United States
           Environmental Protection
           Agency
Policy, Planning,
And Evaluation
(2122)
EPA 230-B-95-002
May 1995
&EPA     States Guidance Document
           Policy Planning To Reduce
           Greenhouse Gas Emissions

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STATES GUIDANCE DOCUMENT
             POLICY PLANNING
    TO REDUCE GREENHOUSE GAS EMISSIONS
      U.S. Environmental Protection Agency
     Office of Policy, Planning and Evaluation
        State and Local Outreach Program
           Washington, DC 20460
                May 1995

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                                     ACKNOWLEDGEMENTS
       This document was prepared by ICF Incorporated under contract to the U.S. Environmental
Protection Agency (EPA). Katherine Sibold, Director of State Outreach Programs for EPA's Climate
Change Division, coordinated and managed this effort. Key ICF staff involved in the preparation of the
document were Peter Linquiti, David Strelneck, Fro Rosqueta, Melissa Lavinson, Fran Sussman,
Margaret Suozzo, Mary DePasquale, and Doug Keinath.

       The EPA would like to thank those people who have contributed to the development of this
document. In particular, the EPA would like to thank Betsy Hyman, who contributed greatly to the
development of chapter 9, and the members of the Ad Hoc Advisory Committee, whose fundamental
role was to help ensure that this document would be valuable and practical for state policy-makers.
The members of the Ad Hoc Advisory Committee provided valuable input from the initial stages of the
project through the final round of substantive editing.  The members of the committee include:
Michael Arny
Public Service Commission of
Wisconsin

Bill Becker
State and Territorial Air Pollution
Program Administrators
(STAPPA)

Patti Cale
Iowa Department of Natural
Resources

Joe Canny
U.S. Department of - -—  —  -
Transportation

Brian Castelli
Pennsylvania Energy Office

Rosalie Day
U.S. Environmental Protection
Agency - Region 5

Jim Demetrops
U.S. Department of Energy

Jerry Dion
U.S. Department of Energy
Dennis Eoff
U.S. Environmental Protection
Agency/Climate Change Division

Arthur Fish
Argonne National Laboratory

Doug Gatlin
Climate Institute

Philip Jessup
International Council for Local
Environmental Initiatives (ICLEI)

Matthew Kelly
Pennsylvania Energy Office

Debora Martin
U.S. Environmental Protection
Agency/Regional and State
Planning Branch

Donald E. Milsten, PhD
Maryland Energy Administration

Larry Morandi
National Conference of State
Legislators
Nancy Pitblado
Connecticut Office of Policy and
Management/PDPD

Mark Popovich
Center for Clean Air Policy

Sam Sadler
Oregon Department of Energy

Dr. Ajay Sanghi
New York State Energy Office

Bob Shackleton
U.S. Environmental Protection
Agency/Air and Energy Policy
Division

Kari Smith
California Energy Commission

Holly Stallworth
U.S. Environmental Protection
Agency/Regional and State
Planning Branch

Barbara Wells
National Governors' Association

Carol Whitman
U.S. Department of Agriculture

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                              TABLE OF CONTENTS

ACKNOWLEDGEMENTS	  j

TABLE OF CONTENTS		  jjj

CHAPTER 1   INTRODUCTION		   1-1
            1.1    PURPOSE  	-	   1-1
            1.2   ORGANIZATION OF THE DOCUMENT	   1-2

PART I: INITIATION OF CLIMATE CHANGE PROGRAMS	 1-1

CHAPTER 2   BACKGROUND ON CLIMATE CHANGE SCIENCE AND POLICY	   2-1
            2.1    INTRODUCTION TO CLIMATE CHANGE	   2-1
                  2.1.1   Scientific and Technical Aspects
                         of Global Climate Change  	   2-1
                  2.1.2   Potential Impacts of Global Climate Change	 2-2
            2.2   POUCY CONTEXT FOR CLIMATE CHANGE MITIGATION	 2-6
                  2.2.1   Introduction to International and National Responses to
                         Climate Change	 2-6
                  2.2.2   Importance of State Action	  2-10
            2.3   INTRODUCTORY FRAMEWORKS FOR CLIMATE CHANGE ANALYSIS ...  2-13
                  2.3.1   Barriers to Emission Reductions	  2-15
                  2.3.2   Structure of Policy Approaches  	  2-16
                  2.3.3   Time Perspectives in Policy Development	  2-18

