Does the Bush Administration Have Legal Authority to Award Regulatory
Credits for Greenhouse Gas Reductions?

**CEI Responds to EPICI**

November 18, 2002

Marlo Lewis, Jr.[^1]

Senior Fellow

Competitive Enterprise Institute

1001 Connecticut Ave. NW

Suite 1250

Washington, D.C. 20036

Phone: (202) 331-1010

Fax: (202) 331-0640

Email: mlewis@cei.org

This paper examines the Electric Power Industry Climate Initiative's
(EPICI's) attempted rebuttal of the Natural Resources Defense Council's
(NRDC's) argument that the Bush Administration has no authority, under
section 1605(b) of the 1992 Energy Policy Act, to provide penalty
protection or award regulatory credits to companies that reduce their
emissions of greenhouse gases. The paper shows that EPICI:

-   Ignores the plain text of 1605(b), which contains no authority,
    explicit or implicit, to provide penalty protection or credit for
    early reductions;

-   Identifies no ambiguity in 1605(b), such as might be resolved in
    favor of penalty protection or crediting in light of statutory
    context or legislative history;

-   Relies almost solely on one Senator's remarks -- and misconstrues
    those remarks;

-   Ignores the texts of early credit legislation in the 105^th^ and
    106^th^ Congresses, and the debates thereon;

-   Implausibly and erroneously contends that even though Congress
    rejected a version of 1605 that directed the Department of Energy
    (DOE) to establish a crediting system, it nonetheless gave DOE
    authority to implement such a system;

-   Confuses the discretion DOE has in implementing a reporting system
    with authority to establish a crediting scheme;

-   Confuses the absence of statutory prohibitions against penalty
    protection and early credits with a grant of legislative authority
    to initiate such policies; and

-   Admits in the final analysis that DOE does not really have authority
    to protect companies' emission baselines or award early credits.

It is, in fact, astonishing that anyone familiar with these issues would
interpret 1605(b) as EPICI does. Senators John Chafee (R-RI) and Joseph
Lieberman (D-CT) introduced early credit legislation in both the 105^th^
and 106^th^ Congresses. Those bills were intensely controversial, and
never mustered anything approaching majority support. Chafee-Lieberman
gained only 12 co-sponsors in its second go-round. Representative Rick
Lazio's (R-NY) House companion bill attracted just 15 co-sponsors.
Neither bill ever came to a vote in committee, much less on the House or
Senate floor. The notion that Congress implicitly enacted the substance
of those bills seven years earlier, in the 102^nd^ Congress, is
preposterous.

On November 18, 2002, DOE will convene the first of a series of
stakeholder workshops on how to transform the 1605(b) voluntary
reporting program into penalty-protection/regulatory credit program.
Absent from DOE's 15-page "Annotated Agenda of Key Issues" is any
mention of legal issues. Shouldn't the Administration at least try to
demonstrate that what it wants to do is legal before inviting the public
to help them do it?

## I. Background

On February 14, 2002, President Bush directed the Secretary of Energy,
working with other department and agency heads, to enhance the
"accuracy, reliability and verifiability" of the Voluntary Reporting of
Greenhouse Gases Program (VRGGP), established under Section 1605(b) of
the 1992 Energy Policy Act.[^2] Mr. Bush also directed the Secretary to
recommend reforms "to ensure that businesses and individuals that
register reductions are not penalized under a future climate policy, and
to give transferable credits to companies that can show real emission
reductions."[^3]

 

The Competitive Enterprise Institute (CEI) has long warned that penalty
protection, especially in the form of transferable greenhouse gas (GHG)
credits, will corrupt the politics of U.S. energy policy. GHG credits
attain full market value only under a Kyoto-style cap-and-trade program.
In effect, GHG credits are Kyoto stock -- assets that mature and bear
dividends only if the U.S. Government ratifies Kyoto or enacts a
comparable regulatory regime. Thus, if implemented, the Administration's
plan will expand and mobilize corporate lobbying for Kyoto and kindred
energy rationing schemes.[^4]

In addition, the Administration's crediting plan is internally
conflicted. The Administration proposes to award transferable credits
for "real" reductions. "Real" reductions are tonnage reductions -- the
kind required by Kyoto. Yet the Administration wants to replace Kyoto's
tonnage targets, which restrict economic growth, with emission intensity
targets, which accommodate growth. These goals are incompatible.
Awarding credits for tonnage reductions ratifies rather than replaces
the Kyoto framework. Credits for "real" reductions are only applicable
to, and build political support for, cap-and-trade schemes, which the
Administration professes to oppose.

In the *Federal Register* of May 6, 2002, the Department of Energy (DOE)
published a Notice of Inquiry requesting comment on how to modify the
VRGGP, in accordance with the President's February 14^th^ directive.
Individuals from the business, government, and non-profit sectors
submitted about 80 comments during the 30-day comment period, which
closed June 6th. The comments are available online.[^5]

In their joint comment, the Natural Resources Defense Council (NRDC) and
six other environmental groups[^6] argued that, "the administration has
no authority under section 1605(b) or any other current law to ensure
penalty protection or give out transferable credits."[^7] The Northeast
States for Coordinated Air Use Management (NESCAUM)[^8] took essentially
the same position. According to NESCAUM, "1605(b) was not designed for
public recognition, baseline protection or the creation of early
credits. Nor was it designed as the infrastructure for emissions
trading...we are skeptical about how these \[early reduction credits\]
could be made legally binding without new legislation."[^9] Similarly,
the Pew Center on Global Climate Change stated: "The Pew Center's review
of existing statutory authorities indicates that the Executive Branch
currently lacks authority to assure that current efforts to reduce GHG
emissions receive credit under a future law. If a baseline protection
program is to have binding effect, it must be authorized by law."[^10]

