United States General Accounting Office

GAO Report to the Ranking Minority Member,

Committee on Government Reform and

Oversight, House of Representatives

November 1998 CLIMATE CHANGE

Basic Issues in

Considering a Credit

for Early Action

Program

GAO/RCED-99-23

GAO United States

General Accounting Office

Washington, D.C. 20548

Resources, Community, and

Economic Development Division

B-281309 

November 27, 1998

The Honorable Henry A. Waxman

Ranking Minority Member

Committee on Government Reform and Oversight

House of Representatives

Dear Mr. Waxman:

Over the past several years, the level of attention paid to reducing

greenhouse gas emissions has increased because these heat-trapping gases

are believed to be contributing to global warming. A number of related

events, including the President’s Climate Change Proposal of October 1997

and the United Nations’ Framework Convention on Climate Change in

Kyoto, Japan, in December 1997, also focused more attention on how

greenhouse gas emissions could be reduced. One part of the President’s

proposal was a program to reward organizations, by providing credits or

incentives, for taking early actions to reduce greenhouse gases before the

international agreements from the Kyoto Protocol would take effect.1

 The

proposal is now commonly referred to as a “credit for early action”

program.

As we previously reported to you in March of this year, efforts to report

reductions of greenhouse gas emissions were initiated with the

establishment of the Voluntary Reporting Program, as directed by the

Energy Policy Act of 1992.2

 Under this program, organizations could

voluntarily submit information on their efforts to reduce greenhouse gas

emissions to the Department of Energy (DOE) and have that information

entered into a public database. DOE specifically designed the program to

encourage voluntary participation by offering potential participants

flexibility in what they reported and how they estimated their emissions

reductions.

In view of the wide range of emissions reduction claims reported by

organizations to the program, you expressed interest in efforts to consider

granting credit to these organizations for the early actions they have taken.

Specifically, you asked the following two questions: (1) What are some of

the basic issues that will have to be addressed by any effort to develop a

1

To reward early action taken to reduce greenhouse gases, various types of credits or incentives, such

as a credit against a company’s emissions or a tax credit, could be used.

2

Department of Energy: Voluntary Reporting Program for Greenhouse Gas Emissions Reductions

(GAO/RCED-98-107R, Mar. 24, 1998).

Page 1 GAO/RCED-99-23 Climate Change
B-281309 

credit for early action program? (2) How might claims for reductions of

greenhouse gas emissions that are reported to the Voluntary Reporting

Program fare under a credit for early action program that has less flexible

reporting criteria? As agreed with your office, we also present other issues

we identified about a credit for early action program that may need to be

addressed before the program can be finalized (see app. II).

To select the basic issues associated with developing a credit for early

action program, we identified organizations that have been involved with

the development of such a program and who have prepared informational

papers on their views. We reviewed these documents and interviewed

available representatives from these groups.

Results in Brief We identified four basic issues, stated here as questions, that will have to

be addressed to develop a credit for early action program to reduce

greenhouse gas emissions: (1) How should emissions reductions be

estimated? (2) How should emissions reduction ownership be determined?

(3) Should the emissions reduction claims be reported at the organization,

project, or some other level? and (4) How should emissions reduction

claims be verified? On the surface, these issues appear straightforward; in

fact, they are complicated and will require difficult choices. Furthermore,

the resolution of these issues will likely influence the design of a credit for

early action program. The amount of flexibility such a program would

provide on each of these issues would ultimately help to determine the

extent of participation and the credit awarded.

Many of the claims for reducing greenhouse gas emissions that have been

submitted to the Voluntary Reporting Program would probably be

ineligible for credit under a new program having more restrictive reporting

criteria. This is because the voluntary program was designed to encourage

wide participation by allowing companies to submit emissions reduction

claims under flexible reporting criteria and was not designed to

automatically provide credit to participants for emissions reductions. For

example, the voluntary program, among other things, allowed companies

discretion in determining the basis from which their emissions reductions

were estimated and allowed companies to self-certify that their claims

were accurate. According to the Department of Energy’s Energy

Information Administration and other organizations, such as the Edison

Page 2 GAO/RCED-99-23 Climate Change
B-281309 

Electric Institute and the Environmental Defense Fund,3,4 a credit for early

action program could require more restrictive reporting criteria than the

Voluntary Reporting Program to help ensure that emissions reduction

claims are real, appropriately reviewed, and verified.

Background In 1992, the Energy Policy Act (P.L. 102-486) directed DOE to develop a

voluntary reporting program to collect information on activities to reduce

greenhouse gas emissions. The act required DOE to (1) develop and issue

program guidelines, (2) develop forms for reporting emissions reduction

activities, and (3) establish a publicly available database of this

information. The program, by design, was to encourage voluntary

participation and offer organizations reporting their emissions flexibility in

what they reported and how they estimated their emissions reductions.

Claims submitted to the program are reviewed by program managers for

arithmetic accuracy and for the clarity of the information presented;

however, there is no verification of supporting documentation or

determination that the emissions reductions actually occurred. The

program, however, requires that the persons reporting the information

certify its accuracy.

