These elements are critical to the success of any climate change policy. The intimate connections between greenhouse gas emissions and fundamental economic activity, together with the long-term nature of the problem, demand policies that create both the maximum capacity to respond to growth and change and continuous incentives to innovate. What must be avoided are policies that fix in place a specific set of ideas that rigidly govern public sector and private actions for years in the future thus crippling the capacity to adapt to change and minimizing incentives for innovation.

DOES THE CCAP MEET THE PERFORMANCE AND INNOVATION TESTS?

Against this model, the CCAP appears to be flawed in several respects. True, the CCAP does make a promise, however rudimentary, to monitor and track emissions and use the data to inform periodic revisions. Fulfilling this promise is critical: otherwise, the CCAP will have no credibility and will fail to achieve its emissions reduction objectives. Unfortunately, much of the CCAP rests on a rigid list of prescribed technologies and strategies whose ability to deliver actual emissions reductions is profoundly uncertain. At the same time, the CCAP is nearly devoid of a persuasive mechanism for inducing voluntary actions by the private sector to adopt these prescriptions or otherwise to achieve emissions reductions.

To establish even the most basic credibility for the CCAP, the Administration's first objective must be to establish, as soon as possible, the promised system of emissions monitoring and tracking. This is necessary to ensure not only the achievement of the CCAP's emissions objectives but to signal the Administration's commitment to constraining emissions.

This monitoring system must focus on actual emissions. The degree of penetration of the technologies or strategies fostered by the CCAP cannot be used as a metric in and of itself and cannot be used as a surrogate for emissions reductions achieved. Virtually every action listed in the CCAP is UNPROVEN with respect to its ability to deliver emissions reductions and many proposed actions are highly suspect. Even much-favored demand-side management programs and energy efficiency technologies in some instances have left in their wake highly ambiguous records as to their ultimate efficacy.

This is one of the several reasons that the CCAP's Summary Table of Actions is utterly damning. The attempt to pinpoint the precise tonnage reduction contribution of each of over 40 measures, such as "Develop Fuel Economy Labels for Tires", only highlights the vast uncertainty as to the emissions reduction performance of every proposed action (as well as the manifest vacuity of the computer modelling exercise that must have been undertaken to generate these numbers).

At the same time, the Summary Table of Actions also dramatizes the rigidity of the CCAP's fundamental approach, a rigidity conducive to waste and inimical to innovation. This laundry list of actions, each with its assigned tonnage reduction "score" is a blueprint for nothing more than annual intra- and inter-agency budget and turf battles. Each "Action" will fight for resources reflecting its tonnage reduction "score". Those battles presumably will be resolved according to the CCAP's pre-set "scores" as well as extrinsic political factors. That means that the resources devoted to achieving emissions reductions may not be allocated by determining which programs are optimizing emissions reductions, cost-savings and innovation. Instead, resources will be allocated according to the "scores" which only the most naive or cynical would assert reflect those critical criteria. The CCAP demands a mechanism -- such as the open competition incorporated in the EDF proposal - for focusing resources on those actions that most effectively meet those criteria; the absence of such a mechanism is glaring.

A Table of Actions that purports to account in advance for over 40 measures that achieve emissions reductions in anywhere from 0.5 million to 4.0 million ton increments creates a policy framework that is as likely to

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retard innovation and to promote it. Here, too, the EDF proposal offers an illustrative contrast. Enticing individual government programs and private actors to come forward with specific emissions reduction strategies that meet criteria of environmental performance, cost-effectiveness and innovation creates a built-in capacity for dynamic response to new and changing information. Under the EDF proposal, the private firms and other actors in the market itself, which the CCAP's Table of Actions purports to re-shape, are relied upon to find the sectors which can produce the optimal emissions reductions and the technologies and strategies for achieving those reductions. The CCAP implicitly- and incredibly - claims to have generated and processed all such information, notwithstanding the fact that the CCAP was formulated IN ADVANCE of many of the actual developments it aims to foster. This approach to channeling investment and entrepreneurial energy leaves little opportunity for the kind of frontier-crossing innovation that is absolutely indispensable for a long-term response to the need to reduce greenhouse gas emissions.

