Climate Change: Reporting Guidelines under the MOU

1. Climate Change: Reporting Guidelines under the MOU Daniel E. Klein Twenty-First Strategies, LLC McLean, VA 22101 dklein@21st-strategies.com presented to American Public Power Association 2006 APPA National Conference Chicago, ILJune 13, 2006

2. What we’ll cover today • Background on U.S. GHG programs • Climate Vision & Power PartnersSM • Growing pressures for power companies to take action on GHGs • Revised §1605(b) GHG Reporting Guidelines

3. Addressing Climate and Energy Securityin the Global Climate Change Initiative • On February 14, 2002, President Bush set a goal to reduce U.S. GHG emissions intensity by 2012 • GHG “intensity” will be measured in terms of GHG per unit of GDP • This goal is equivalent to ~500 million metric tons of cumulative carbon equivalent reductions from 2002-2012 “My administration is committed to cuttingour nation’s greenhouse gas intensity... by 18 percent over the next 10 years.”

4.    emissions time Improving GHG intensity is a key component of the U.S. strategy Over time, improving GHG intensity could: • Slow the rate of GHG growth • Stabilize GHG emissions • Reduce absolute emissions … depending on the rate of improvement

5. So … how is the U.S. doing so far? • Goal: 18% reduction in GHG intensity, 2002-12 • But BAU forecasts show ~14% improvement (~1.5%/yr) • 18% implies average annual rate of ~2.0%/year • From 1990-2003, GHG intensity fell ~1.9%/year

6. Climate VISION Program Launch • Climate VISION – VoluntaryInnovative Sector Initiatives:Opportunities Now • A part of the Global Climate Change Initiative (GCCI), launched February 12, 2003 • Part of a continuum of short- mid-, and long-term approaches to address climate change • Nature of problem requires development and use of transformational technologies

7. Alliance of Automobile Mfgrs. Aluminum Association American Chemistry Council American Forest & Paper Association American Iron & Steel Institute American Petroleum Institute Assoc. of American Railroads The Business Roundtable Industrial Minerals Assoc. – N. America International Magnesium Association National Lime Association National Mining Association Portland Cement Association Power Partners Semiconductor Industry Association Climate VISION Private-Sector Partners Each partner has committed to contribute to President’s GHG intensity goal.

8. Power PartnersSM: Historical Roots • In 2002, electric power sector created Power PartnersSM • Voluntary partnership with Federal government • Designed to deliver results in short, medium & long term • U.S. electric power sector recognized early on as a world leader in voluntary GHG programs • Power industry came together in the 1990s • Successfully undertook voluntary climate initiatives through the Climate Challenge program • First major industry to do so • 281 MMT CO2 of reported reductions in 2002. • But does its reputation for “early action” still hold?

9. Electric Power Participants inClimate VISION & Climate Leaders • Power PartnersSMParticipants • American Public Power Association (APPA) • Edison Electric Institute (EEI) • Electric Power Supply Association (EPSA) • Large Public Power Council (LPPC) • National Rural Electric Cooperative Association (NRECA) • Nuclear Energy Institute (NEI) • Tennessee Valley Authority (TVA) • EPA’s Climate Leaders program • 86 companies so far (all sectors) • Power companies include AEP, Entergy, We Energies, FPL, PSEG, etc.

10. Power PartnersSMGoal • Achieve equivalent of 3-5% reduction in GHG intensity by 2012 through credible, verifiable reductions in GHG emissions or offsets • Intensity measured as CO2/MWh • Collaborative, industry-wide initiatives • Individual actions that best suit company capabilities, resources and business strategies • Cross-sector programs and outreach • Signed Umbrella MOU with DOE • December 13, 2004 • Highlights roles of partners in achieving voluntary reductions

11. So … how’s the Electric Power Sector doing so far? • Goal: 3-5% reduction in GHG intensity, 2002-12 • So far, not so good ….

12. Business-as-Usual predicts some improvement,but EPICI target will need more Generation Intensity (MMTCO2e/bkWh) Power PartnersSM target Data compiled by EOP Group.