On September 20^th^, the Electric Power Climate Industry Initiative
(EPICI) submitted a "supplemental" comment disputing the legal opinions
presented by NRDC and others. According to EPICI, "there are no known
legal obstacles under existing law to DOE addressing, as part of its
revision of the section 1605 guidelines, both the issue of not
penalizing volunteers for taking early action...and the issue of
transferable credits."[^11]

This wording is artful, because asserting that no law prevents DOE from
"addressing" the "issues" of baseline protection and transferable
credits is not the same as claiming that DOE has authority to protect
baselines and award credits. Yet throughout its supplementary comment,
EPICI struggles to rebut NRDC's opinion that the administration "has no
authority under section 1605(b) or any other current law to ensure
penalty protection or give out transferable credits."[^12] The present
paper examines EPICI's arguments.

**[II. Grasping at Straws]{.underline}**

EPICI builds its case for interpreting 1605(b) as authorizing penalty
protection and transferable credits not on the plain text of the
provision, nor on the context created by simultaneously enacted
provisions, nor on conference committee report language, nor on the
history associated with congressional activities in this area, nor on
other relevant statutes. Instead, EPICI relies on the alleged
implications of Senator Joseph Lieberman's (D-CT) floor statement prior
to the Senate vote on the 1992 Energy Policy Act, on a semblance of
ambiguity in the text, and on Congress' silence (the absence of express
prohibitions against penalty protection and credit for voluntary
reductions). This procedure is, to put it charitably, unconventional.

The first rule of statutory construction is to read the text carefully.
In the present case this is quite painless -- section 1605(b) is less
than one and a half pages long. It is immediately apparent that 1605(b)
makes no reference, or even allusion, to the matters of penalty
protection or transferable credits. For this reason the 1605(b) program
is, and has been known from its inception, as a reporting system or, as
Senator Lieberman described it, a "data base" and "simple accounting
mechanism."[^13] Section 1605(b) neither directs nor authorizes DOE to
provide penalty protection or credit for early action. There is no
textual support for EPICI's position.

Courts have held that it is permissible to look beyond the plain meaning
of legislative language "when that meaning has led to absurd or futile
results."[^14] However, neither EPICI nor anyone else has ever attempted
to show that reading 1605(b) literally as authority for an emissions
reduction reporting (not baseline protection or crediting) program leads
to absurd or futile results. The program was set up to encourage
voluntary reporting of GHG reductions, and that is exactly what it
does.[^15]

Courts may also look beyond the text of a statutory provision if the
meaning is ambiguous. EPICI, however, fails to identify any ambiguity in
the text. The closest EPICI comes to finding ambiguity is the statement,
in 1605(b)(4), that the reporting entity may use the GHG
registry/database to "demonstrate achieved reductions of greenhouse
gases."[^16] But this is ambiguous only if one makes the unwarranted
assumption that ***demonstrating*** emission reductions is equivalent to
***protecting*** baselines or ***qualifying*** for credits. EPICI stops
short of asserting that "demonstrating" is equivalent to "protecting,"
but leaves the impression that the one implies the other, and, hence,
that the text is ambiguous.

That is nonsense. ***If*** Congress were to create a penalty
protection/early credit program, then companies would of course have to
"demonstrate" their reductions to receive protection or credits. But it
by no means follows that 1605(b) authorizes protection or crediting
because it allows companies to "demonstrate" reductions.

In short, 1605(b) is not ambiguous. However, if there were an ambiguity,
the first place to look for clarification would be the context created
by other simultaneously adopted provisions.[^17] EPICI makes no attempt
to show that any enacted provision of law logically requires penalty
protection or credit for early action to ensure its proper execution or
implementation. This is not surprising, because when Congress does
create credit programs, it has no difficulty making its intention
clear.[^18]

The Supreme Court has stated that, "where Congress includes particular
language in one section of a statute but omits it in another section of
the same Act, it is generally presumed that Congress acts intentionally
and purposely in the disparate inclusion or exclusion."[^19] Section 508
of the 1992 Energy Policy Act establishes a transferable credit program
for alternative fueled vehicles. Since Congress did not use the same or
similar terms ("credit," "allocate," "transfer") in 1605(b), we may
presume that Congress intentionally and purposely omitted such language.