CHAPTER 3   MEASURING AND FORECASTING GREENHOUSE GAS EMISSIONS	 3-1
            3.1    MEASURING CURRENT EMISSIONS	 ;	3-1
            3.2   FORECASTING FUTURE EMISSIONS	: 3-1

CHAPTER 4   ESTABLISHING EMISSIONS REDUCTION PROGRAM GOALS AND
            EVALUATIVE CRITERIA	 4-1
            4.1    EXAMPLES OF GREENHOUSE GAS REDUCTION GOALS 	 4-1
            4.2   COMPLEXITIES IN EMISSIONS REDUCTION GOAL SETTING	 4-2
                  4.2.1   Four Variable Aspects of Goal Setting Processes	 4-2
                  4.2.2   Complications that Affect Goal Setting  	 4-4
            4.3   ESTABLISHING CRITERIA FOR EVALUATING POLICIES	 4-6

PART II:  TECHNICAL APPROACHES AND POLICY OPTIONS FOR REDUCING
         GREENHOUSE GAS EMISSIONS	 11-1

CHAPTER 5  TECHNICAL APPROACHES AND SOURCE-SPECIFIC POUCY OPTIONS	 5^
            5.1   GREENHOUSE GASES FROM ENERGY CONSUMPTION:
                  DEMAND SIDE MEASURES		5-7
                  5.1.1   Technical Approaches for Improving Energy Efficiency and
                         Reducing Energy Use  	  5-11
                  5.1.2   Direct State Actions to Promote Energy Efficiency	  5-12
                  5.1.3   Public Utility Commission and Utility Policies to Promote
                         Efficiency in Energy Consumption	  5-16
                  5.1.4   Conserve Energy through Improved Industrial and Agricultural
                         Processes 	  5-17
                  5.1.5   Promote Urban Tree Planting	  5-19
                                        in

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            5.2    GREENHOUSE GASES FROM ENERGY PRODUCTION: SUPPLY SIDE
                   MEASURES	 5-20
                   5.2.1  Reduce Greenhouse Gas Emissions by Utilities 	 5-22
                   5.2.2  Reduce Emissions by Independent Power Producers	 5-25
                   5.2.3  Reduce Emissions Through On-Site Power Production	 5-26
            5.3    GREENHOUSE GASES FROM THE TRANSPORTATION SECTOR	 5-27
                   5.3.1  Reduce Vehicle Miles Travelled (VMT)	 5-28
                   5.3.2  Reduce Emissions per Mile Travelled	 5-31
                   5.3.3  Use Alternative Fuels	 5-32
            5.4    METHANE FROM NATURAL GAS AND OIL SYSTEMS 	 5-34
            5.5    METHANE FROM COAL MINING  	 5-36
                   5.5.1  Methane Recovery and Use	 5-37
                   5.5.2  Reduce Coal-Fired Energy Consumption  	 5-40
            5.6    METHANE FROM LANDFILLS	 5-40
                   5.6.1  Methane Gas Recovery  	 5-41
                   5.6.2  Reduction of Organic Municipal Solid Waste	 5-43
            5.7    METHANE EMISSIONS FROM DOMESTICATED LIVESTOCK 	 5-46
                   5.7.1  Improve Production Efficiency Per Animal	 5-46
                   5.7.2  Improve Overall Production Efficiency of Animal Products by
                         Matching Animal Products to Customer Preferences	 5-48
            5.8    METHANE FROM MANURE MANAGEMENT	 5-48
                   5.8.1  Methane Recovery and Use	 5-49
                   5.8.2  Increase Aerobic Treatment of Livestock Manure	 5-51
            5.9    METHANE FROM RICE CULTIVATION  .	 5-52
            5.10   NITROUS OXIDE AND OTHER GREENHOUSE GASES FROM
                   FERTILIZER USE	;	 5-54
                   5.10.1 Improve Nitrogen-Use Efficiency in Fertilizer Application 5-55
                   5.10.2 Replace Industrially-Fixed Nitrogen Based Fertilizers with
                         Renewable Nitrogen Source Fertilizers	 5-58
            5.11   EMISSIONS ASSOCIATED WITH FORESTED LANDS 	 5-60
                   5.11.1 Maintain Carbon Storage Capacity of Existing Forests 	 5-61
                   5.11.2 Improve Productivity of Existing Forest Lands	 5-63
                   5.11.3 Integrate Climate Change Concerns into Fire Management
                         Policies	 5-65
                   5.11.4 Integrate Climate Change Concerns into Pest Management
                         Policies	 5-66
                   5.11.5 Institute Policies to Affect Demand for Forest Products  	 5-66
            5.12   GREENHOUSE GASES FROM BURNING OF AGRICULTURAL
                   WASTES 	 5-69
                   5.12.1 Plow Residue Back Into Soil	 5-69
                   5.12.2 Remove Crop Residues and Develop Alternative Uses	 5-70
                   5.12.3 Use Alternative Burning Techniques	 5-72
                   5.12.4 Replace with Alternative Crops	 5-74