Finally, the CCAP fails to establish a reliable mechanism for eliciting the voluntary response from the private sector on which the CCAP depends for its success. Facile assertions that the CCAP will work because voluntary environmental programs have worked in the past ignore the connection between environmental voluntarism and specific, closely proximate incentives. For example, at least one study suggests that the EPA's vaunted "Green Lights" programs are often undertaken by firms that also receive demand-side management subsidies from their local jurisdictions. Similarly, companies' voluntary toxics reductions appear to be closely associated with the Toxics Release Inventory requirements of Title III of SARA.

Although it is true that energy conservation investments "pay for themselves" for both individual firms and the economy as a whole, in practice, since many inputs affect a firm's profitability, there are many investments that firms can make that "pay for themselves" that have little or nothing to do with energy use. As a result, investment options in energy efficiency must compete with other options that may be superior from a firm's overall economic perspective. Incentives targeted at energy efficiency or other emissions reduction strategies are needed to ensure that these are the strategies that firms choose to finance.

THE CLIMATE CHALLENGE AND SECTION 1605(b) OF THE ENERGY POLICY ACT

At least one of the programs included in the CCAP appears to avoid some of the frailties plaguing much of the rest of the CCAP. The Department of Energy (DOE) holds letters from numerous utilities committing themselves under the Climate Challenge program either to reduce or curb their greenhouse gas emissions. In addition, the participating utilities will be able to select their own strategies, including off-site offsets, for achieving the reductions and apparently will not be restricted in those choices.

Unfortunately, the CCAP description of this program does not do an adequate job of spelling out the terms of accountability to which the participating utilities must be subject. Before the Climate Challenge accepted as a bona fide constituent of the CCAP, participating utilities must: 1) commit to pre-specifi reduction targets (which may be met in whole or in part through offsets) and 2) must provide ann

their performance. Utilities could fulfill their commitments by making on-system reductions

Alternatively, they could form private emissions reduction "pools" or consortia thro

underwrite a "portfolio" of reductions which in turn could serve to fulfill their

their commitments, all Climate Challenge participants should agree that

reductions, they will pay a fixed dollar amount (e.g., $5.00 per ton)

obligated reductions. This, together with a rigorous system for

credibility of the Climate Challenge program.

Apparently to fulfill the latter requirement, the CCAP specifies that Climate Challenge participants, like participants in other enumerated CCAP voluntary programs, will register their reductions pursuant to section 1605(b) of the Energy Policy Act. Section 1605(b) establishes a registry of emissions reductions and/or offsets achieved by private actors. Though enacted before the CCAP was formulated and published, the new role assigned the section 1605(b) program by the CCAP only throws into high relief the essential elements of the section 1605(b) program. The statute itself is explicit about what these are: "accuracy" and "reductions". It is critical not only to the proper implementation of section 1605(b) but to the Climate Challenge and every other program in the CCAP that incorporates reporting under section 1605(b) that DOE design the program and formulate guidelines that emphasize these "accuracy" and "reductions" exclusively.

Although the statutory language of section 1605(b) could not be more clear on this point, there appears to be rampant among DOE management and staff and among some in the utility industry the mistaken belief that the first objective of section 1605(b) is to "promote" participation. This error could prove to be harmless but only if it is not used as the premise for guidelines that sacrifice rigorous requirements for accurate reporting and permit the reporting, in any way, of the mere curbing of net emissions increases in the name of encouraging participation. Were this to be the outcome, then both the section 1605(b) program and the relevant initiatives of the CCAP would be subverted. The over-arching project of the entire CCAP is to promote private sector participation. The CCAP's comprehensive emissions monitoring program and section 1605(b) must function as the guarantors of emission reduction performance and cannot be subordinated to considerations of "promoting" participation. In our view, it would be better to have no participation in the section 1605(b) program than to encourage participation at the expense of accuracy and the correct definition of a reportable reduction.