For the first two reporting periods (i.e., 1994 and 1995), the program

received a total of 250 reports that provided information on 1,612

greenhouse gas emissions projects. For these periods, claims for reducing

greenhouse gas emissions reported to the program totaled approximately

257 million tons of carbon dioxide equivalents.5

On October 22, 1997, President Clinton announced a three-phased Climate

Change Proposal that challenged key U.S. industries to plan how they can

best reduce greenhouse gas emissions. Among other initiatives was a

proposal to reward organizations that would take early action to reduce

their greenhouse gas emissions before any international agreements would

take effect. This effort’s goal was to make any future required emissions

reduction targets easier to achieve.

In early December 1997, the United States and other nations met in Kyoto,

Japan, and agreed to reduce their greenhouse gas emissions and set

3

The Edison Electric Institute is an association of U.S. investor-owned utilities and industry affiliates

established to foster the exchange of ideas and experiences on issues of mutual interest.

4

The Environmental Defense Fund is a nonprofit organization focused on the development of

innovative and economically viable solutions to today’s environmental problems.

5

Carbon dioxide equivalents is a measurement used to compare the global warming impact of carbon

dioxide with other greenhouse gases.

Page 3 GAO/RCED-99-23 Climate Change
B-281309 

specific targets to achieve during an initial period for monitoring

emissions reductions between 2008 and 2012.6

 Specific targets varied

among nations, and the United States agreed to reach a target of 7 percent

below its 1990 level of emissions.

A White House Task Force on Climate Change was established to address

a broad array of issues relating to climate change, such as the task of

working on a credit for emissions reductions through an early action

program. In May 1998, preliminary information on the credit for early

action indicated that the Task Force was considering several options for

that program. As of October, the Task Force was continuing to receive

input from industry and environmental groups on the issue.

Some Basic Issues in

Developing a Credit

for Early Action

Program

Efforts to develop a credit for early action program to reduce greenhouse

gas emissions involve consideration of many issues before such a program

could be implemented. We identified four issues, stated here as questions,

that will have to be addressed in developing a credit for early action

program. (1) How should emissions reductions be estimated? (2) How

should emissions reduction ownership be determined? (3) Should the

emissions reduction claims be reported at the organization, project, or

some other level? and (4) How should emissions reduction claims be

verified? While these issues appear straightforward, in fact, they are

complicated and will require difficult choices. Various views and opinions

have been offered on these issues by a variety of groups, including

business, industry, public interest, and environmental groups involved in

the issues of climate change and greenhouse gas reporting.

How Should Emissions

Reductions Be Estimated

Determining what qualifies as a creditable reduction of greenhouse gas

emissions would likely be one of the first and primary questions in

developing a credit for reductions through an early action program.

Resolving this question would lay the foundation for the program and

strongly influence how many other issues would be addressed.

Estimating a creditable emissions reduction involves establishing a

baseline, or point from which emissions reductions will be measured.

Several approaches have been proposed, including a “historical baseline”

of emissions for a given period, such as 1990, that is developed from an

organization’s historical data on emissions. As shown in figure 1, a

6

This agreement has become known as the “Kyoto Protocol.” GAO testified on the administration’s

efforts regarding the protocol. Global Warming: Administration’s Proposal in Support of the Kyoto

Protocol (GAO/RCED-98-219, June 4, 1998).

Page 4 GAO/RCED-99-23 Climate Change
B-281309 

company’s current level of emissions may be above its 1990 historical

baseline.

Figure 1: Use of a Historical Baseline

to Estimate a Company’s Carbon

Dioxide Equivalent Emissions and

Possible Reductions

1990 1994 1998 2002 2006 2010 2014

0

1

2

3

4

5

6

7

8

9

Carbon dioxide equivalents (in million metric tons)

Years

Company's current 

emissions level

1990 Historical 

baseline

Projected plan to reduce 

emissions

Emission 

reductions 

below baseline

Under a historical baseline approach, an organization takes actions to get

its total emissions at or below the baseline, for example, in 1990. Once a

company’s emissions fall below its historical baseline (represented by the

shaded area in fig. 1), the company would be eligible for credit. DOE’s

Energy Information Administration and such groups as the Edison Electric

Institute have indicated that growing companies may have more difficulty

reducing their emissions because their businesses and consequently their

Page 5 GAO/RCED-99-23 Climate Change
B-281309 

emissions are expanding. For example, a small manufacturing company

that generated 5.5 million metric tons of carbon dioxide equivalents in

1990 and today generates 8.5 million metric tons might have experienced

this increase because of business expansion. This company will be faced

with the decision to either take steps to reduce its emissions or purchase

emissions reduction credits from another company that was able to

achieve reductions below its baseline. In contrast, companies in economic

decline could more easily demonstrate reductions. The historical baseline

was the approach selected for the Kyoto Protocol.

While the Environmental Defense Fund has essentially supported the

historical baseline concept, it has also noted that alternative methods

would also be acceptable, if they produced greater precision or reliability.

Both DOE’s Energy Information Administration and the Center for Clean

Air Policy have noted that, with the historical baseline approach, only

reductions below that baseline would be recognized as creditworthy.

Another proposal would use a “projected baseline” that reflects what an

organization believes would be its emissions over a given period of time.

As shown in figure 2, with a projected baseline, an organization would

take actions to get below its projected emissions level and would try to

continue reducing its emissions to meet specific targets over time. 