Only if there were still some ambiguity that cannot be resolved by the
text or context of the provision would it be proper to construe the
meaning of 1605(b) based on legislative history. But, not all parts of
legislative history are created equal. Enacted report language carries
greater weight than statements made by individual lawmakers in floor
debates, committee hearings, and the like. Yet, as EPICI admits, the
Conference Report's discussion of section 1605(b) says nothing about
penalty protection and credit for early action.[^20]

EPICI is thus forced to build its case on Senator Lieberman's October 8,
1992 floor statement (actually, on the alleged implications thereof).
But, even if Senator Lieberman's remarks mean what EPICI believes they
mean (they do not, as we will see later), that hardly suffices to settle
the matter. No individual member can be presumed to speak for Congress
as a whole on the meaning of statutory provisions.[^21] As Eskridge and
Frickey explain in their text *Cases and Materials on* *Legislation*:
"Unlike statements from committee reports, statements made during
committee hearings and floor debates have traditionally been given very
little weight by courts and commentators."[^22] To mention only one
reason, in floor debate, members have an incentive to "spin" the
discussion to advance their particular agendas. For example, a member
may try to manufacture legislative history after the fact, by
attributing to a provision a meaning nowhere specified in the plain
words of either the bill text or the report language.[^23]

Senator Lieberman is certainly not above suspicion in that regard. Not
only was Mr. Lieberman an original co-sponsor of early credit
legislation in the 105^th^ and 106^th^ Congresses,[^24] he also prepared
an amendment to establish a GHG reduction crediting program as part of
the 1992 Senate energy bill.[^25] So it would not be at all surprising
if Senator Lieberman, in his October 8^th^ floor statement, construed
1605(b) in terms suggestive of a penalty-protection/early credit
program.

**[III. What Did Senator Lieberman Really Say?]{.underline}**

EPICI quotes Senator Lieberman's October 8th floor statement on 1605(b)
at length. The passages on which EPICI builds its case are reproduced
below:

-   First, I am especially pleased about the provision in this bill
    which establishes a system for corporations to register current
    emissions of greenhouse gases and allows them to record reductions
    in greenhouse gases for inclusion in a national data base. The
    provision will allow Government to recognize the achievements of
    American businesses who are taking steps to reduce emissions of
    greenhouse gases.

-   Under S. 1605 of this energy bill, companies engaged in these
    voluntary activities will be able to demonstrate that the Federal
    Government should approve their reductions for inclusion in the data
    base.

-   I believe this provision removes a disincentive facing U.S. firms
    seeking to reduce voluntarily their greenhouse gas emissions.
    Without this provision those firms will not have an official data
    base which can be used by these firms to demonstrate achieved
    reductions of greenhouse gases. The simple accounting mechanism
    removes this disincentive by recognizing positive steps to reduce
    greenhouse gas emissions.

-   The provision also preserves American competitiveness as the United
    States seeks to meet its international obligations under the Rio
    agreement and potential future agreements. Historically, the United
    States struggled to demonstrate that past achievements deserve
    credit as international emission levels are negotiated. With this
    section, our negotiators will be able to demonstrate conclusively
    the real reductions by U.S. firms.

EPICI attaches great importance to Senator Lieberman's claims that
1605(b) "removes a disincentive facing U.S. firms seeking to reduce
voluntarily their greenhouse gas emissions," that this "simple
accounting mechanism removes this disincentive by recognizing positive
steps to reduce" GHG emissions, and that it "preserves American
competitiveness as the United States seeks to meet its international
obligations under the Rio Agreement."[^26] Let's consider what these
statements mean -- and don't mean.

EPICI's commentary on Senator Lieberman's remarks is somewhat desultory.
The gist, however, appears to be that 1605(b) provides authority for
penalty protection, because 1605(b) does in part what a penalty
protection system would do -- "removes" a "disincentive" to voluntary
reductions and "preserves American competitiveness."

But, just because a registry has some of the same effects as a penalty
protection program does not mean that the agency authorized to run the
registry is also authorized to provide penalty protection or award
credits. Notice that Senator Lieberman ascribes the incentive effects of
1605(b) to the fact that it is a "data base" and a "simple accounting
mechanism." That 1605(b) does encourage companies to reduce emissions
and demonstrate reductions, is undeniable. It is also beside the point.
That fact does not create or imply any legal authority to protect
baselines or award credits.

Notice also that when Senator Lieberman says 1605(b) will preserve
American competitiveness because it will "demonstrate that past
achievements deserve credit," he is not talking about awarding credits
to particular companies. Rather, he is talking about information useful
to U.S. diplomats as they ***negotiate*** "international emission
levels." He is referring to information needed to determine
***country*** baselines and emission reduction targets in international
conferences like Rio and Kyoto, not to any safe harbor provision in
domestic law.

**IV. Ignoring the Texts of Early Credit Legislation and the Debates
thereon**

Elevating Senator Lieberman to a controlling legal authority on these
matters actually undermines EPICI's position. After all, if 1605(b)
already provides authority for penalty protection and early credits,
then why did Senator Lieberman champion credit for early action
legislation in the 105^th^ and 106^th^ Congresses? Indeed, since
President Clinton and Vice President Gore also advocated credit for
voluntary reductions,[^27] why didn't Clinton and Gore institute penalty
protection and regulatory offsets through administrative action?
Finally, why didn't Senator Lieberman call upon the Clinton-Gore
Administration to award credits under existing 1605(b) authority?

There is only one reasonable answer to those questions -- neither
Senator Lieberman, nor Messrs. Clinton and Gore, interpreted 1605(b) as
providing authority for penalty protection or credit for early action.

Section 2 of Senator Lieberman's "Credit for Early Voluntary Reductions
Act" (S. 2617), introduced October 10, 1998, in the 105^th^ Congress,
states:

> The purpose of this Act is to encourage voluntary greenhouse gas
> emission mitigation actions by ***authorizing*** the President to
> enter into binding agreements under which entities operating in the
> United States will receive credit, usable in any future domestic
> program that requires mitigation of greenhouse gas emissions, for
> voluntary mitigation actions before 2008. \[Emphasis added.\]

Senators do not usually introduce legislation to authorize the President
to do something they believe he already has authority to do. Is it not
abundantly clear from Section 2 of S. 2617 that Senator Lieberman
believed the President (hence DOE) needed new legislative authority to
award credit for early action?