For DOE and the industrial community, the most vexing issues arise in connection with projects that focus on achieving supply-side and other direct or indirect efficiencies in the context of increasing utilization. To address these issues, as well as the definition of the entire suite of reportable reductions, the section 1605(b) program must rely on the provisions of H.R. 2663 (102nd Congress). The aim of those provisions was precisely to: 1) define what kinds of activities would result in net emissions reductions of the sort that could qualify as an offset in compliance with the bill's requirement that new greenhouse gas sources offset their emissions, and 2) outline the methodology for quantifying those reductions. H.R. 2663 was the direct precursor of section 1605(b). While the latter transformed the original bill into a voluntary program, Congress did nothing to change the meaning of "reductions" in section 1605(b) from how that term was understood in H.R. 2663.

H.R. 2663, for example, identified repowering as an emissions reduction strategy. The bill measured emissions reductions that could result from repowering first by quantifying the differential between the original unit's actual emissions and the repowered unit's emissions up to its historical utilization. Any emissions resulting from the repowered unit's increased utilization relative to its historical utilization were deducted from that initial differential. This kind of approach to supply-side investments appears to be the only coherent way to capture true, net emissions reductions resulting from such investments. In contrast, reductions attributed to the differential between a unit's actual increasing emissions and a rising, hypothetical "reference line" intended to represent a unit's projected emissions in the absence of the supply-side investment would render the section 1605(b) program logically incoherent, as well as impracticable. Again, utilities and other firms with increasing utilization seeking to deliver net reductions to the Climate Challenge and 1605(b) programs could do so by combining supply-side investments and off-site reductions or offsets.

THE INITIATIVE ON JOINT IMPLEMENTATION

The ultimate success of the Initiative on Joint Implementation (IJI) is critical. Joint implementation provides a tool with powerful a capacity to mesh many of what should be the overriding objectives of U.S. and

international climate policy. It seems particularly well-suited to address both the global and the dynamic aspects of the climate change problem. It can open up a cost-effective path to the goal of reducing greenhouse gas emissions and can do so in a way that also serves the goals of sustainable development and technology transfer. At the same time, it offers a method to induce the countries of the developing world to participate in greenhouse gas reduction activities, starting with enhanced reporting of their emissions. Through joint implementation a number of important objectives can be rendered mutually reinforcing -- reduction in use of, and pollution from, fossil fuels; cost-effectiveness of reduction investments; sustainable growth in developing economies; the channeling of private funds from the industrialized world to the developing world; and protection of global forest resources as well as biodiversity.

Through joint implementation, both public and private resources can be leveraged for investments that will maximize reductions in global greenhouse emissions. The governments and firms of developed nations can comb the world to find the lowest cost ways to reduce or sequester greenhouse gas emissions. As a result, the developed nations will be able to reap the greatest emissions reduction payback for every dollar spent. This will reduce the present trend toward backsliding on reduction commitments that appears to be a problem in parts of Europe by ensuring that nations can meet their obligations cost-effectively.

At the same time, a commitment to joint implementation offers a boon to developing countries, while representing a significant new initiative for global sustainable development. As carbon sinks, the sensitive, biologically diverse and rich forests of developing countries could become a source of revenue not for timbering and clearing, but for preservation and enhancement. In addition, joint implementation also could spur investment in creating efficient and environmentally sustainable energy infrastructure in developing countries. Many of the countries of the developing world such as China and India are set to make substantial, if not enormous, investments in their energy, industrial and consumer infrastructure that will determine their economic -- and greenhouse gas emissions – growth path for decades to come. The world cannot afford to ignore any strategy that can shape these investment to meet the crucial objectives of global environmental protection while improving human well-being.