Page 6 GAO/RCED-99-23 Climate Change
B-281309 

Figure 2: Use of a Projected Baseline

to Estimate a Company’s Carbon

Dioxide Equivalent Emissions and

Possible Reductions

1990 1994 1998 2002 2006 2010 2014

0

1

2

3

4

5

6

7

8

9

Carbon dioxide equivalents (in million metric tons)

Years

Company's 

projected 

emissions level

Projected plan to 

reduce emissions

Emission 

reductions

below baseline 

Under this approach, any reduction below the projected baseline would be

considered creditable (represented by the shaded area in fig. 2).

In the Voluntary Reporting Program, participants have flexibility to choose

which baseline approach they want to use to measure their reductions.

Because the program tries to encourage participation, organizations are

also given latitude in developing their baselines. So far, most of the

participants have used a projected baseline.7

7

The Voluntary Reporting Program used the description “modified reference case” to describe a

projected baseline approach, noting that this approach essentially presented a hypothetical situation

that projected what the greenhouse gas emissions would be if no actions were taken to reduce them.

Page 7 GAO/RCED-99-23 Climate Change
B-281309 

Another approach to measure emissions reductions that has been

proposed is a rate-based or performance-based system that would

determine emissions reductions through changes in emissions levels in

relation to a predetermined unit of output of the organization. For

example, measurement units could include emissions per unit of revenue

earned or emissions per unit of product produced. The concept of

developing a standard rate for different industries and industry sectors has

also been proposed. For example, the Coalition to Advance Sustainable

Technology has supported the rate-based approach because it believes

that approach would accommodate a wide range of businesses and

industries and attract a greater cross-section of U.S. companies to

participate in early efforts to reduce their greenhouse gas emissions.

How Should Emissions

Reduction Ownership Be

Determined?

Who owns the emissions reductions is another issue that will need to be

addressed in developing a credit for early action program. While

ownership would appear to be easily determined, it is not always clear to

the involved parties. Resolving this issue is important because, without

clear ownership, there may be problems in reporting and counting

emissions reductions.

Ownership of a reduction can be based on a legal determination,

established under a contractual arrangement, or can be established by

what has been called the chain of causation—who caused the emissions to

occur. Central to the ownership issue are the links between parties who

may view responsibility for emissions reductions differently, and each may

have a legitimate argument for their perspective. An example of the links

between manufacturers, retailers, consumers, and power-generating

companies reflects the significance and potential complexity of the issue.

An appliance manufacturer building a highly energy-efficient product with

performance exceeding normal energy efficiency standards for similar

products provides an opportunity for several parties to claim emissions

reductions. The retailer carrying the product promotes it as a power saver.

The electric utility offers rebates to customers for purchasing it. The

consumer buys the product, accepts the rebate, and uses less electricity.

The electric utility generates less electricity from fossil fuels, thus

reducing its greenhouse gas emissions. Thus, responsibility for the

emissions reductions and credit is hard to distinguish. Depending on one’s

position, any of the parties—the manufacturer, the retailer, the consumer,

or the electric utility—could be the owner and claim the credit.

Page 8 GAO/RCED-99-23 Climate Change
B-281309 

Under the flexibility of the Voluntary Reporting Program, all parties could

have submitted claims from this activity. To help address the potential for

duplication, the program established the concept of “direct” and “indirect”

ownership, which attempts to categorize the claims. Direct ownership

refers to emissions from a source owned and controlled by an

organization.8

 Indirect ownership refers to emissions that an organization,

in some sense, “caused” to occur, although it did not own or control the

facility producing the emissions.9

 This approach does not, however,

resolve the issue of who would be credited for the claim, and as a result,

there is the potential for the double reporting of a reduction.

How ownership issues are resolved would likely influence the size and

scope of a credit for early action program. DOE’s Energy Information

Administration and the Environmental Defense Fund have pointed out that

determining ownership and reporting responsibility would influence the

size and scope of a credit for early action program. Environmental Defense

Fund officials have indicated that a decision might need to be made on

whether all U.S. greenhouse gas emitters should report emissions

reductions or whether only the largest companies, those emitting the

majority of greenhouse gases, should report. This decision depends on

whether the goal of the program is to stimulate wide participation, to

focus on where the greatest potential for reductions can be achieved, or

some combination of both goals. In this regard, the Center for Clean Air

Policy has raised the question of whether participation should include fuel

producers or fuel users or both and thought that a credit program should

focus on fuel users.

What Is the Reporting

Level for an Emissions

Reduction?

Determining how claims for emissions reductions should be reported is

another important issue in designing a credit for early action program.

This issue focuses on whether emissions are recognized at the project or

organizationwide level. Reporting at the organization level would indicate

whether an entire organization is actually reducing its overall greenhouse

gas emissions. Reporting at the project level would likely reflect the

positive results of selected projects but would not convey information on

an organization’s overall achievement.

For example, suppose a large electric power utility reported carbon

dioxide reductions from replacing a boiler in one of its four coal-fired

8

For example, the emissions from a car’s tailpipe are direct emissions for the car owner.

9

Electricity consumers, such as households and manufacturers, tend to view themselves as indirect

emitters and reducers of greenhouse gases because of their use of the electricity.

