USA Green House Gases… Explained

The moment for action in the United States on climate change has arrived in earnest.  With the election of President Obama and increased majorities of Democrats in Congress, there is unprecedented momentum to pass comprehensive climate legislation that caps the aggregate amount of greenhouse gases emitted into the atmosphere and which would then decline over time through the year 2050. 

The president and his allies in congress have expressed their intentions of achieving economywide greenhouse gas reductions by enacting a cap-and-trade system.  Cap-and-trade is a market-based approach to controlling pollution, meaning emissions are turned into a valuable commodity that can be traded among market actors.  This reliance on market-based mechanisms for achieving reductions targets should be heard loud and clear in the quality assurance community.  These systems rely on market actors having trust in the emissions accounting so that they can feel confident that their contracts for emissions allowances are representative of real emissions.  Confidence comes from consistent greenhouse gas reporting criteria, independent verification of emissions assertions, and rigorous accreditation and monitoring of verification bodies.  Quality assurance professionals play a critical role.

Cap-and-trade systems were pioneered in the United States in the 1980s and implemented in the highly successful Acid Rain trading program. The program sets a gradually declining environmental limit on the amount of sulfur dioxide (SO₂) that can be emitted from the nation’s power plants.  Since implementation in the 1990s, SO₂ emissions have dropped 40 percent, and acid rain levels have dropped 65 percent since 1976. The EPA estimates that by 2010, the overall costs of complying with the program for businesses and consumers will be $1 billion to $2 billion a year, only one fourth of what was originally predicted. [1]

Under a cap-and-trade system for greenhouse gas, the government would issue or sell emissions allowances, each equal to one metric ton of carbon dioxide equivalent (CO₂e), to regulated entities.  At the end of a compliance period, a regulated entity would need to surrender enough allowances to cover what they emitted during that period.  Entities who emitted more emissions than they have allowances are in a “short” position, meaning they need to buy allowances from secondary market firms that have excess allowances.  The benefits of this system are that the overall environmental limit of emissions is maintained and the firm with the lowest cost of emissions mitigation would set the market price and minimize the cost to society.

Europe already has nearly five years of experience running a greenhouse gas emissions trading program called the European Trading System (ETS).  The ETS was developed in response to the obligations agreed to in the Kyoto Protocol.  While there were many successes during initial phase from 2005 to 2007, the EU ETS ran into trouble when market actors realized that far too many emissions permits were issued to polluters.  This over-allocation was due to poor reporting data prior to the start of the program.  Once the first round of independently verified reporting data was published and the over-allocation was revealed, the price of carbon fell to near zero.

Keeping the European experience in mind, proto - U.S. emissions control regimes have made consistent, accurate, and independently verified emissions reporting their first step in regulating emissions.  These efforts include the following:

·         AB32 is a California law known as the Global Warming Solutions Act of 2006.  It was the nation’s first greenhouse gas law mandating a statewide reduction of emissions to 1990 levels by 2020.  It requires approximately 800 California facilities to report their emissions to the State’s Air Resources Board (ARB).

·         The Western Climate Initiative (WCI), launched in February 2007, is a collaboration of seven U.S. states and four Canadian provinces working to reduce greenhouse gases in the region 15 percent below 2005 levels by 2020 through a market-based cap-and-trade system.  The WCI recently released it’s Final Draft of Essential Requirements of Mandatory Reporting [1] , which requires any facility emitting 10,000 metric tons of greenhouse gases to report its emissions with The Climate Registry (more on that later).

• In February of 2009, the U.S. EPA proposed a draft rule to require mandatory reporting of greenhouse gas emissions from all sectors of the economy.  This would affect approximately 13,000 facilities that emit more than 25,000 metric tons of greenhouse gases per year. 

The ARB and WCI are both requiring emissions reports to be third-party verified.  The EPA’s draft rule does not require verification at this time. 

Greenhouse Gas Reporting: The Basics

While reporting of greenhouse gas emissions are now becoming mandatory, voluntary reporting schemes have been operating for nearly a decade.  Organizations in the United States have been reporting their entity-wide greenhouse gas emissions with the California Climate Action Registry (CCAR) since 2001.  CCAR is now set to transition its mandate to the North-American wide organization known as The Climate Registry.

The basic reporting structure is similar to financial reporting by which firms self-report emissions from their direct and indirect emissions during the course of a calendar year.  Direct emissions (also known as “Scope 1” emissions) are emissions resulting from the activities under an entities’ management control.  Emissions mostly stem from the combustion of fossil fuels in stationary and mobile sources such as boilers and vehicles.  These could also include emissions from industrial processes and fugitive emissions of hydro fluorocarbons from air conditioning units.  Indirect emissions (also known as “Scope 2” emissions) are primarily emissions associated with using electricity (i.e. fossil fuels burned in a power plant elsewhere due to your organizations use of their electricity). 

Reporters calculate emissions based on thoroughly vetted and internationally accepted protocols of measurement and calculation.  Emissions from large sources can be measured directly through continuous emissions monitoring systems or indirectly though standard emissions factors.  The Climate Registry requires its reporters to use their General Reporting Protocol, which is based on ISO 14064-1 and the World Business Council for Sustainable Development and World Resources Institute’s “Greenhouse Gas Protocol”.  The protocol is the primary tool in assuring consistent and standardized reporting parameters so reporters can accurately compare emissions with each other and over time.