CHAPTER 6  CROSS-CUTTING THEMES AND PROGRAM DEVELOPMENT	 6-1
            6.1    COMPREHENSIVE PLANNING IN THE ELECTRICITY SECTOR	 6-1
            6.2    BIOMASS ENERGY DEVELOPMENT	 6-7
            6.3    TREE AND TIMBER EXPANSION PROGRAMS  	 6-9
            6.4    CITY AND REGIONAL PLANNING	 6-11
            6.5    AGRICULTURAL SECTOR PLANNING . ;	 6-13
                                         IV

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PART III:  PROGRAM DEVELOPMENT AND STATE ACTION PLAN PREPARATION ...  111-1

CHAPTER 7  CLIMATE CHANGE PROGRAM DEVELOPMENT .	  7-1
            7.1    TIME PERSPECTIVES IN CLIMATE CHANGE PROGRAM DESIGN	  7-1
                   7.1.1  Structuring Time Frame Considerations in Program Design	  7-3
                   7.1.2  Models for Including Time Frame Considerations in Program
                         Development	  7.4
            7.2    IMPORTANT ACTORS IN CLIMATE CHANGE PROGRAM DESIGN  	  7-5
            7.3    POLITICAL CONSIDERATIONS IN PROGRAM DEVELOPMENT  	  7-5
                   7.3.1  Developing Programs and Processes That Foster
                         Broad-Based Political Support 	  7-5
                   7.3.2  Using Policies Strategically Within the Time Frames of
                         Program Development	  7-6
                   7.3.3  Utilizing Legislative and Executive Action Strategically When
                         Feasible	  7-6
            7.4    COORDINATING CLIMATE CHANGE PROGRAMS:
                   INTERACTION BETWEEN AGENCIES	, .		7-7
                   7.4.1  Partnerships Between State Agencies	  7-7
                   7.4.2  Interaction With Federal and Local Agencies	  7-8
                   7.4.3  Structuring Partnerships/Program Coordination and
                         Administration  	  7-8
            7.5    CLIMATE CHANGE PROGRAM FINANCING	  7-11

CHAPTER 8  ANALYZING POLICY OPTIONS	  8-1
            8.1    ESTABLISHING A CONSISTENT FRAMEWORK FOR POLICY ANALYSIS	8-1
                   8.1.1  Structure of the Policy Analysis Framework	8-1
                   8.1.2  Application of the Policy Analysis Framework	  8-3
            8.2    ESTIMATING BENEFITS	  8-4
                  - 8.2.1  Using Greenhouse Gas Emissions Reductions as a Proxy for
                         the Benefits of Mitigating Climate Change	  8-4
                   8.2.2  Considering the Ancillary Environmental and Social Benefits of
                         Emissions Reduction Policies	  8-5
                   8.2.3  Considering the Political and Institutional Benefits of
                         Addressing Climate Change	  8-6
            8.3    ESTIMATING COSTS	  8-6
                   8.3.1  Process for Calculating Social Costs 	  8-7
                   8.3.2  Complications Associated with Social Cost Calculation	  8-9
            8.4    ESTIMATING OTHER IMPACTS	  8-10
            8.5    GENERAL COMPLEXITIES IN ESTIMATING POLICY IMPACTS 	  8-11
            8.6    BASIC METHODOLOGIES FOR EVALUATING CLIMATE CHANGE
                   ISSUES	  8-13
            8.7    MORE COMPLEX TECHNICAL TOOLS FOR ASSESSING
                   GREENHOUSE GAS POLICIES .,	  8-16