In his floor statement on S. 2617, Senator Lieberman stated, in
pertinent part:

> The point of this legislation is to provide an incentive for companies
> that want to make voluntary early reduction in emissions of greenhouse
> gases by guaranteeing that these companies will receive credit, once
> binding requirements begin, for voluntary reductions they have made
> before 2008....I\'m pleased that this legislation builds on section
> 1605(b) of the Energy Policy Act which allowed companies to
> voluntarily record their emissions in greenhouse gas emissions, which
> I worked hard to include in the Energy Policy Act.[^28]

Note what Senator Lieberman says -- and does not say. He says that S.
2617 "builds on" section 1605(b), "which allowed companies to
voluntarily record their emissions in greenhouse gas reductions." He
does not say that S. 2617 makes explicit an authority already granted by
1605(b). He does not say that it enables DOE to do more efficiently what
it may already do under 1605(b). He makes very clear that the proposed
legislation provides something ***new*** -- "an incentive for companies
that want to make voluntary early reduction in greenhouse gas emissions
by guaranteeing that those companies will receive credit."

EPICI's expansive view of 1605(b) is unprecedented in the history of
public debate on credit for early action. For example, in his floor
statement introducing the House companion bill to the Chaffee-Lieberman
legislation in the 106^th^ Congress, Rep. Rick Lazio (R-NY) stated, in
pertinent part: [^29]

-   It \[H.R. 2520, the Credit for Voluntary Reductions Act\] is simply
    ***authorizing*** companies to reduce greenhouse gases without fear
    of punishment later. \[Emphasis added.\]

```{=html}
<!-- -->
```
-   Section 4\--Authority for voluntary Action Agreements. This section
    ***provides the authority*** for entering into these agreements to
    the President and allows delegation to any federal department or
    agency. \[Emphasis added.\]

-   Section 5\--Entitlement to Greenhouse Gas Reduction Credit for
    Voluntary Action. ***Provides authority for credits*** for: certain
    projects under the initiative for Joint Implementation program;
    prospective domestic actions (includes a significantly revised
    sequestration); and retrospective past actions. \[Emphasis added.\]

The clear implication of these remarks is that, absent such legislation,
the President lacks authority to protect companies' baselines or award
credits.

The Pew Center for Global Climate Change was a key backer of the
Chafee-Lieberman legislation. In her March 24, 1999 testimony before the
Senate Environment and Public Works Committee, Pew Center Executive
Director Eileen Claussen stated:

> Solving this problem requires leadership from Congress. An analysis
> undertaken by the Pew Center and published in October 1998 finds that
> federal ***agencies do not have sufficient legal authority*** to
> provide the certainty that firms need to make significant early
> investments. ***Congress must provide the legislative framework*** to
> remove the disincentives to early action.[^30] \[Emphasis added.\]

The International Climate Change Partnership (ICCP) was also a key
booster of the Chafee-Lieberman bill. In his July 15, 1999 testimony
before the House Government Reform Subcommittee on Regulatory Affairs,
ICCP Executive Director Kevin J. Fay stated that, "The current ***legal
vacuum*** provides a disincentive to companies that wish to reduce
greenhouse gas emissions or enhance carbon storage" (emphasis
added).[^31] Fay's comment would make no sense if he believed 1605(b)
provided legal authority to remove the alleged "disincentive" to
voluntary action. At no point in the hearing did Fay or fellow witness
and early credit advocate Fred Krupp, Executive Director of
Environmental Defense, suggest that DOE could create ***regulatory***
offsets (remove the "vacuum") by revising the 1605(b) reporting
***guidelines***.

Finally, let us note that the Chafee-Lieberman-Lazio legislation went
nowhere. Chafee-Lieberman attracted only 12 co-sponsors on its second
go-round. Lazio's House companion attracted a mere 15 co-sponsors.
Neither bill ever came to a vote in committee, much less on the Senate
or House floor. Neither came anywhere close to winning majority support
in either chamber. The notion that Congress implicitly enacted the
substance of those bills seven years earlier, in the 102^nd^ Congress,
is preposterous.

**[V. Missing the Obvious]{.underline}**

EPICI acknowledges that, when House and Senate conferees produced the
1992 Energy Policy Act in its final form, they re-wrote Representative
Jim Cooper's (D-TN) section 1605 language in H.R. 776, the House-passed
version of the energy bill. The House version of 1605(a) directed DOE to
establish, "by rule," a greenhouse gas reduction accounting system that
provides "opportunities for entities to receive official certification
of net greenhouse gas emission reductions relative to the baseline for
purposes of receiving credit against any future Federal requirements
that may apply to greenhouse gas emissions." In keeping with this, the
House version of 1605(a) required DOE to:

-   "ensure that no emissions reductions be credited more than once,"

-   "ensure an entity's baseline includes all greenhouse gas emissions
    from all sources under the control of such entity," and

-   "ensure that reductions of greenhouse gas emissions which are
    specifically required under this title, or any other Federal law in
    effect as of the date of enactment of this Act, shall not be
    certified."

