The Limits To Voluntary, Self-Reporting Of Greenhouse Gases: Third Party Verification Is Imperative

How Representative Are Voluntary Industry Greenhouse Gas Emission Registries? When USEPA or a US trade group promotes a voluntary environmental standard for industry, they'll get participation from the usual sector leaders. The rest pretty much lay back in the weeds, content to do what minimum the actual law requires, until some sort of market advantage becomes obvious or it becomes a requirement to do business in some other nation. That's just how it is: some US companies are "proactive" and others are "reactive" when it comes to the green stuff. Voluntary standards appeal to the "proactives."

Those cmpanies which can measure and cost effectively manage without being told to will; those with more difficulty - more carbon intensive or less technically adept - are unlikely to voluntarily report and manage greenhouse emissions. As a result, the voluntary approach likely provides an imprecise indication of what is being emitted, and and possibly an over-representation of what is doable for emission reductions, by the average industry in a sector. For the first half of the problem at least, there is a prospective solution on the horizon; and, it looks a lot like the best practices for financial accounting.

Practical Problems With Voluntary, Self-Reporting
Voluntary standards for estimating and reporting greenhouse gas equivalents (GHG-e) are available from consortia, trade groups, states, and for-profit entities (see below for example listings). These tend to be described under the catch phrase "climate registry," but implicitly include protocols for measurement, estimation, documentation, and reporting. For North American industry, USEPA has a voluntary standard under development for greenhouse gases. In general, voluntary GHG-e reporting standards are great for those large companies which have the staff technical talent to dedicate and position themselves among the "leading green" firms: which pretty much excludes every small business, and the 'followers' of any size.

When it comes to companies without strong technical staff - small service industries, for example, are extremely unlikely to have engineers on staff who can do a thorough and accurate job of assessing GHG emissions - it's especially important that third-party verification of the estimates occurs.

Think About The Corporate Tax Implications
Suppose at some future point, companies could be taxed based on a GHG-e related metric. If a company over-estimates emissions now, do they get an unfair break later. If they underestimate now, with there be a large lump sum due when that's discovered later? (You can see why there might be reluctance to self-report by some firms, on this basis alone. Feeds into the follower mentality.)

Think everyone in industry agrees that purchased electric power gets counted as an emissions source? Think again.

Issues That Ripple Up The Supply Chain
Imagine you are asked to do a greenhouse gas inventory for your employer. How does one count emissions associated with the life cycle of a product made under a joint venture agreement, with manufacturing outsourced to the max? Tough one

Do you count only the final assembly step? Or, do you require your contract manufacturers to also comply with the "voluntary standard." Suddenly not so voluntary sounding is it? Once push-back comes from the supply chain, the results can loose consistency.

Can you deduct credits from offset purchases?

There are hundreds of possible questions to ask along these lines.

Why Third Party Verification Can Help
Documenting how the protocols required by existing climate registries (web sites where you record the results) were followed, or not followed, is what third party verification is all about. Not every registry will offer identical answers to the sample questions listed above. See the rub?

The Solution
How will the various GHG-e reporting systems: group by group; country by country be reconciled without third party verification of reporting industries? .

If you have a background in accounting or economics, you can see where this is headed. GHG-e reporting will have to be managed much like financial reporting is handled: including occasional third party verification or 'auditing' provisions.

As reported by Alston+Bird, LLP, a few US Senators are working on a bill that heads EPA'S "voluntary" approach over into the third-party verification territory, where it must eventually go to support an international system that is reliable and reasonably comparable.

A bill, entitled the Greenhouse Gas Registry Act, introduced by Reps. Baldwin (D-WI), Inslee (D-WA), and Holt (D-NJ) would set up new requirements for the Environmental Protection Agency to develop a national greenhouse gas registry. The bill essentially mirrors the greenhouse gas registry requirements proposed in the Lieberman-Warner Climate Security Act of 2008, including the requirement that the registry take into account the best practices of local, state, private, and international registry programs. As a result of this best management requirement, the Greenhouse Gas Registry Act, if enacted, could conflict with EPA's ongoing efforts to establish a greenhouse gas registry.

Aside from this newly introduced bill, EPA is obligated under current law to create a final registry rule by July 1, 2009, and plans to release a proposed version of that rule in the near future. Early reports indicate that EPA's proposed rule may allow regulated entities to "self-report" their greenhouse gas emissions instead of requiring regulated entities to obtain a third-party verification of their greenhouse gas emissions. This move would be in stark contrast with the prevailing standards of international registries and voluntary domestic registries like the California Action Registry, which all require third party verification. Arguably, then, third-party verification is a greenhouse gas registry best practice, and the Greenhouse Gas Registry Act may, therefore, require third-party verification. Consequently, if the Greenhouse Gas Registry Act becomes law and if EPA's forthcoming proposed rules allow for self verification, then EPA's current efforts to create a greenhouse gas registry may be in vain.

The country that leads the way, owns the management system that the rest of the world's systems must reconcile to. Is the US Congress willing to entertain retaking a leadership position on environmental matters? Will they let USEPA get back in the driver's seat?

We'll keep you up to date as this unfolds.

Via::Alston +Bird, Bill Introduced May Redefine Requirements for EPA Greenhouse Gas Registry

See USEPA's GHG reporting information here. Links to other GHG-e related websites are presented below.

Greenhouse Gas Protocol
California Climate Action Registry
Carbon Trust
Climate Counts
CDM Gold Standard Carbon Credits
Voluntary Carbon Standard
Climate Registry

Image credit::Green Options, Options for Calculating Your Carbon Offsets

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