Page 9 GAO/RCED-99-23 Climate Change
B-281309 

plants with a new gas-fired boiler that produced lower emissions. The

company could claim the difference between the emissions of the coaland gas-fired boilers as a reduction in carbon dioxide. While this claim

could appear to reflect a reduction in emissions, if the company did not

report that it also had to increase the generating time of its other three

coal-fired plants, to produce the same amount of electricity, it would not

have accurately reflected companywide emissions. In this case, a net

increase would have occurred, not a reduction in the company’s total

emissions.

Some organizations believe that any emissions reductions are valuable and

should be encouraged and receive some type of credit. The Edison

Electric Institute believes that any effort to deny credit for reductions at

the project level would discourage companies from taking early actions to

reduce their greenhouse gas emissions. It believes that a more flexible

approach should be taken to increase participation and reductions at this

early stage of our national efforts to reduce greenhouse gas emissions.

The reporting level has also been addressed by several other groups

involved in the issue of reporting emissions reductions. In its position

statement on credit for early action, the Center for Clean Air Policy said

that participants in such a program should report on a comprehensive

companywide level.10 The Center also stated that adjustments should be

made for changes to or replacements of a company’s assets. The

Environmental Defense Fund has expressed support for companywide

reporting over project-level reporting for similar reasons, namely that the

latter does not provide an accurate picture of a company’s total emissions

reductions. DOE’s Energy Information Administration has stated that,

without companywide reporting, it would not be possible to determine if a

company’s overall emissions were reduced. While the Voluntary Reporting

Program permitted emissions reduction claims at both the organization

and project level, the program was not designed to automatically grant

credit for emissions reductions and thus preserved opportunities to report

alternative approaches.

How Should Emissions

Reduction Claims Be

Verified?

Providing some assurance that claims for emissions reductions are

legitimate and accurately developed will also be a key issue in determining

any credits for reductions through an early action program. There appears

10The Center for Clean Air Policy is a nongovernmental bipartisan policy organization focused on

research and advocacy of market-based approaches to environmental problems.

Page 10 GAO/RCED-99-23 Climate Change
B-281309 

to be a consistent view that these claims would need to receive some type

of review and verification.

The options for verification range from self-review and -certification to an

independent third-party review. The Voluntary Reporting Program uses

self-review and -certification, with program managers reviewing reported

information for internal consistency, accurate calculations, and

comparisons with other sources of information. However, the program has

no procedures to review or verify the supporting documentation to

determine if emissions reductions actually occurred. Program officials at

the Energy Information Administration said that accurate reporting is

encouraged because the reports are open to public scrutiny and that it is

illegal to knowingly submit false information on a certified submission. In

its position paper on an early credit program, the Coalition to Advance

Sustainable Technology, addressed the benefits of establishing a technical

group to develop guidelines, standards for quantifying estimates, and

protocols for making emissions reduction claims and their review. In

contrast, the U.S. Initiative on Joint Implementation, which has been

promoting joint initiatives between U.S. companies and non-U.S. partners

to reduce emissions of greenhouse gases, is in the process of developing

procedures for an independent third-party review and verification of

projects included in the initiative.11

Many Claims for

Reductions Reported

to the Voluntary

Reporting Program

Would Probably Be

Ineligible for Credit

Under a Program With

More Restrictive

Criteria

Many of the claims for reductions of greenhouse gas emissions submitted

to the Voluntary Reporting Program would probably be ineligible for credit

depending on the restrictive nature of the crediting mechanism. While the

voluntary program was designed to encourage wide participation by

allowing companies to submit emissions reduction claims under flexible

alternative reporting criteria, it was not designed to automatically provide

emissions credits to participants. A program to grant credits for early

actions taken to reduce greenhouse gas emissions would probably require

more restrictive reporting criteria to help ensure that the reductions

claimed are real, not being double reported by others, and accurately

determined.

11This initiative is supported by a Secretariat of several agencies, including the departments of

Agriculture, Commerce, Energy, State,the Interior, and the Treasury, as well as the Agency for

International Development and the Environmental Protection Agency. Climate Change: Information on

the U.S. Initiative on Joint Implementation (GAO/RCED-98-154, June 29, 1998).

Page 11 GAO/RCED-99-23 Climate Change
B-281309 

Comparison of a Flexible

Voluntary Reporting

Program With Two More

Restrictive Sets of Criteria

The Voluntary Reporting Program was designed to provide companies

with wide flexibility in reporting their claims for reductions of greenhouse

gas emissions. Depending on the type of credit program developed,

reductions reported under the voluntary program may or may not meet the

new reporting criteria. According to DOE’s Energy Information

Administration and industry experts whom we identified that were

considering options on how a credit for early action program might be

developed, the program could establish more restrictive definitions of,

among other things, the baseline, or point from which to measure

reductions, than the voluntary program.

With that in mind, we analyzed two sets of more restrictive reporting

criteria that potentially could be part of a future credit for early action

program and compared them to the voluntary program. Each set of criteria

varied by the range of restrictions reflecting lower and upper boundaries

placed upon the participants.12 Table 1 analyzes each of the four basic

issues needing resolution in an early credit program by using three sets of

reporting criteria—the current flexible Voluntary Reporting Program and

two sets of more restrictive criteria. The first column lists the four basic

issues as questions to decide. The second column describes the flexible

criteria currently used in the Voluntary Reporting Program. The third and

fourth columns describe the more restrictive criteria.