CHAPTER 9  PREPARING THE STATE ACTION PLAN   	  9-1
            9.1    EXECUTIVE SUMMARY.	  9-1
            9.2    BACKGROUND ON THE SCIENCE OF CLIMATE CHANGE	9-1
            9.3    REGIONAL AND LOCAL RISKS AND VULNERABILITIES	  9-2
            9.4    1990 AND FORECAST BASELINE EMISSIONS	  9-2
            9.5    GOALS AND TARGETS  	  9-2
            9.6    ALTERNATIVE POLICY OPTIONS	  9-2
            9.7    IDENTIFICATION AND SCREENING OF MITIGATION ACTIONS	 9-3
            9.8    FORECAST IMPACTS OF MITIGATION ACTIONS .	9-3
            9.9    RECOMMENDATIONS AND STRATEGY FOR IMPLEMENTATION	9-4

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GLOSSARY	G-1




REFERENCES	R-1
                                    VI

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                                           PARTI

                        INITIATION OF CLIMATE CHANGE PROGRAMS
       The following three chapters address issues that policy-makers should consider and
understand at the outset of climate change program development.  These chapters advocate
formulation of a strong and deliberate program focus. They are intended to help states gather
information, envision the climate change policy context, and anticipate and prepare for critical issues
that are likely to arise during program development.

       •      Chapter 2, Background on Climate Change Science and Policy, presents background
              information on climate change science, international, national and state responses to
              climate change, and a general framework for policy analysis and program
              development.

       •      Chapter 3, Measuring and Forecasting Greenhouse Gas Emissions, highlights how
              states can measure greenhouse gas emissions and anticipate the probable impact of
              various policy options.

       •      Chapter 4, Establishing Emission Reduction Program Goals and Evaluative Criteria,
              discusses the importance of setting clear and feasible program goals, and offers
              examples of specific policy evaluation criteria that states can use.

       This information sets the context for Part II, which discusses specific technical approaches and
policy options for reducing greenhouse gas emissions, and Part III, which elaborates on
organizational, political, and analytic complexities surrounding climate change policy selection and
program development.

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                                         CHAPTER 1

                                       INTRODUCTION
1.1    PURPOSE

       State-level policies to control greenhouse gas emissions are essential for mitigating the
economic, health, and environmental threats posed by global climate change.  However, the
circumstances surrounding climate change creates a complicated and politically volatile situation for
policy-makers who must deal with complex and uncertain scientific issues and develop policies that
potentially affect multiple economic sectors, including energy, transportation, agriculture, industry, and
forestry.  This guidance document is intended to help states evaluate these complex issue and
develop response strategies that address their distinct situations.  EPA's objective is to assist each
state in formulating a realistic State Action Plan for addressing greenhouse gas emissions.

       This document represents the second phase in EPA's State and Local Outreach Program.
The first phase produced the States Workbook: Methodologies for Estimating Greenhouse Gas
Emissions, which contains a set of guidelines and methodologies for states to use to compile an
inventory of their greenhouse gas emissions and sinks. Identifying emission sources and sinks and
compiling an inventory is a critical first step in building a comprehensive and long range state action
plan.  The Stares Workbook is available through EPA's  Office of Policy, Planning and Evaluation,
Climate Change Division.1

       As follow-on to the Phase I materials, the States Guidance Document: Policy Options for
Reducing Greenhouse Gas Emissions provides a framework and supporting information to assist
policy-makers in further understanding the issues associated with climate change and in Identifying
and evaluating options to mitigate emissions identified  during the inventory process. The document
presents background information particularly relevant at the state level and examines emissions
forecasting, setting goals and policy criteria, policy evaluation, and organizational and  political issues.
It also offers suggestions on how climate change mitigation programs can concentrate on reducing
emissions where the greatest opportunities exist within each individual state. To support this, a
comprehensive survey of technical approaches and policy options for addressing each greenhouse
gas source is provided.

       The information presented here should help states  compile a practical and comprehensive
State Action Plan for addressing greenhouse gas emissions.  This State Action Plan will lay out the
institutional and  policy structure, including specific policy proposals or planning processes, that each
state will use to develop and implement its climate change  mitigation program.

       While providing extensive guidance for program development, this document is not intended
to lead states explicitly through the detailed steps of climate change policy formulation. Such policy
formulation is a process that depends critically on local economic,  social, technical and political
circumstances.  States may also wish to consider potential  adaptive responses to the probable effects
of climate change. This document is, however, intended to supplement state efforts in a complex field
by providing information, resources, and references that highlight and help clarify the most crucial
policy and organizational issues.
    1  The Phase I States Workbook provides worksheets for calculating greenhouse gas emissions by source
category, accompanied by detailed explanations of the formulae and methodologies used, alternative approaches
states may consider, data on regional emissions characteristics, and references to additional information.
                                              1-1

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1.2    ORGANIZATION OF THE DOCUMENT

       This document is divided into three parts, which are structured in the form of sequential
stages that states may pursue in developing State Action Plans. Each part reflects a different aspect
of climate change program design. Part I presents an overview of information and procedures that
policy-makers should consider before developing explicit programs in this field.  Part II describes
technical and policy approaches for reducing the concentration of greenhouse gases in the
atmosphere.  Part III discusses the structuring and administration of climate change programs.