13. States are getting more involved in Climate GHG Reporting and Registries Powerplant Carbon Caps of Offsets Climate Action Plans Completed Greenhouse Gas Inventories Source: Pew Center for Global Climate Change, July 2005 update

14. U.S. Mayors Climate Protection Agreement • Initiated shortly after Kyoto Protocol took effect • Actions urged: • Cities should meet or exceed Kyoto targets • State & federal governments should meet or beat Kyoto targets by 2012 • Congress should enact cap & trade legislation • Effort has growth rapidly • 235 Mayors have signed (as of May 19, 2006) • Representing over 45 million citizens • Press attention worldwide

15. Rapid Growth in U.S. Mayors C.P.A. 16-Feb-2005: Kyoto Protocol takes effect 30-Mar-2005: 10 Mayors launch program 13-Jun-2005: U.S. Conf. of Mayors unanimously endorse 8-Dec-2005: Mayor Nickels (Seattle) highlighted at Montreal COP 19-May-2006: 235 Mayors signed, representing over 45 million citizens

16. + = CRISIS = DANGER + OPPORTUNITY It’s not too late to be proactive: #1 Every challenge containsopportunity as well as danger.

17. It’s not too late to be proactive: #2 In a future filled with uncertainty, “business-as-usual” won’t cut it. Come gather ’round peopleWherever you roamAnd admit that the watersAround you have grownAnd accept it that soonYou’ll be drenched to the bone.If your time to youIs worth savin’Then you better start swimmin’Or you’ll sink like a stoneFor the times they are a-changin’. Bob Dylan, 1963

18. It’s not too late to be proactive: #3 “If you’re not at the table,you’re on the menu.” -- Washington D.C. proverb

19. Power Companies should continue and expand their GHG reduction efforts • Understand your GHG footprint and risks • Identify GHG activities already under way • Assess options for further GHG reductions • Costs • Effectiveness • Ancillary impacts • Develop capabilities for GHG reporting • Join climate programs? • National? • State & local? • Set a GHG target? • Absolute level of emissions? • GHG emissions intensity?

20. Improve Energy Efficiency Reduce FuelCarbon Intensity • Renewables • Nuclear • Fuel Switching • Demand Side • Supply Side GHG Management Options: An all-in-1 Formula GHG emissions = $GDP X GHG intensity Btu/$GDP X GHG/Btu – sequestration Sequester Carbon • Capture & Store • Enhance Natural Sinks • All options needed to: • Maintain economic growth • Affordably meet energy demand • Address environmental objectives

21. Use the Power PartnersSM Resource Guide • 1990s Climate Challenge program developed an “Options Workbook” of “best practices” • MOU commits to developing and maintaining a “Power PartnersSM Resource Guide” • At a minimum … • Meet Climate Vision commitment • Information for utilities, esp. smaller ones • Information for general public • … and maybe also … • Data collection for measuring intensity? • Aid in annual Power PartnersSM reporting to DOE? • Other purposes?

22. http://uspowerpartners.org/

23. DOE’s Revised Guidelines for Voluntary Reporting of Greenhouse Gases (§1605(b) • Background – How we got here • Overview of Guidelines • Key steps in Reporting

24. Background on Revising the §1605(b)GHG Reporting Guidelines • Voluntary Reporting of Greenhouse Gases Program • Established by Section 1605(b) of the Energy Policy Act of 1992 • Oct. 1994: Final Guidelines issued • First reporting year was 1994, reported by DOE in July 1996 • Reporting rules were quite flexible • Scope of the reporting entity • Emissions and/or reductions • Entity-wide or project-specific • Power sector initially dominated, still majority

25. Background onRevising the §1605(b)GHG Reporting Guidelines • Concerns grew with the original program • “Flexibility” reduced credibility • Weak basis for future crediting • Emergence of competing reporting standards • Administration plan to “substantially improve the emission reduction registry” • Part of Feb. 2002 GCCI • “create world-class standards for measuring and registering emission reductions” • “transferable credits to companies that can show real emission reductions” • take into account emerging domestic and int’l approaches

26. Will new §1605(b) guidelines help or hinder its purposes? Feb. 2002: • Announced at a time when fragmentation of registries seemed to threaten. • But is the WRI/WBCSD GHG Protocol becoming the new standard? • Will §1605(b) be a uniter or a divider? • What is L/T fate of §1605(b)? “These improvements will enhance measurement accuracy, reliability and verifiability, working with and taking into account emerging domestic and international approaches.”