12Other more or less restrictive criteria could be developed; the criteria presented here are for

illustrative purposes and should not be considered all-inclusive. The two sets of criteria essentially

reflect the views of organizations involved with the development of an early action program.

Page 12 GAO/RCED-99-23 Climate Change
B-281309 

Table 1: Comparison of the Criteria in the Flexible Voluntary Reporting Program With Two More Restrictive Sets of Criteria

Issues Flexiblea Somewhat restrictedb Restrictedc

(1) How should emissions reductions

be estimated?

Organization estimates an

emissions reduction from any

historical and/or projected level

Program estimates an

emissions reduction from a

historical, projected, and/or

rate-based baseline

Program estimates an

emissions reduction from a

fixed or historical baseline

(2) How should emissions reduction

ownership be determined?

Assigned to the legal owner of

the exhaust stack and/or

assigned by contract (direct),

and/or created by causal links

(indirect)d

Assigned to the legal owner of

the exhaust stack and/or

assigned by contract (direct),

and/or created by causal links

(indirect)d

Assigned to the legal owner of

the exhaust stack and/or

assigned by contract (only

direct)d

(3) Should the emissions reduction

claims be reported at the

organization, project or some other

level?

Organization decides level of

reporting (i.e.,

organizationwide and/or by

project)

Program requires reporting the

total emissions reductions of

the organization

Program requires

organizational reporting and

may designate industry groups

and/or geographic regionse

4) How should emissions reduction

claims be verified?

Self-certification Self-certification with some

independent verification

Independently reviewed and

verified

aThe “Flexible” reporting criteria we designed to resemble the Voluntary Reporting Program,

which has such other goals as to encourage participation, to take actions to reduce greenhouse

gas emissions, and to provide reporting organizations with discretion in developing emissions

estimates, claiming ownership, and reporting actions taken.

bThe “Somewhat restricted” reporting criteria capture a selected range of potential criteria for a

credit program that have been conveyed by such organizations as the Environmental Defense

Fund, the Coalition to Advance Sustainable Technology, and the Center for Clean Air Policy.

While these criteria have the overall objective of accounting for real emissions reductions, they

are less stringent than the “Restricted” for (1) measuring the starting point for estimating

reductions, (2) allowing indirect ownership (i.e., reductions that the organization in some sense

“caused” to occur, although the organization did not own the facility producing the emissions),

and (3) verifying claims.

cThe “Restricted” reporting criteria use a historical base from which to measures reductions. An

example of a historical base is the Kyoto Protocol, which generally requires the United States to

reduce its greenhouse gas emissions to 7 percent below what they were in 1990. The “Restricted”

reporting criteria also require independent verification of all reduction claims and only allow

credits for reductions by legal or direct owners.

dUnder the “Flexible” criteria, ownership claims can be direct, indirect, or both. Double reporting

of emissions reductions, whereby two or more organizations can claim ownership of the same

project-level emissions reductions, are allowed . For example, double reporting occurs when one

organization claims direct emissions reduction ownership while one or more other organizations

claim indirect ownership of those same reductions. Under the “Somewhat restricted” criteria,

ownership claims can be either direct or indirect, and double reporting is not allowed. For

example, if one organization claims direct ownership of certain emissions reductions, no other

organization may claim any type of ownership of these same reductions. Under both sets of

criteria, there has to be a chain of causation for indirect claims, as between the electricity

generator and the electricity user or the automobile manufacturer and the automobile purchaser.

Under the “Restricted” criteria, only the legal owner (i.e., direct or assigned by contract by the

direct owner) is allowed to claim ownership of the emissions reductions.

eUnder the “Restricted” reporting criteria, the program can require organization-level reporting

and may also designate industry groupings and/or regional areas to capture emissions sources.

Page 13 GAO/RCED-99-23 Climate Change
B-281309 

Comparing the two sets of more restrictive reporting criteria that could be

part of a future credit for early action program (see table 1) to claims

reported to the Voluntary Reporting Program indicates that many would

probably be ineligible for credit. According to information from DOE’s

Energy Information Administration, the issues of (1) how emissions

reductions should be estimated and (2) whether the emissions reduction

claims should be reported at the organization, project, or some other level

illustrate why many reported claims would probably be ineligible for

credit. For example, according to the Energy Information Administration’s

reports summarizing the results of the first and second years of the

Voluntary Reporting Program,13 only 22 of the 250 companies reporting, or

about 9 percent, reported organizationwide reductions from some

historical baseline and thus would meet the “Restricted” reporting criteria.

With regard to the issue of reporting level, only 91, or about 36 percent, of

the organizations claimed emissions reductions for their entire company

and thus would meet the organizationwide reporting criteria of the

“Somewhat restricted” reporting criteria.

Since we could not easily determine how many of the current participants

to the Voluntary Reporting Program are reporting ownership of emissions

reductions that may also be reported by others, we did not compare the

criteria for it to the two sets of more restrictive reporting criteria. Under

the Voluntary Reporting Program, no independent verification was

required. Therefore, if some form of independent verification were

required to receive a credit for reductions through an early action

program, none of the current claims submitted to the Voluntary Reporting

Program would be automatically eligible without further review or some

demonstration that independent verification had been done.