In other words, the House version of 1605(a) directed DOE to protect the
crediting system's integrity by building in safeguards against double
counting (two or more entities claiming credit for the same reduction),
cherry picking (claiming credit for project-level reductions while
entity-wide emissions increase), and windfall profits for "anyway tons"
(claiming credit for reductions that would occur anyway under existing
emission control requirements).

EPICI acknowledges that 1605(b) as enacted directs DOE to issue
"guidelines" for reporting emission reductions, not a "rule" for
certifying credits. EPICI, moreover, acknowledges that 1605(b) as
enacted contains none of the prophylactic provisions from the House
version's 1605(a) that are essential to the integrity of a crediting
program.[^32] Yet EPICI fails to draw the obvious conclusion: When the
conferees re-wrote the House version, they considered but rejected the
option of establishing a crediting program. As the Supreme Court has
emphasized, "Few principles of statutory construction are more
compelling than the proposition that Congress does not intend *sub
silentio* to enact statutory language that it has earlier discarded in
favor of other language."[^33]

To avoid this conclusion, EPICI argues that when the conferees re-wrote
the House version, and deleted the 11 subsections in 1605(a), including
the crediting provisions, they were just "streamlining" the details, as
is appropriate for a statute directing DOE to issue "guidelines" rather
than a "rule." Thus, the conferees cannot be understood to have
"rejected" the substance or content of any of the deleted 11 provisions,
including provisions on crediting. EPICI explains:

> The final version called explicitly for guidelines \[not rules\] on
> the "voluntary collection and reporting of information sources" of
> ghg's \[sic\]. They are to provide "procedures" for the "accurate
> voluntary reporting of information," not only on reductions, but also
> on emissions. That shift applied to all of these items or details, not
> just the one on credits. Yet it cannot be reasonably argued that all
> or some of the original items were "rejected" by Congress and thus,
> upon enactment, that DOE could not include "procedures" on, for
> example, double counting, baselines or reductions achieved in other
> countries, all of which were in the list of 11, together with the
> credit provisions. In fact, such matters are now addressed in various
> ways in the existing 1605 guidelines. It is unreasonable \[for NRDC\]
> to claim that one of the 11 items was "pointedly rejected" by the
> Conferees, and not all of the other 10.[^34]

EPICI's only source for the claim that the conferees "streamlined"
rather than "rejected" any provisions of the House version is Senator
Lieberman's remark, in his October 8^th^ floor statement, that, "The
conferees streamlined some of the details of the program, giving more
discretion to the Administration in implementation." But if we actually
compare the House version with the final version, we find that the
streamlining occurs in what was section 1605(b) of the House version,
which lists 12 types of reductions ***eligible to receive credits***. In
1605(b)(1)(B) as enacted, those are summarized as types of reductions
***eligible to be*** ***reported***. However, section 1605(a) of the
House version, which contains the credit authorizing provisions, is not
"streamlined" in 1605(b) as enacted, because none of it survived the
conference committee. The conferees simply deleted the items in section
1605(a). The House version of section 1605(a), which provided authority
for a crediting program, does not appear in any manner, shape, or form
in 1605(b) as enacted.

EPICI's attempt to save the deleted crediting provisions fails for an
even more basic reason. Accounting systems have their own logic.
Baseline estimation, double counting, and reductions in foreign
countries are among the issues DOE guidelines would have to address in
any GHG accounting and reporting system worthy of the name. It would be
impossible for DOE to carry out its statutory obligation to provide
"procedures" for the "accurate voluntary reporting of information" on
emissions and reductions without addressing some of the 11 items
enumerated in section 1605(a) of the House bill.

In stark contrast, protecting companies' emission baselines and awarding
credit for early action are not intrinsic to the enterprise of GHG
accounting. They are policy initiatives fraught with economic
implications and political risks.[^35] A grant of authority to implement
a GHG accounting system logically implies authority to "address" such
issues as baseline estimation, double counting, and emission reductions
in foreign countries. It does not entail, and should not be construed to
imply, authority to provide penalty protection or credit for early
reductions.

**[VI. Confusing Discretion with Authority]{.underline}**

As noted, EPICI quotes Senator Lieberman's remark that when the
conferees "streamlined some of the details" of the House-passed version,
they gave "more discretion to the Administration in
implementation."[^36] Again, EPICI's argument is less than crisp on this
point, but EPICI appears to suggest that DOE may use its greater
"discretion" to protect baselines and award credits. This is exactly
backwards.

It is only when voluntary reductions generate credits that potentially
confer competitive advantage on some firms at the expense of others that
it becomes necessary to have rigorous and consistent accounting
standards and practices. Thus, it was entirely appropriate for the House
version of 1605, which provided for a crediting scheme, to prescribe "by
rule" 11 specific features of the proposed GHG registry. In contrast,
flexible "guidelines" are appropriate to encourage reporting under
various voluntary programs that do not award credits.[^37]

In his July 15, 1999 testimony on 1605(b) before the House Government
Reform Subcommittee on Regulatory Affairs, Energy Information
Administrator Jay Hakes explained that 1605(b), unlike a crediting
program, provides "multiple alternative answers" to such key questions
as: Who can report? What is a reduction? Who owns the reduction?[^38]
Hakes explained that 1605(b) was not designed to produce a "set of
comparable, verifiable, auditable emissions and reduction reports that
represent 'actual reductions' and are 'not double counted.'"[^39]
Rather, "The Voluntary Reporting Program can be viewed as a survey of
emission accounting methods and theories actually in use, and a set of
illustrations of the potential accounting and baseline problems that
must be confronted in designing future policy instruments. A more
structured approach would have been less useful for identifying and
analyzing accounting issues."[^40]

The conferees gave the administration "more discretion" in implementing
1605(b) -- they chose a less "structured" approach -- precisely because
they did not intend to set up a crediting program.