       Each of these three parts of the document, which are summarized in more detail below, is
subdivided into chapters. The chapters address more discrete components of climate change policy
formulation and are designed to be referenced independently.  Consistent with the general theme that
policy formulation in this field is a dynamic process that incorporates various interconnected issues,
each chapter cross-references information in other sections of the document where  appropriate.  All
the chapters maintain a common focus on how states can plan greenhouse gas policies around
distinct local environmental, economic, and political situations.

Part I: Initiation of Climate Change Programs

       Part I, which includes Chapters 2 through 4, presents information to help state policy-makers
establish a focal point the initiation of climate change programs. As discussed throughout the
document,  climate change  and greenhouse gas  emissions and sequestration span many sectors of
society and extend far into  the future.  Furthermore, policy measures to address greenhouse gases
overlap with many other public policy objectives, often in a complementary way.  The chapters in Part
I present background information and planning mechanisms for sorting through this complex policy
arena and developing a clear focus for policy formulation.

       Chapter 2, Background on Climate Change Science and Policy, provides scientific and policy
background information on climate change issues as they affect states. It includes an introduction to
greenhouse gases and to the probable impacts of climate change at the state and local level,
summarizes climate  change policy initiatives around the world, and highlights the importance of state
level action. To help states envision their role in confronting this complicated issue, this chapter
integrates these scientific and policy issues, along with important time frame concerns,  into a general
framework for climate change policy analysis that serves as a basis for State Action Plan formulation.

       Chapter 3, Measuring and Forecasting Greenhouse Gas Emissions, summarizes the
methodologies for estimating emissions that were presented in EPA's Phase I greenhouse gas
inventory document, described above. This chapter also explains  how these methodologies can serve
as a base for forecasting the impact of various alternative policy options throughout future time
periods.

       Chapter 4, Establishing Emission Reduction Program Goals and Evaluative Criteria, examines
goal setting in climate change program development.  It highlights the practical and political
differences between setting quantitative and qualitative emission reduction targets and emphasizes
the importance of establishing specific criteria for evaluating policy options over a range of time
frames.

Part II: Technical Approaches and Policy Options for Reducing Greenhouse Gas Emissions

       Part II, which includes Chapters 5 and 6, describes the specific sources and sinks of
greenhouse gases across all sectors of society and highlights numerous emission reduction policy
options.  The chapters in Part II should be used as a reference tool for learning about how
greenhouse gases are generated  and for compiling a portfolio of policy options that can be further
investigated and, potentially, implemented.
                                             1-2

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       Chapter 5, Technical Approaches and Source-Specific Policy Options, contains a separate
section on seventeen greenhouse gas sources and sinks. Each section describes how the source
generates gases or the sink sequesters them, and discusses the technical approaches that
government agencies can use to reduce source-emissions or increase sequestration. The sections
also elaborate on potential policy options that states might use to implement those technical
approaches, and how these options may interact with other state policy objectives. This chapter
emphasizes the range of policy options that are unique to a  particular source or sink.

       Chapter 6, Cross Cutting Policy Options, describes policy approaches that offer promise for
reducing emissions from various sources simultaneously. These approaches highlight how innovative
government action tailored to  particular situations can substantially affect greenhouse gas emissions
and can potentially promote other public sector goals as well.  In presenting policy ideas, this chapter
references the technical information in Chapter 5 extensively.

Part III: Program Development and State Action Plan Preparation

       Part III, which includes Chapters 7 through 9, addresses organizational and analytical topics
relating to climate change program design and offers  guidance in preparing the State Action  Plan.
Programs that are structured to support flexible selection and evolution of policies will maintain a
stronger and more dynamic link with overall state policy objectives.  This flexibility is especially
relevant because of the diversity of political circumstances surrounding climate change and the
changing state of scientific and technical knowledge in this field. The chapters in Part III draw on
state experiences and current research to present mechanisms states can use to evaluate  options
and to structure flexible and responsive programs in an  uncertain  policy  environment.

