emissions will not be available .
    This would be counter to the original purpose of Sections 1605(b) of
    the Energy Policy Act of 1992.

-   *[Treatment of Certain Small Emissions:]{.underline}* The proposed
    guidelines set a de minimis limit for reporting emissions at 3% of
    an entity's total emissions inventory or 10,000 tons of CO~2~eq
    which ever is smaller. Cinergy's annual CO2eq emissions are
    approximately 67 million tons. Applying the proposed de minimis
    guideline would mean that Cinergy would have to identify and measure
    any emissions that exceed a total of 10,000 tons of emissions or
    .015% of our total emissions. The proposed guideline would impose a
    significant burden on Cinergy to measure every small emission. The
    return on investment does not make sense from either a business or
    regulatory standpoint. Imposing such a guideline would discourage
    large emitters from participation in a voluntary 1605(b) reporting
    régime due to the cost of completing an annual inventory of
    emissions. If such a scenario were implemented, the 1605(b) registry
    would be a failure because it would not represent a very high
    percentage of large emitters or percentage of the U.S. total
    emissions. This is a prime example of the "80/20 rule" which
    suggests that more than 80 percent of GHG emissions can be measured
    for 20 percent of the cost of measuring all GHG emissions, and
    measuring the remaining 20 percent of the GHG emissions would incur
    80% of the total reporting costs. We recognize that this may not
    true for all industry sectors, but we do not think that it is
    appropriate to have one guideline applied to every sector.

We believe that a better approach would be to develop a graduated scale
for de minimis reporting based on an entity's total emissions. In
Cinergy's case reporting the emissions from our generating units alone
would capture more than 95% of our emissions. By allowing a sliding
scale where Cinergy could report 95% or more of its overall emissions,
Cinergy would be more inclined to participate in a voluntary reporting
regime.

> Another alternative method of defining de minimis would be to reverse
> the way it is presently defined in the proposed guidelines. De minimis
> would instead be defined as 3 percent of total emissions or 10,000
> tons which ever is *greater.*

-   *[International Emission Reductions:]{.underline}* The proposed
    guidelines do not address whether or not an entity can report or
    register GHG reductions that result from non-U.S. operations. The
    proposed guidelines should allow entities to report and/or register
    non-U.S. emissions reductions. These reductions should still have to
    meet the same criteria that U.S. emissions reductions would have to
    meet. Entities should have the option of including emissions from
    non-U.S. facilities in their baseline. However, Cinergy does
    recognize that including emissions from non-U.S. facilities may
    potentially result in double counting of those emissions since they
    may be accounted for in the host countries' emission inventories. If
    an emission reduction is counted to meet a host country's
    commitment, then it should not be eligible for reporting and/or
    registration in a U.S. registry. Certification by an officer of the
    company should be sufficient for reporting and/or registration of
    the reduction and the reduction should be treated the same as a
    reduction originating in the U.S.

-   *[Relationship to Climate VISION, Climate Leaders, and Other
    Programs:]{.underline}* Entities should only be encouraged, not
    required, to use the 1605(b) program to document progress toward
    emission reduction goals in voluntary Federal programs. Reporting in
    1605(b) should remain a voluntary commitment for such program
    participants because entity commitments to those programs were made,
    at least until the proposed guidelines become final, prior to the
    publication of the proposed guidelines. It should be up to the
    program participants and host agencies to make the decision
    concerning the use of 1605(b) as a reporting regime for their
    particular programs.