Early Action Program A Proposal to Stimulate Voluntary Reductions of Greenhouse Gases J. Bennett Johnston Alvin L. Alm

Current Disincentives No credit for past actions Higher cost options in the future as least cost options have already been used Lower compliance requirements for competitors

Criteria for Credit System Simple Easy to implement Free from gaming opportunities Avoids bureaucracy Creates certainty Fair Promotes efficiency

The Efficiency Ratio Approach Ratio of emissions to production –kWh and useful steam for electricity production –steel, aluminum, paper, etc. for manufacturing industries Early actions would improve ratio and hence automatically reduce future obligations if regulatory program were instituted

Efficiency Ratio Attributes No “bankable” credit that can be saved and then used in the future Benefits flow automatically from either –emission reductions and/or –improvements in efficiency Requires no baselines nor government approvals

Legislation: Purpose and Principles Encourage early action Remove disincentives for companies taking early action Encourage efficiency Accommodate growth Not tied to any treaty target or deadline

Legislation: Efficiency Ratio Future regulatory program would be developed as ratio of emissions to production To implement this principle: –Standby regulations would be developed to establish categories and deal with other administrative issues –Rules would be commenced upon bill passage

Legislation:International Joint Activities Study feasibility of early actions for: –Sequestration –International clean energy projects If feasible, these activities would require –Rulemaking –Approval of individual projects

Questions What needs to accomplished by this legislation? –Legislation establishes efficiency ratio as approach to subsequent regulatory program –Establishes process for establishing ratios for different industries –Establishes study and potential rulemaking process for off-site sequestration and clean energy reductions

Questions What needs to be decided in a future treaty and regulatory program? –Total percentage reduction from a base –Timing of reductions –Reductions by major sectors, e.g., electricity production, manufacturing, transportation and other

Conclusion Efficiency ratio approach is only viable approach to early action that: –promotes efficiency –accommodates growth This approach can be coupled with international joint sequestration or clean energy projects An overly complex proposal could slow down, rather than speed up voluntary actions

Conclusion Although concept is simple, achieving legislation will require concerted effort If no effort is made, U.S. companies could be caught in future squeeze should our trading partners move ahead An approach that promotes efficiency is good economic and energy policy