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