Greenhouse Gas Trading Demonstration Project, Phase I Report

Executive Summary

Over the past year, fourteen companies, environmental groups and nongovernmental organizations from the United States and Canada have collaborated with the Northeast states to review early greenhouse gas (GHG) reduction actions undertaken by project participants and to explore practical issues surrounding the potential crediting and trading of these reductions.

All private sector participants in this project have implemented GHG reduction strategies. The conclusions and recommendations described herein are derived from the real world experience of taking action to reduce GHGs and quantifying the benefits of those actions. Many analysts agree that early, voluntary actions to reduce GHGs should be encouraged and are essential to the success of any future regulatory regime limiting GHG emissions. Such actions can help put the United States, Canada and individual states on the path toward meeting future emissions limits, requirements that may be difficult to meet if companies wait until regulations are in place. Voluntary early action by companies is also seen as essential to building support for a broad-based GHG reduction program in the United States.

During this first phase of the project, participants quantified the effect of companies’ strategies on GHG emissions, and began to explore broader issues related to the eventual treatment of these reductions in the context of a future regulatory regime. Through this collaborative effort, project participants have demonstrated the availability of cost-effective and quantifiable GHG reduction measures in a host of industrial and residential applications.

Nine GHG reduction projects were submitted to the NESCAUM GHG Trading Demonstration Project:

• tumbler front load clothes washers, an energy efficiency project submitted by the Northeast Energy Efficiency Partnership, Inc;
• a power plant fuel switch to natural gas submitted by PG&E Generation;
• hydroelectric electricity production submitted by Ontario Hydro Generation (CHI Energy, Inc./North American Carbon Inc.);
• landfill gas energy project submitted by PG&E Generation;
• residential boiler conversions to natural gas submitted by KeySpan Energy;
• battery operated shuttle buses submitted by the Northeast Alternative Vehicle Consortium;
• fuel cell energy production submitted by KeySpan Energy;
• a waste heat project submitted by Sunoco; and
• biomass fueled electricity production project submitted by PSEG Global.

The case studies attempt to provide a comprehensive evaluation of the environmental impacts of the specific early actions documented, including environmental impacts unrelated to climate change. Where possible, these impacts have been quantified; in other cases, they have been qualitatively described. Together these efforts have reduced GHG emissions by 1,972,892 tons CO₂ equivalent and expect to reduce another 1,788,237 tons by 2007.

This report also contains a series of papers summarizing participants’ discussions of cross-cutting issues that emerged in the course of the case study evaluations. The issue papers are grouped into three general categories:

• issues related to crediting reductions, including the issue of additionality and the importance of ensuring that any credits awarded for early actions are deducted from an eventual national cap on GHG emissions,
• issues related to the quantification of emissions reductions including data methodologies and sources of uncertainty, and
• broader policy issues, including the consequences of having independent and multiple pollutant trading regimes, financial costs and benefits to companies, credit ownership, identification of non-climate change environmental impacts, and the role of states and municipalities.

Where consensus on an issue was reached, that consensus is described in the issue papers. Where participants thought that continued discussion was warranted, the issue paper documents the substance of the discussion to date and indicates direction for future exploration.

Finally participants of this Project have identified several potential objectives for the next phase of the Project:

• review the Energy Information Agency’s (Department of Energy) 1605(b) voluntary action submissions and determine the "real" reductions represented by these actions,
• examine various scenarios involving an early action credit program and incentives for participating,
• examine baseline scenarios for pre-1999 reduction activities,
• explore elements of a national trading program including grandfathered and output-based allocation schemes and how these systems may integrate with other trading systems,
• enlist companies to voluntarily undertake a strategic planning process demonstrating possible strategies to pursue traditional business objectives in an economy that internalizes the potential impacts of global warming,
• examine the feasibility of multipollutant caps,
• examine a GHG emission reduction registry which includes the mechanics of registering reductions,
• expand the case studies to other entities (eg, cities, municipalities, and states) and other sources (eg, area sources such as hospitals, universities, etc.), and
• further analysis of the cost of reductions similar to the issue papers on cost contained in this report.