We provide further perspective on these four issues by selecting some

examples of actual reduction claims submitted to the Voluntary Reporting

Program to show how they would fare under more restrictive reporting

criteria (see app. III.)

Agency Comments

and Our Evaluation

We provided a draft of this report to DOE for its review and comment. We

obtained comments on the results of our work from the Department of

Energy, including the Director, Office of Economic, Electricity, and

Natural Gas Analysis, Office of the Assistant Secretary for Policy; and the

Director, International Greenhouse Gases, and Macroeconomic Division

13We included information on only the program’s first 2 years (1994 and 1995) because at the time of

our review, the Energy Information Administration had not issued more recent annual reports

summarizing data on the program.

Page 14 GAO/RCED-99-23 Climate Change
B-281309 

(the division that is responsible for administering the Voluntary Reporting

Program), Energy Information Administration.

DOE agreed with the information in the report and observed that while the

Voluntary Reporting Program was not specifically designed to

automatically provide credit, it does provide a mechanism for

organizations to demonstrate their achieved reductions of greenhouse gas

emissions, should a credit for early action program be established. In this

regard, we clarified the text throughout the report to include this

observation. DOE also made other clarifying comments, which we

incorporated as appropriate.

We conducted our work from July 1998 through October 1998 in

accordance with generally accepted government auditing standards. As

arranged with your office, unless you publicly announce its contents

earlier, we plan no further distribution of this report until 30 days after the

date of this letter. At that time, we will send copies to the Secretary of

Energy and the Administrator of the Energy Information Administration.

We will also make copies available to others on request.

If you or your staff have any questions concerning this report, please call

me at (202) 512-3841. Major contributors to this report are listed in

appendix IV.

Sincerely yours,

Susan D. Kladiva

Associate Director, Energy,

 Resources, and Science Issues

Page 15 GAO/RCED-99-23 Climate Change
Contents

Letter 1

Appendix I 

Objectives, Scope,

and Methodology

18

Appendix II 

Other Issues That May

Need to Be

Considered in

Developing a Credit

for Early Action

Program

19

Appendix III 

How Emissions

Reduction Claims

That Are Reported to

the Voluntary

Reporting Program

May Be Considered

Under More

Restrictive Reporting

Criteria

21

Page 16 GAO/RCED-99-23 Climate Change
Contents

Appendix IV 

Major Contributors to

This Report

Resources,

Community, and

Economic

Development

Division, Washington,

D.C.

24

Table Table 1: Comparison of the Criteria in the Flexible Voluntary

Reporting Program With Two More Restrictive Sets of Criteria

13

Figures Figure 1: Use of a Historical Baseline to Estimate a Company’s

Carbon Dioxide Equivalent Emissions and Possible Reductions

5

Figure 2: Use of a Projected Baseline to Estimate a Company’s

Carbon Dioxide Equivalent Emissions and Possible Reductions

7

Abbreviations

DOE Department of Energy

Page 17 GAO/RCED-99-23 Climate Change
Appendix I 

Objectives, Scope, and Methodology

To address the question of issues associated with developing a credit for

early action program, we primarily reviewed documentation and

conducted interviews with the Department of Energy (DOE) and other

groups involved in reporting emissions of greenhouse gases. We

conducted interviews on issues related to reporting greenhouse gas

emissions and the concept of a credit for early action with officials and

professional staff from DOE’s Energy Information Administration’s

Voluntary Reporting Program. We reviewed the Voluntary Reporting

Program’s reporting guidance and issues identified by the program

officials through their experience with emissions reduction claims. We

also reviewed the program’s summary reports and a cross section of

reports claiming emissions reductions by participants in the program.

We obtained the views and the perspectives of other public and private

sector groups involved in issues relating to global climate change and

greenhouse gas emissions. We obtained and reviewed available

documentation from several organizations involved with the issues,

including the Center for Clean Air Policy, the Coalition to Advance

Sustainable Technology, the Environmental Defense Fund, the Edison

Electric Institute, the Pew Center on Global Climate Research, the Nature

Conservancy, and Resources for the Future. When possible, we

interviewed some of these groups to obtain additional information on their

positions. We also obtained and reviewed related reports and information

from the Congressional Research Service and the Environmental

Protection Agency.

To address the question of how emissions reduction claims that are

submitted to the Voluntary Reporting Program might be considered under

a credit for reductions through an early action program, we reviewed

program data on the basic issues and judgmentally selected several

examples of claims that reflected some of those basic issues. We then

considered two sets of more restrictive reporting criteria that could

potentially be part of a credit for early action program and compared them

to the Voluntary Reporting Program. This comparison highlights some of

the decisions that have to be made in developing a credit for early action

program.

As agreed with your office, we did not present the names of the

organizations whose emissions reduction claims we used to, in part,

illustrate how some claims could fare under different emissions reporting

criteria.

Page 18 GAO/RCED-99-23 Climate Change
Appendix II 

Other Issues That May Need to Be

Considered in Developing a Credit for Early

Action Program

This appendix provides a brief description of some of the other issues that

may need to be considered in designing a credit program for early actions

to reduce greenhouse gas emissions. These descriptions are not intended

to be all inclusive but rather a brief overview of each issue and why it is

important.

Should an Emissions

Credit Trading System Be

Established?