### VII. Confusing the Absence of Statutory Prohibitions 

### with Grants of Legislative Power 

### 

On three occasions EPICI notes, or alludes to the fact, that 1605(b) as
enacted contains no "prohibition" with respect to any of the 11 items
listed for rulemaking in section 1605(a) of the House-passed
version.[^41] Because Congress did not explicitly prohibit DOE from
providing penalty protection, EPICI reasons, DOE may do so under
"existing law," namely, section 1605(b), the DOE Organization Act, and
the UN Framework Convention on Climate Change (FCCC).[^42] However,
EPICI does not cite a single provision of the DOE Organization Act to
substantiate that assertion. The FCCC is not self-executing, and EPICI
does not cite any statute enacted pursuant to the FCCC such as might
grant DOE the authority to award credits. And, as we have seen, 1605(b)
provides no such authority.

Thus, EPICI's argument boils down to this: DOE may do whatever Congress
has not prohibited it from doing. To take that position, however, is to
turn the central principle of administrative law on its head. Ours is a
government of delegated and, hence, limited powers only if agencies are
not free to define the bounds of their authority. [^43]

Congress nowhere expressly or by clear implication delegated to DOE the
authority to protect companies' baselines or award regulatory offsets in
advance of a future mandatory GHG emission reduction program. The only
constitutionally permissible inference is that DOE does not have such
authority.[^44]

 

EPICI might reply that under the Supreme Court's *Chevron* doctrine,
deference is to be given to an agency's interpretation of a statute "if
the statute is silent" and the agency's interpretation is "based on a
permissible construction."[^45] But, as we have seen, construing 1605(b)
as authority for a crediting program is not permissible. Moreover, the
Energy Information Administration (EIA), which has administered the
voluntary reporting program from its inception, has historically taken
the position that 1605(b) is a reporting program, and nothing more. For
example, in its *Annual Report to Congress 1998*, EIA stated:

> In October 1997, the White House announced that it favored "credit for
> early reductions," shorthand for a ***not-yet-legislated*** program in
> which companies that reduced emissions prior to the 2008-2012 target
> date for the Kyoto Protocol would receive some to-be-defined "credit"
> for their actions. The announcement generated intellectual ferment as
> policymakers, companies, and advocates attempted to define the notions
> of "credit," "early," and "reductions."[^46] \[Emphasis added.\]

Clearly, in April 1999, EIA viewed "credit for early reductions" as a
"not-yet-legislated program," i.e., a program for which there was no
existing legislative authority. Consistent with this, a current search
of "credit" on EIA's Web pages yields no references even suggesting the
existence of such authority, as one would expect if EPICI were correct.

### 

### 

### VIII. Folding Like a Tent

After spending 15 pages in ineffectual efforts to rebut NRDC's position,
EPICI tacitly concedes that DOE has no authority to protect baselines or
award GHG credits:

> However, what recognition or certification \[penalty protection or
> credits\] offers to volunteers is an opportunity for them to
> demonstrate how and to what extent they, at considerable cost, have
> under the prior Administration and this Administration taken steps to
> reduce ghg emissions at the strong urging of Presidents Clinton and
> Bush and in accordance with congressional enactment of section 1605
> and the purposes of the FCCC. Such an approach, as Sen. Lieberman
> said, would help remove a "disincentive" to volunteering. However, a
> future President and Congress would most assuredly not have any
> legally binding obligation to accept that demonstration. After all,
> guidelines are not regulatory in nature. Such recognition and
> certification are not contracts. ***By their very nature, they are
> non-binding. What they offer is an opportunity for reporting entities
> to demonstrate their past actions and persuade the government if and
> when some future policy is debated in one or both of these two
> branches of government*.**[^47] \[Emphasis added.\]

This is an astonishing admission against interest. According to EPICI,
all DOE has authority to do is make current reporting requirements more
rigorous so reporting entities have a better "opportunity" to "persuade"
policymakers to provide penalty protection and credit for early action
"if and when" a future regulatory program is "debated."

### IX. Conclusion

Baseline protection and transferable credits ultimately have no
application except as part of a regulatory (emissions cap-and-trade)
program. Protecting baselines and awarding credits prior to enacting a
mandatory regime can only prejudge its design and create liabilities for
the Federal government if early credits turn out to be incompatible with
future climate policies.

Thus, as CEI, NRDC, and Duke Energy separately argued in their June 5,
2002 comments to DOE, it is inappropriate to provide baseline protection
or award credit for early action except as part of a duly enacted
cap-and-trade program. Indeed, providing penalty protection or credits
prior to enactment of a cap would be inappropriate even if the
protection/crediting scheme were established "by rule," pursuant to
clear statutory directive. To set up a pre-regulatory crediting program
via "guidelines," pursuant to no statutory authority, would not only be
improper. It would also be illegal.

On November 18, 2002, DOE will convene the first of a series of
workshops on how to "improve" the 1605(b) program pursuant to the
President's February 14^th^ directive. Absent from DOE's 15-page
"Annotated Agenda of Key Issues" is any mention of legal issues.
Shouldn't the Administration at least try to demonstrate that what it
wants to do is legal before inviting the public to help them do it?