In addition to entity-wide greenhouse gas reports, greenhouse gas reduction projects can also be registered through organizations such as the Climate Action Reserve, the Voluntary Carbon Standard, the Chicago Climate Exchange, the Clean Development Mechanism and others.  A reduction project, also known as a greenhouse gas emissions offset, is considered a removal of greenhouse gas emissions from the atmosphere.  Project developers register greenhouse gas reduction project because once verified they result in emissions reduction credits that can be sold on the offset market.  There is already a robust voluntary market in the United States for organizations that sell offsets for companies and individuals wishing to “go carbon neutral”.

Greenhouse gas reduction projects must pass a rigorous set of criteria, most importantly an additionality test.  Achieving additionality means that there are reductions that would not have happened if it were not for the incentive of selling the emissions reduction credit.  These projects can take many forms, but some of the most common include:

• Capturing methane from manure lagoons at dairy farms and combusting it to generate electricity
• Capturing methane leaking from landfills and combusting into electricity
• Managing forestlands to sequester carbon breathed in by trees

Approaches to projects vary by scheme.  Under the Climate Action Reserve, project protocols are standardized whereas with the Clean Development Mechanism (CDM), project developers must also propose their own custom project methodology.  Under the latter system, project methodologies must be “validated” by an independent verifier to assure that the project meets the offset criteria such as additionality. 

Verification: It’s good for you

Like the financial analogue, independent firms must audit greenhouse gas emissions reports and greenhouse gas reduction projects.  This process is known as emissions verification and the firms that perform this function are known as verification bodies.  It is exactly this quality assurance that has made organizations like the Climate Action Reserve, Voluntary Carbon Standard, CDM and the Climate Registry the gold standards in emissions reporting. 

Under the Climate Registry, verification bodies follow procedures outlined in the International Standards Organization (ISO) 14065 standard and the Climate Registry’s General Verification Protocol.  These documents outline a management system and technical approach to performing a high quality and well-documented verification that conforms to international emissions market standards. 

After a reporting develops an emission inventory, it would choose a greenhouse gas verification body often through an RFP process.  A verification body goes through a conflict of interest (COI) screening with the Climate Registry to protect the integrity of the verification effort.  Once COI clearance is achieved, a verification body gathers information regarding the reporter’s organization, its greenhouse gas emissions sources, data management systems, and calculation methodologies.  The verification team then visits a sample of the reporter’s facilities to observe data management systems first hand and identify any missing emissions sources.  The verification team will also audit selected emissions calculations deemed to have a high risk of causing a material error and independently recalculate these estimates from primary data sources.  The sampling plan outlining which emissions are recalculated is submitted to the Registry, but largely left to the professional judgment of the verifier.  The verification team will take their estimates of the sampled emissions, determine if any miscalculations exist, and evaluate whether the entire inventory meets a minimum quality standard of 95 percent free of error.  Should an emissions report meet this test, the verification body may issue a positive verification statement into the public record.

The verification process must occur annually, although subsequent years may be a “streamlined” verification effort.

The Accreditation Process

Verification in the United States has evolved since its modest beginnings and is becoming more professionalized.  Any firm wishing to provide greenhouse gas verifications must now be accredited through the American National Standards Institute’s (ANSI) ISO 14065 accreditation program.  The ANSI accreditation program’s pilot program wrapped up in January 2009 and resulted in six out of thirty-two firms achieving accreditation. 

The accreditation process is a long and challenging road.  Firms must first submit documentation of their management system procedures governing everything from proposals to conflicts of interest to final reports and verification.  Next an office audit is conducted by ANSI at the would-be verification body’s office.  The office audit is meant to confirm that all documentation systems are up and functional.  Finally a witness audit must be performed.  This involves the verification body performing a real verification for a client with ANSI assessors in tow.  This step allows ANSI to observe the management system being put into action and assess the verifier’s technical ability.  Following the successful completion of the verification process, the ANSI assessors make the case to accredit or not accredit to a committee of ANSI and Climate Registry staff.  Once that committee has come to consensus that the verification body has fulfilled the requirements of ISO 14065 and demonstrated them sufficiently in the witness audit, the committee makes a recommendation to the ANSI accreditation committee who will make the final vote on the verification body’s full application. 

The process may be tough, but the benefit of the process is confidence in the system.  For emissions markets to work market actors must be confident that verification bodies are competent and verifications are documented completely.  Verifiers must be assessed annually and the Climate Registry may audit verifications randomly to provide quality control checks.

Verification is Here to Stay

While many first time reporters often bemoan having to have their inventory audited, most find it to be of value after it has been completed.  In the voluntary world, verification helps emissions reporters identify gaps and weaknesses in their data management system.  Over the years, reporters can continually fine tune their system which makes subsequent verifications much easier and cheaper.

For mandatory reporting, emissions allowances contain real economic value, potentially millions of dollars for large emitters.  Ensuring an accurate emissions report is absolutely paramount for the functioning of the system, which means that quality assurance professionals are the unheralded cornerstone of achieving an important environmental and societal benefit.

[1] [2]Acid Rain Program 2007 Progress Report [3], U.S. Environmental Protection Agency, January 2009 [4].