Get Your Money For Nothing And Your Credits For Free

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This paper – a research aid for journalists, policymakers, and citizens – provides multiple glimpses into a key “inside baseball” debate on U.S. climate and energy policy.

The paper excerpts passages from comments submitted to the Department of Energy (DOE) on the Bush Administration’s plan to revamp the Voluntary Reporting of Greenhouse Gases Program (VRGGP), established under Section 1605(b) of the 1992 Energy Policy Act. Those passages shed light on the most controversial and consequential feature of the Administration’s initiative: President Bush’s directive to DOE “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.”

CEI has long warned that government-sanctioned transferable greenhouse gas (GHG) credits will: (a) create the institutional framework for a future Kyoto-style emissions cap-and-trade program, and (b) grow the “greenhouse lobby” of Enron-like companies seeking to profit from Kyoto and kindred energy rationing schemes.

Many of the comments submitted to DOE corroborate, illustrate, or supplement CEI’s critique of GHG credit schemes. Excerpts presented in this paper provide evidence that:

 GHG credits are a first step towards energy rationing and serve no purpose apart from energy rationing

• The Administration has no legal authority to protect companies’ emissions baselines and award credit for early action

• It is inappropriate to provide baseline protection or award credit for early action prior to enacting a cap-and-trade program

• GHG credits are not needed to protect companies’ emissions baselines under a future climate policy

• Giving credits for “real” (tonnage) reductions conflicts with the President’s goal of replacing Kyoto-style tonnage targets with an emissions intensity target

• GHG credits will provide windfall profits for “anyway tons” – monetary rewards to companies for doing (or not doing) what they would do (or not do) anyway

• GHG credits will transfer wealth from energy efficient firms to energy wastrels

II. 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. 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.”[1]

To CEI and other free-market advocates, the President’s call for penalty protection and transferable credits was Déjà vu all over again. During the 105th and 106th Congresses, Environmental Defense, the Pew Center on Global Climate Change, the Clinton-Gore Administration, and Senators John Chafee (R-RI) and Joe Lieberman (D-CT) devised and marketed “credit for early action” proposals and legislation. With one stroke of the Presidential pen, the Bush Administration on February 14th revived credit for early action – and did so without any public debate over the policy’s economic implications, political risks, vulnerability to Enron-like asset manipulation, or consistency with the President’s opposition to the Kyoto Protocol and support for increased energy production from coal and other hydrocarbon fuels.

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 14th directive. By the close of the comment period on June 5, 2002, some 80 individuals from the business, government, and non-profit sectors had submitted comments. The comments are available on DOE’s Web site.[2]

On July 8, 2002, the Secretary of Energy together with three other agency heads sent a letter to President Bush updating him on actions taken in response to his February 14th directive. The letter outlined a plan to develop and issue new VRGGP reporting guidelines by January 2004. Pursuant to that plan, DOE has scheduled four workshops (Washington, D.C., November 18-19; Chicago, December 5-6; Houston, December 12-13). In addition, EPA will hold a meeting on November 20-22, and USDA will hold meetings on January 14-15 and January 23, 2003.

CEI has long warned that transferable 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 the Kyoto Protocol or enacts a comparable regulatory system. Thus, if implemented, the Administration’s plan will expand and mobilize corporate lobbying for Kyoto and kindred energy rationing schemes.[3]

Comments excerpted in this paper corroborate, illustrate, or supplement CEI’s critique of credit for early reduction schemes.