## About the Author

Marlo Lewis, Jr. is a senior fellow at the Competitive Enterprise
Institute. A former staff director for Representative David McIntosh's
(R-IN) House Government Reform Subcommittee on Regulatory Affairs, Lewis
holds a Ph.D. in Government from Harvard University.

[^1]: I would like to thank CEI Counsels Christopher Horner and Ben
    Lieberman for their helpful comments on this paper.

[^2]: 42 U.S.C. 134, sec. 13385.

[^3]: "President Announces Clear Skies & Climate Change Initiatives,"
    February 14, 2002,
    http://www.whitehouse.gov/news/releases/2002/02/20020214-5.html.

[^4]: For further discussion, see CEI et al, "An Open Letter to
    President Bush About His Plan to Award Regulatory Credits for
    'Voluntary' Greenhouse Gas Reductions," October 2, 2002,
    <http://www.cei.org/gencon/027,03237.cfm>; Marlo Lewis, Jr., "If You
    Build It, They Will Come," Tech Central Station, September 10, 2002,
    <http://www.cei.org/gencon/029,03195.cfm>; *CEI Comments on the
    Department of Energy's Greenhouse Gas Reporting Proposal*, June 5,
    2002, http://www.cei.org/gencon/027,03046.cfm.

[^5]: http://www.pi.energy.gov/EnhancingGHGregistry/

[^6]: NRDC submitted a joint comment with National Wildlife Federation,
    National Environmental Trust, Union of Concerned Scientists, U.S.
    Public Interest Research Group, World Wildlife Fund, and Minnesotans
    for an Energy Efficient Economy. Hereafter cited as NRDC.

[^7]: NRDC, p. 7.

[^8]: NESCAUM submitted a joint comment with the Air Resources Division
    of New Hampshire's Department of Environmental Services and the Air
    Quality Planning and Standards Division of Connecticut's Department
    of Environmental Protection. Hereafter cited as NESCAUM.

[^9]: NESCAUM, Attachment, p. 1.

[^10]: Pew Center on Global Climate Change, p. 12.

[^11]: Electric Power Industry Climate Initiative Comments on Legal
    Authority Questions, p. 4; hereafter cited as EPICI.

[^12]: I apologize for an error in my June 5, 2002 comment to DOE. I
    mistakenly included NRDC among advocacy groups, like Environmental
    Defense and Pew Center for Global Climate Change, who advocate
    giving companies regulatory offsets for GHG emission reductions
    ***before*** lawmakers have enacted an emissions cap-and-trade
    program.

[^13]: 138 *Cong. Rec*. S17626 (daily ed. Oct. 8, 1992), cited by EPICI,
    p. 8.

[^14]: *United States v. American Trucking Ass'n*, 310 U.S. 534, 543
    (1939).

[^15]: The number of entities reporting voluntary reductions grew from
    105 in 1994 to 222 in 2000 -- a more than 100 percent increase.
    Similarly, the number of greenhouse gas
    reduction/avoidance/sequestration projects reported rose from 634 in
    1994 to 1,882 in 2000 -- an almost 300 percent increase. Energy
    Information Administration, *Voluntary Reporting of Greenhouse Gases
    2000*, February 2002, p. ix.
    [http:///www.eia.doe.gov/oiaf/1605/vrrpt/pdf/0608(00).pdf](). Of
    course, one may claim that the 1605(b) program is "futile" because
    it has not slowed the growth of GHG emissions. By that logic,
    however, all U.S. voluntary climate programs are futile and, thus,
    implicitly authorize regulatory controls on GHG emissions. The
    1605(b) program has been successful in fulfilling its limited
    mission -- to encourage voluntary reporting of GHG reduction
    actions.

[^16]: EPICI, p. 14.

[^17]: *United Savings Ass'n of Texas v. Timbers of Inwood Forest
    Assoc., Ltd*. 484 U.S. 365, 371 (1988): "Statutory construction,
    however, is a holistic endeavor. A provision that may seem ambiguous
    in isolation is often clarified by the remainder of the statutory
    scheme -- because the same terminology is used elsewhere in a
    context that makes its meaning clear, ... or because only one of the
    permissible meanings produces a substantive effect that is
    compatible with the rest of the law...."

[^18]: See, e.g., Fleet Credits at U.S.C. Sec. 13258, Biodiesel Fuel Use
    Credits at 42 U.S.C. Sec. 13220, or the Sulfur Dioxide Allowance
    Program(s) at 42 U.S.C. Sec. 7651.

[^19]: *Russello v. United States*, 464 U.S. 16, 23 (1983).

[^20]: EPICI, p. 7. The Conference Report's sole remarks on section 1605
    are as follows: "The guidelines for the voluntary reporting of
    greenhouse gases and the national inventory shall address coalbed
    methane emissions, inventories and reductions. Persons who wish to
    establish baselines shall be provided an opportunity to do so." H.
    Conf. Rep. 102-10181, at 393 (1992).

[^21]: *In re Kelly*, 841 F.2d 908, 912 n. 3 (9th Cir.1988): "Stray
    comments by individual legislators, not otherwise supported by
    statutory language or committee reports, cannot be attributed to the
    full body that voted on the bill. The opposite inference is far more
    likely."

