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WRI Responds to Questions about CLEAR Act Analysis Methodology

An explanation of how WRI conducts analysis of climate and energy proposals before the US Congress.

In recent weeks there have been questions about WRI’s analysis on congressional climate and energy proposals, in particular our analysis of the Carbon Limits and Energy for America’s Renewal Act (CLEAR) Act, S. 2877 sponsored by Senators Cantwell and Collins. To provide some clarity, this note explains how we conduct this analysis and builds off the methodology and assumptions section of our most recent release. WRI welcomes any questions and feedback on this analysis; please feel free to contact John Larsen, jlarsen@wri.org.

Background on WRI’s analysis of congressional climate and energy proposals

WRI has conducted comparative analyses of congressional climate and energy proposals since 2006. Beginning with the 110th Congress, WRI has provided estimates of net greenhouse gas emissions (GHG) to the atmosphere, for each major economy-wide piece of legislation proposed. The analysis is intended to provide a consistent comparison across what are sometimes very different approaches to reducing GHG emissions.

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In line with our institutional values and like all WRI research, our comparative analyses of congressional climate and energy proposals is peer-reviewed by external NGOs, think tanks, government agencies, and other independent analysts. Our methodology, data sources and assumptions are transparently documented in each report. Generally, we summarize our analysis in a chart accompanied by about ten pages of methodological information, with the strong expectation that readers inform their use of the chart through understanding of the methodology. The analysis looks at a narrow aspect of congressional proposals – the net impact the bills are expected to have on GHGs in the atmosphere.

For the purpose of this analysis, net emissions to the atmosphere means the sum of the cap set by the proposal and an estimate of emissions not covered by the program. This is the “emission caps only” scenario in our analysis. We then add other scenarios that include additional mandatory requirements beyond the cap(s) and a range of additional reductions that may occur under certain circumstances. In all cases WRI does not differentiate between emission reductions that take place in the U.S. or elsewhere. Oftentimes different bills cover different amounts and/or types of emissions sources and/or incorporate programs to reduce emissions outside the U.S. but at the end of the day it’s the sum of all of these components that constitutes our estimates.

While WRI’s analysis does not show that the CLEAR Act achieves emission reductions similar to other recent proposals, it is in no way a judgment of the bill’s structure or the political persuasions or motivations of the bill’s sponsors. It is simply an estimate of net GHG emissions under the requirements contained in the proposal. WRI applauds all constructive additions to the policy debate, and the CLEAR Act is no exception. As the only bipartisan proposal currently introduced in the 111th Congress, the CLEAR Act is a welcome addition to what is a proving to be a slow and deliberate discussion in the Senate.
With all of the above points in mind, here are responses to specific points in question about WRI’s analysis of the CLEAR Act:

1. Treatment of offsets. While it is a legitimate and important concern that offsets which are not real, permanent and additional will undermine the environmental integrity of any cap and trade program, it is also true that if offsets are high quality, are real, additional and permanent they represent true emission reductions. Despite justified concerns about the integrity of offsets, it would be equally arbitrary to assume that no offsets can be real, permanent and additional or to assume that offset quantity limits will always be met. WRI has flagged and researched this issue extensively. Because of this, WRI’s analysis is carefully qualified, as follows: “if the environmental integrity of offsets were not completely real, permanent, and additional then the emission reduction estimates included in this analysis would be diminished proportionately.” Prior to a June 25th analysis, the statement read “[W]e assume: Offsets will be real, permanent and additional. As a result, we depict offsets as a real reduction in total global GHG emissions.” This statement was changed in response to feedback from reviewers and others that it needed to be clearer. In both cases, the caveat was included to flag that the analyses should be used carefully. However, WRI’s assumption that offsets are “real, permanent, and additional” is the identical assumption used by the EPA, EIA, CBO, and others in their analyses.

The variability in the quality and quantity of offsets used is difficult to account for in a technical analysis like this as it is largely uncertain what shape offsets or offset-like projects would take in the United States under different proposals with different legislative language. However, we are open to input on how to account for this uncertain aspect of our analysis.

Another methodological challenge is that the CLEAR act does allow the purchase of additional, offset-like reductions through the Clean Energy Reinvestment Trust (CERT) fund. WRI did not count these in our analysis. As explained in point 3 below, the reason we did not include these reductions in the analysis is because they are subject to future congressional action, and not required by the bill alone.