Ultimately joint implementation has the potential to provide billions of dollars in funding from private sources to be channeled to sustainable development projects with environmental, social and economic benefits in developing countries. In order to realize this financial potential as well as to make credible progress toward the goal of stabilizing global greenhouse gas emissions at a level that avoids dangerous climate change, we need to begin now to develop criteria for joint implementation projects. This will include measurement, accounting, tracking and risk mitigation procedures for greenhouse gas reductions. As part of this effort, it is essential to implement demonstration projects in several countries to explore legal and other country specific issues regarding a variety of project types and to set up institutional framework for future projects.

As part of WI, the U.S. should assist developing countries in producing emissions inventories. In addition, formulating baseline projections of future greenhouse gas emissions are likely to be indispensable in determining the greenhouse gas benefits of individual joint implementation projects. The U.S. could also work at upcoming meetings of the Intergovernmental Negotiating Committee (UNC) and the Conference of the Parties (COP) to promote joint implementation through the establishment of clear, rigorous criteria governing its use. At a minimum these should include:

All countries participating in joint implementation must be parties to the climate treaty, must have national programs to address climate change, and abide by the information reporting requirements of the Framework Convention on Climate Change (FCCC), as well as all other applicable obligations.

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Each project

have a specific baseline that captures or identifies the emissions that would occur in the absence of the project Projects must exceed actions required by law (these should be reflected in the baseline).

All projects must include activities and investments undertaken for the specific purpose of verifying, and if possible, continuously toring, their greenhouse gas emissions.

Projects must be credited only for the actual emissions reduction or carbon sequestration achieved in each year of operation based on after-the-fact emissions monitoring and verification reports. Prospective interannual averaging or fed discounting schemes must be disallowed. In addition, where feasible, reporting entities must identify and quantify direct consequential emissions effects of the project. This criterion should apply uniformly under the 10 program as well.

Projects subject

carbon sinks - must

identifiable failure risks - such as fires or other natural disasters that can destroy be demonstrable "insurance" elements or strategies.

For the purpose verification and precluding double-counting, joint implementation projects must be tracked through a double entry bookkeeping system so that both the investing firm and host country monitor and report the project's emisions in their respective accounts.

Since the pup of these criteria is to ensure that joint implementation achieves all of its most ambitious aims, joint implementatian partners must take specific steps including environmental assessments to ensure that each project be consistent with, and where possible, promote the broadest range of environmental objectives.

In our view thelleria laid out for the IJI represent a reasonable, good faith foundation for a joint implementation program. The criteria appears to put the necessary premium on actual net emissions reductions as this is the cornerstone for building an initiative that reaps the full host of benefits described above. In doing its work the evaluation paelshould make decisions that are fully informed by a grasp of the importance of joint implementation. The sould take care to compensate for any dampening effect on the decision-making of would-be private participants that could result from the CCAP's failure to "score", at least initially, the IJI along with "scored" domestic progimas.

The criteria listers to "assurance that actual net greenhouse gas reduction benefits accumulated over time will not be lost or versed." If applied literally this provision could preclude virtually ANY project, including forestry enhancement. Dviously, this outcome would be absurd. So many measures that must be taken in the near term could have ang running reduction or sequestration effects which eventually will erode. These very measures must be purest, however, precisely because of their "time-buying" benefits. The world must adopt measures which over the bong run are only "temporary" precisely to allow for the most profound and far-reaching innovations to develop and attain wide-spread economic penetration. It is only such innovations, most of which are simply beyond our current reach, that will offer a "permanent" solution to the climate change challenge.

THE INTERNATIONAL PACT OF THE CCAP

The plan's credibility will rest squarely on the adequacy of the safeguards it establishes to ensure that continuing emissions reductions are actually achieved. Four comerstones are needed for this foundation: improved emissions monitoring, interim benchmarks for assessing the plan's adequacy, a mechanism for ensuring

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