[^22]: William N. Eskridge, Jr. & Philip P. Frickey, *Cases and
    Materials on Legislation: Statutes and the Creation of Public
    Policy*, American Casebook Series (St. Paul, Minn.: West Publishing
    Co., 1988), p. 717.

[^23]: "Among the least reliable kinds of legislative history are floor
    debates. Not only are they laden with sales talk; but their frequent
    reference to what a provision means is an unconscious effort to
    finesse the courts in performing their constitutional function of
    having the last word on what the statute means." W. Keefe & M. Ogul,
    *The American Legislative Process* 258 (5^th^ ed. 1981), quoted in
    Eskridge & Frickey, *Cases and Materials on Legislation*, p. 718.

[^24]: In the 105^th^ Congress, Senator Lieberman, along with Senators
    John Chafee (R-RI) and Connie Mack (R-FL) introduced S. 2617, the
    "Credit for Early Voluntary Action Act." In the 106^th^ Congress,
    Senators Chafee, Lieberman, Mack, Warner (R-VA), Moynihan (D-NY),
    Reid (D-NV), Jeffords (R-VI), Wyden (D-OR), Biden (D-DE), Collins
    (R-ME), Baucus (D-MT), and Voinovich (R-OH) introduced S. 547, the
    "Credit for Voluntary Reductions Act."

[^25]: 138 *Cong. Rec*. S1611 (daily ed., Feb. 18, 1992). "Along with
    Senator Wirth, I prepared a simple amendment, virtually identical to
    one offered by Representative Cooper to H.R. 776, the House energy
    bill which was adopted unanimously on a bipartisan basis by the
    House Subcommittee on Energy and Power." The Cooper Amendment, which
    became section 1605 of H.R. 776, laid out 11 specific features, to
    be established "by rule," of a combined reporting/crediting program.

[^26]: EPICI, p. 12.

[^27]: President Clinton, Remarks to the National Geographic Society,
    October 22 1997: "Second, we must urge companies to take early
    actions to reduce emissions by ensuring that they receive
    appropriate credit for showing the way,"
    <http://frwebgate.access.gpo.gov/cgi-bin/multidb.cgi>; Press
    Release, October 17, 1998, "U.S. Environmental and Business Leaders
    Agree Early Action Is Needed to Reduce Greenhouse Gas Emissions and
    Present Principles for Early Action to Vice President Gore,"
    http://clinton3.nara.gov/PCSD/tforce/cctf/cpress.html.

[^28]: Hon. Joseph Lieberman, October 10, 1998, *Cong. Rec*., S12312.

[^29]: Hon. Rick Lazio, July 14, 1999*, Cong. Rec.*, Extension of
    Remarks, p. E1542.

[^30]: Available at http://www.senate.gov/\~epw/cla_3-24.htm

[^31]: Available at http://reform.house.gov/reg/hearings/071599/fay.htm

[^32]: EPICI, pp. 8-10.

[^33]: *INS v. Cardoza-Fonseca*, 480 U.S. 421, 442-43 (1987).

[^34]: EPICI, p. 20.

[^35]: As EPICI acknowledges (p. 13), baseline protection, unlike
    baseline estimation, is an "important policy matter," rather than a
    mostly "definitional and technical" issue.

[^36]: EPICI, p. 9.

[^37]: Dan Lashof and Jeff Fiedler*, Incentives for Reducing Greenhouse
    Gas Pollution: Principles for Environmentally Credible Early
    Reduction Credit Legislation*, Natural Resources Defense Council,
    February 1999, http://www.nrdc.org/globalwarming/pearly.asp.

[^38]: Testimony of Jay Hakes, "The Voluntary Reporting of Greenhouse
    Gases Program," pp. 5-8,
    http://reform.house.gov/reg/hearings/071599/hakes990715.htm.

[^39]: Ibid., p. 5.

[^40]: Ibid., p. 9.

[^41]: EPICI, pp. 11, 14, 15.

[^42]: EPICI, p. 14.

[^43]: *ACLU v. FCC*, 823 F. 2d 1554, 1567, n. 32 (D.C. Cir. 1987),
    cert. Denied, 485 U.S. 959 (1988): "Where the issue is one of
    whether a delegation of authority by Congress has indeed taken place
    (and the boundaries of any such delegation), rather than whether an
    agency has properly implemented authority indisputably delegated to
    it, Congress can reasonably be expected both to have and to express
    a clear intent. The reason is that it seems highly unlikely that a
    responsible Congress would implicitly delegate to an agency the
    power to define the scope of its own power."

[^44]: *American Petroleum Institute v. EPA*, 52 F. 3d 1113, 1120 (D.C.
    Cir. 1995): "To suggest, however, 'that *Chevron* step two is
    implicated any time a statute does not expressly *negate* the
    existence of a claimed administrative power (*i.e.* when the statute
    is not written in \'thou shalt not\' terms), is both flatly
    unfaithful to the principles of administrative law \..., and refuted
    by precedent.'....Thus, we will not presume a delegation of power
    based solely on the fact that there is not an express withholding of
    such power."

[^45]: *Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc*., 467
    U.S. 842-43 (1984).

[^46]: EIA, *Annual Report to Congress 1998*, April 1999, DOE/EIA-1073
    (98), p. 7, http://www.eia.doe.gov/pub/pdf/other.docs/017398.pdf

[^47]: EPICI, p. 16.