27. Overview of new §1605(b) Guidelines All reporting entities must: • Define themselves and their organizational boundaries • Use the measurement and calculation methods contained in the guidelines • Maintain records and certify accuracy of reports All reporters areencouragedto: • Report at the highest level • Meet the requirements for registering reductions • Have reports independently verified

28. Framework of Revised §1605(b) Program Large Emitters Small Emitters “Reporting Only” Entities Measure emissions at any level/year Inventory of Emissions for Selected Activities Entity-wide Emissions Inventory Calculate Net Reductions Across U.S. Entity: Changes in Emissions; Changes in Carbon Stocks; Avoided emissions Calculate Reductions at any level: project; facility; pre-2002, etc. Calculate Net Reductions for Reported Activities, e.g., DSM Same for non-U.S. operations (optional) Reported Reductions Potential Offsets Offset Reductions (if any) Registered Emission Reductions All Reporters: Require Legal Basis for Entity; ‘Encourage’ Highest Level

29. Overview of §1605(b) Guidelines: Registered Reductions • Qualifying reporters will be credited with registered reductions • U.S., non-U.S. and offset reductions to be calculated separately • Registered reductions gauge entity’s contribution to Presidential goal of reducing U.S. emissions intensity 18% by 2012 • Registered reductions may be transferred to other entities using private agreements [but no changes to DOE records] • To retain reductions from sequestration, entities must continue to report

30. Overview of Guidelines: Small Emitters (<10,000 metric tons CO2e per year) Small emitters that intend to register must: • Emit less than 10,000 metric tons of CO2 equivalent per year • Report all emissions and reductions for at least one activity, e.g. livestock operations or forested land • Report annually • Certify that activities being reported do not cause an increase in emissions elsewhere under the entities’ control

31. Overview of Guidelines: Large Emitters (>10,000 metric tons CO2e per year) Large emitters that intend to register must: • Submit comprehensive, high-quality emissions inventories • Determine reductions based on entity-wide assessments of changes relative to base period • Ensure offset reductions are calculated according to entity rules and are subject of agreement with other entities • Report annually

32. Basic Elements of the Revised §1605(b) Guidelines • Defining and naming the entity, and setting organizational boundaries • Determining Start Year, Base Period and First Reduction Year • Entity Statements • Emissions Inventories • Emission Reductions • Other reporting requirements, including record keeping, certification, and verification • Offsets, non-U.S. emissions, aggregators, other gases and sources

33. Key Addresses for Revised §1605(b) All documents and guideline development background can be found at: • http://www.pi.energy.gov/enhancingGHGregistry/ Information on EIA implementation of program and revised guidelines can be found at: • http://www.eia.doe.gov/oiaf/1605/aboutcurrent.html/

34. Questions? Dan Klein Twenty-First Strategies, LLC 6595 Terri Knoll Ct. McLean, VA 22101 703-893-8333 dklein@21st-strategies.com

35. Appendix Basic Elements of the Revised §1605(b) Guidelines

36. Basic Elements of the Revised §1605(b) Guidelines • Defining and naming the entity, and setting organizational boundaries • Determining Start Year, Base Period and First Reduction Year • Entity Statements • Emissions Inventories • Emission Reductions • Other reporting requirements, including record keeping, certification, and verification • Offsets, non-U.S. emissions, aggregators, other gases and sources

37. Emissions Inventory - The Emissions Rating System • Reporters must “rate” their emissions measurement and estimation methods • The ratings are ordinal, with four levels, A, B, C & D (valued 4, 3, 2, 1) • An “A” rated method = best method available (e.g. direct measurement) • A “D” rated method = least rigorous method (e.g. estimated activity data) • The weighted average rating must be at least 3.0 to register reductions (i.e., a “B” average”) • Reporters must calculate an inventory weighted average rating for each year

38. Emissions Inventory - Measuring Emissions When choosing measurement or estimation methods, entities should consider: • Rating • Cost and feasibility of available methods • Accuracy • Size of the source • Variability and performance over time, and • Ancillary Benefits

39. Emissions Inventory – Potential Sources of Emissions and Sequestration • Stationary source combustion • Indirect emissions from purchased electricity, steam, hot and chilled water • Mobile source combustion • Industrial process emissions • Mining, oil, and gas production emissions • Waste treatment and handling • Non-fuel use of fossil fuels • Other indirect emissions • Forestry sources and sinks • Agricultural sources and sinks • Engineered sequestration