2. Choice of BAU. WRI’s analysis relies on the EPA’s most recent ADAGE reference case (scenario 1) projections for business as usual emissions for three reasons. First, this particular reference case provides economy-wide projections rather than just components of the economy such as fossil fuel consumption. Second, this reference case includes all six Kyoto-defined GHGs, creating a complete picture of the impact on the environment. Finally and most importantly, this reference case projects emissions out to 2050. Peer-reviewers recommended this expression of BAU to be the most appropriate when conducting a comparative analysis of proposals that control GHGs out to 2050. We have heard the suggestion that EIA’s most recent, six gas projections, released in August 2009, would be more accurate; however, they only project out to 2030, and peer-reviewers cautioned against extrapolating model trends past 2030. Once the EPA ADAGE reference case is updated, WRI will update this component of our analysis. Finally, to ensure transparency, the methodology in our analysis clearly states, “This projection could be considered a slight overestimate of future emissions when compared to more recent projections released by the Energy Information Administration.” It is also important to note that no projection is perfect. The challenge is to use the most appropriate reference case available for the task at hand.

WRI noted in its analysis of the CLEAR Act that the proposal contains an interesting mechanism for initially setting the cap where it is indexed to the most recent emission projections. In order to be consistent across all proposals we relied on the EPA ADAGE reference case. However, we clearly acknowledged on page one of our analysis that “The CLEAR [Act] reduction targets are initially set at projected 2012 levels. Thus, if projected emissions are higher than those included in this analysis, there would be fewer total emission reductions; similarly, if emissions are lower, there would be greater total emission reductions relative to 2005 and 1990 than reported here.” We have constructed preliminary, unpublished estimates based on the latest EIA projections that suggest that total US emissions reductions under the CLEAR Act in 2020 could be closer to 4 percent below 2005 levels. This is 3 percentage points greater than our current published estimates.

3. What the analysis does not cover. To aim for comparability, the analysis only looks at what could be achieved by the bill itself, if it were to be enacted. We do this because we've found that trying to predict the actions of future members of Congress and other politicians quickly becomes a slippery slope. For instance, in the American Clean Energy and Security Act (ACESA), some have argued that the international clean technology deployment program in the bill could lead to additional, quantifiable emissions reductions. However, we did not count that because the result would be contingent on additional actions by future Congresses as well as international climate agreements. Similarly, under the CLEAR Act, the President is required to set emission reduction targets and is instructed to meet them using a combination of the emissions cap and money appropriated from the CERT Fund established by the bill. We count the emissions impact of the cap because it is clearly required by the bill itself. We do not count potential reductions that could be achieved by expenditures from the CERT fund because any spending of this fund requires additional action by future Congresses through the appropriations process. WRI solicited input from internal and external experts to fully understand this aspect of the CLEAR Act and all were unequivocal that this is the proper interpretation of the proposal. This is different than allowance set asides for funding emission reduction programs under proposals such as Waxman-Markey (also Bingaman-Specter and Lieberman-Warner in the 110th Congress) which guarantee a funding stream based on allowances and set program requirements in the proposal itself. WRI consistently applied the treatment of Congressional action in its analysis of the CLEAR act and did not use a double standard.

4. Charting CLEAR compared to other bills. We have heard the suggestion that this bill should be charted differently than other bills in our analysis. The CLEAR Act is very similar to other bills we've analyzed in the past. It is most similar to two specific types of bills. First, it is similar to several proposals from the 109th and 110th Congress that set economy-wide goals and authorized the President or EPA to promulgate regulatory measures to meet those goals. These include proposals from Sanders-Boxer, Waxman and Kerry-Snowe. Like these other proposals, the CLEAR act sets economy-wide emission reduction goals. However, the CLEAR Act is different in that the President may use only the emissions cap and the CERT fund and no other measures to meet these goals. The other proposal that the CLEAR act is similar to is the Van Hollen-sponsored Cap-and-Dividend Act put forth earlier this year. CLEAR and Van Hollen are similar in their choice of implementing agency, point of regulation and emissions coverage and 100% auction of allowances among other things. All of these previous bills were analyzed by WRI using the same methodology as we’ve used to analyze the CLEAR Act with no objections from bill sponsors or supporting interests.

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