An emissions trading system provides a vehicle for the transfer of

ownership of emissions reduction credits from one party to another. Some

groups have suggested that a trading system would be an incentive for

organizations to participate in an early credit program. This is because

some organizations may have difficulty reducing their greenhouse gas

emissions, while others may be capable of reducing their emissions

significantly. Therefore, an emissions trading system provides an

economic incentive for companies to achieve maximum levels of emission

reductions at the least cost. Companies could choose the lower cost

option of either buying credits or making the changes in their operations

to reduce its own emissions.

Should Carbon

Sequestration Projects Be

Included in a Credit

Program for Early Action?

Carbon sequestration is the capturing of carbon dioxide from the

atmosphere through the process of photosynthesis.1

 It plays a significant

role in reducing the amount of carbon dioxide in the atmosphere; each

year, about 100 billion metric tons of carbon dioxide is captured in trees

and other vegetation throughout the world. At issue, are concerns about

how estimates are developed and what source data are used. For example,

according to a recent Congressional Research Service report examining

sequestration projects reported to the Voluntary Reporting Program, the

sequestration claims were difficult to compare because of variations in

how the quantities were measured and the source data used for the

estimates.2

 Therefore, how sequestration projects will be handled in a

credit for early action program becomes an important issue.

1

Photosynthesis is a process through which plants extract carbon dioxide from the air, separate the

carbon from the oxygen atoms, return the oxygen to the atmosphere, and use the carbon to make

biomass in the form of roots, stems, and foliage.

2

Forestry Projects in the United States to Offset Carbon Emissions, Congressional Research Service,

Apr. 23, 1998

Page 19 GAO/RCED-99-23 Climate Change
Appendix II 

Other Issues That May Need to Be

Considered in Developing a Credit for Early

Action Program

Should Credit Be Given for

“Business as Usual”

Activities That Also

Reduce Greenhouse Gas

Emissions?

There are differing views on the issue of whether to recognize emissions

reductions that would have occurred anyway, without the incentive of a

credit for early action program. Some organizations thought that if an

organization took an action that would be considered part of its normal

business activities and it also happened to reduce greenhouse gas

emissions, it should not receive recognition for this reduction because it

would have occurred anyway. Others organizations, including Edison

Electric Institute, believe that any efforts to reduce greenhouse gases are

worthy of some type of recognition and putting restrictions on these kinds

of reductions could discourage participation in an early action program.

What Greenhouse Gas

Emissions Should Be

Included in a Credit for

Early Action Program?

Numerous gases affect the Earth’s atmosphere and act as “greenhouse

gases” which trap heat from sunlight at, or close to, the Earth’s surface. In

addition to the six greenhouse gases that were recognized in the Kyoto

Protocol,3

 other greenhouse gases, as well as other gases that have

“indirect effects” on global warming because they may contribute to the

buildup or decomposition of the greenhouse gases in the atmosphere.

Some of these gases include carbon monoxide and volatile organic

compounds other than methane. Because the Voluntary Reporting

Program allows the reporting of these gases, there may be a need to

consider to what extent they should be included in an early action

program.

Other Additional Questions

That Early Credit Program

Developers May Have to

Address

• Should an organization reporting to the Voluntary Reporting Program be

treated differently under a new credit for early action program?

• How will growing companies be able to reduce greenhouse gas emissions

without affecting economic success? Should growing and declining

companies be treated the same under a credit for early action program?

• Should there be restrictions on who is eligible to receive emissions

credits?

• Should a credit for early action program be focused on the entire U.S.

economy or selected segments that represent the majority of greenhouse

gas emitters?

• How should a historical base for measuring reductions be adjusted for

corporate mergers and acquisitions?

• How should companies having no historical data be treated?

3

The six gases are carbon dioxide; methane; nitrous oxide; hydrofluorocarbons; perfluorocarbons; and

sulfur hexafluoride.

Page 20 GAO/RCED-99-23 Climate Change
Appendix III 

How Emissions Reduction Claims That Are

Reported to the Voluntary Reporting

Program May Be Considered Under More

Restrictive Reporting Criteria

The following examples of actual claims of greenhouse gas emissions

reductions that companies have reported to the Voluntary Reporting

Program serve to (1) further illustrate the four basic issues that will likely

need to be addressed in designing a credit for early action program and

(2) show how such claims may be evaluated if more restrictive reporting

criteria were established. We used examples contained in the DOE’s Energy

Information Administration publications that summarize the results of the

program’s first and second years.4

 We supplemented this information with

information contained in the program’s public database.5

The first issue is how should greenhouse gas emissions reductions be

estimated. A large investor-owned utility located in the Midwest produces

electric power from several fossil-based plants and one nuclear plant. It

compared its 1991, 1992, and 1993 emissions to those that had occurred in

1990 to calculate its emissions reductions. However, in 1994 its nuclear

plant was shut down because of an equipment failure. To compensate for

the lost electricity that had been generated from its nuclear power plant, it

increased generation from its fossil plants, reduced sales, and purchased

electricity from another company.6

 As a result, in 1994, its emissions rose

for the first time beyond its 1990 baseline and it reported an emissions

increase. This example meets the “Restricted” reporting criterion shown in

table 1 on determining reductions from a historical baseline. However, the

utility would not have received credit in 1994 because its emissions

increased above its 1990 level.

The second basic issue is how should emissions reductions ownership be

determined. A large investor-owned utility took several specific actions to

improve the reliability and performance of its two nuclear power

generators (one unit is 100 percent owned by the utility and the other unit

is 41 percent owned). One action increased the time between refueling

from 18 months to 24 months. Another action decreased the number of

days for each refueling outage. A third action improved maintenance

procedures, which reduced forced outages and automatic shutdowns. As a

4

Voluntary Reporting of Greenhouse Gases 1995, July 1996, Department of Energy, Energy Information

Administration, DOE/EIA-0608(95); Mitigating Greenhouse Gas Emissions: Voluntary Reporting,

Oct. 1997, Department of Energy, Energy Information Administration, DOE/EIA-0608(96). The first report

covers annual emissions from 1987 to 1994 and annual reductions claimed between 1991 and 1994 and

the second report presents this information for 1995.

5

We reviewed companies claims submitted to the Energy Information Administration on their

emissions reductions for consistency but did not contact them directly to verify their information. In

addition, the company information discussed in the examples contains only a portion of the company’s

total report. As such, we did not compare the entire company’s report to the more restrictive criteria.

6

Nuclear power plants rely on nuclear fuels to generate electricity and do not emit greenhouse gases.

Page 21 GAO/RCED-99-23 Climate Change
Appendix III 

How Emissions Reduction Claims That Are

Reported to the Voluntary Reporting

Program May Be Considered Under More

Restrictive Reporting Criteria

result of these actions, the utility claimed total cumulative reductions in

carbon dioxide emissions from 1991 to 1994 compared with its 1990

baseline of more than 11 million metric tons. The utility reported only

41 percent (its ownership share) of the emissions reductions for the

second unit. This example meets the “Restricted” reporting criterion

shown in table 1 on reporting only those emissions reductions that are

directly owned.

Another example helps to clarify the differences between “direct” and

“indirect” ownership of emissions reductions. A printing company based in

Wisconsin initiated some projects to reduce its own and its employees’

demand for transportation services. These projects included (1) a return

load policy requiring its trucks not to return empty, thus saving 8 million

vehicle miles per year; (2) a change from three 8-hour shifts to two 12-hour

shifts, which allows employees to work fewer days per year, thus reducing

their commuting trips and associated emissions by an estimated 20 million

fewer miles in 1995; (3) the redevelopment of an existing building

structure which was closer to town and workers’ homes than a new

proposed site, thus saving them an estimated 3.5 million vehicle miles in

1995; and (4) an arrangement for the public transportation system to have

buses provide service to its plants, thus reducing the number of

employees’ vehicle round trips by 23,185 and saving more than 20,000

gallons of gasoline. Under the Voluntary Reporting Program, the company

claimed “direct” emissions reductions associated with the return load

policy, and “indirect” reductions associated with the shift change, the

building redevelopment, and the public transportation projects. Under the

“Restricted” reporting criterion shown in table 1 on obtaining credit for

only those reductions directly owned, the company would receive credit

only for the return load policy savings because the company directly

owned the trucks and their emissions. Under the “Somewhat restricted”

criterion on ownership, the company would receive credit for the indirect

reductions in workers’ driving miles if the company could show that the

employees and the bus company did not claim them.

The third basic issue concerns the level at which emissions reductions

should be reported. An investor-owned utility located in the Midwest built

a 16 megawatt natural-gas fired cogeneration facility to meet the electricity

and steam needs of a grain-processing company.7

 The grain company

retired its own coal-fired boilers and less efficient gas-fired boilers that

had been used to make the steam needed for its operations. On a

7

Cogeneration is the sequential production of useful thermal energy, such as steam and hot water and

electricity from the same energy source. In this case, the primary source of energy was used to

produce electricity, with the thermal energy recovered from that process used to produce steam.

Page 22 GAO/RCED-99-23 Climate Change
Appendix III 

How Emissions Reduction Claims That Are

Reported to the Voluntary Reporting

Program May Be Considered Under More

Restrictive Reporting Criteria

project-level basis, the utility reported direct and indirect emissions

reductions resulting from the operation of the cogeneration facility and

the shutdown of the grain processor’s steam boilers. The utility claimed

direct emissions reductions by comparing electricity generation that

would have otherwise occurred at its coal-fired plant. It also claimed

indirect reductions from, among other things, the grain company’s

previous replacement of the coal-fired steam boilers with gas-fired steam

boilers. None of the company’s claims would have been accepted under

the “Restricted” or “Somewhat restricted” criteria because these claims

were reported at a project level, and it is unknown whether the company

as a whole had net reductions.

The last basic issue concerns how are emission reductions verified. All

companies’ reporting to the Voluntary Reporting Program are required to

self-certify the accuracy of their emissions reduction estimates.

Independent or third-party verification is not required. As a result, we

were not able to find any company that went beyond the self-certification

process.

Page 23 GAO/RCED-99-23 Climate Change
Appendix IV 

Major Contributors to This Report

Resources, Community, and Economic

Development Division, Washington, D.C.

Daniel M. Haas

Richard E. Iager

Michael S. Sagalow

(141238) Page 24 GAO/RCED-99-23 Climate Change
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