       Chapter 7, Climate Change Program Development, addresses institutional, administrative, and
political issues that can affect  the success  of climate change mitigation efforts. This information
highlights how states can anticipate issues that may arise during the process of program design and
presents ideas on how programs might be structured  to deal with these concerns.  Specific topics
include time frame perspectives in policy planning, understanding the important public and private
sector actors in this field, political issues in program development, program finance, and interaction
between agencies within the state and at the local and national level. The topic of partnerships
between state agencies is extremely important within the context of this chapter.

       Chapter 8, Evaluating  Policy Options, examines alternative approaches to balancing emissions,
costs, and other policy impacts. It summarizes the methodologies states might use to evaluate
emission control policies, and introduces models for analyzing the complicated interactions between
various factors. This chapter  also discusses analytic constraints, such as uncertainty and multiple
time-frames for planning. This information  illustrates the range of issues states should consider when
evaluating policies and is not  intended to suggest any specific approach.

       Chapter 9, Guidance on State Action Plan Formulation, offers a framework and model for
developing the State Action Plan on climate change mitigation.

       Exhibit 1-1 illustrates the structure of the document and the  primary contents of each chapter.
While the document presents  policy formulation as a sequential process, the information and concepts
presented in each of the chapters may need to be referenced at different times throughout program
development.
                                              1-3

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                               Exhibit 1-1
                          Structure of Document
Part 1: Initiation of Climate Change Programs
Chapter Z
Climate Change Primer
-Scientific Background
-Policy Cbntexf
i-Palley f ramewofK

Chapter 3.
Measuring Emissions
—Current Emissions
-Future Emissions

Chapter 4
Sett+ngGoals and Criteria
"Samples frpm States.
-Complexitiea
-Sample Criteria
j
.. 	 1
\ '
Part II: Techni
^•^^;-~^;--^-^^^^+
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^.•.•.•:.:-::::.:-::::.:-:::.:-::::.:::::::::::-::::::.-:;:.

sal Approaches and
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.\\\\\\\\";.\\\\\\\\-.-.-.-:.-:.-::;:;:::.\:::.-:.'.-::.-.-::.'l
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\v////AV///r////AV///////////.v.v.v.v.-. •.-.•.•.•.•:.•.•:.]
Part III: Program Development and State Action Plan Preparation
       Chapter 7

   Program Development

   "Time Frame Issues
   --important Actors
   --Political Considerations
   -Coordinating Programs
   -Finance          	
      Chapters
Chapter 9
 Evaluating Policy Options j  (State Action Plan FormuiationS

 -Analytic Comrjficafens  j  [  -important Components  •

rSBSSfi*       j  [  -Bcampte/Mode.        I
-Tools and Methodologies j  '                      j
                                   1-4

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                                         CHAPTER 2

                 BACKGROUND ON CLIMATE CHANGE SCIENCE AND POUCY
       Initiating climate change response programs requires a basic understanding of the underlying
scientific, technical, organizational, and political issues. The purpose of this chapter is to familiarize
policy-makers with the current scientific understanding of global climate change and to set the
broader policy context for greenhouse gas reduction measures. The first section of this chapter
introduces the greenhouse effect and the changes in climate expected to result from increasing
atmospheric concentrations of greenhouse gases. The second section describes international and
national responses to climate change and identifies the role of states in mitigating this threat. The
third section presents a framework for climate change policy analysis that provides the structure for
the remainder of this document and the basis for climate change program development.  The final
section uses an example of comprehensive policy planning to illustrate many of the points made
throughout this chapter.


2.1    INTRODUCTION TO CLIMATE CHANGE

       The Earth's climate is the result of a complex system driven by many factors, including radiant
energy from the sun, volcanic activity, and other natural phenomena  Human activities, specifically
those that result in emissions of greenhouse gases, may affect this complex system and alter the
Earth's climate. While the atmosphere's  natural greenhouse effect is  relatively well understood,
uncertainties surrounding the effects of increased concentrations of greenhouse gases still exist.  This
section describes the scientific and technical aspects of climate change and the impacts which may
result at both global and regional levels.

       2.1.1   Scientific and Technical Aspects of Global Climate Change

       The climate of the  Earth is affected by changes in radiative forcing attributable to several
sources including the concentrations of radiatively active (greenhouse) gases, solar radiation,
aerosols, and albedo.1  Greenhouse gases in the atmosphere are virtually transparent to sunlight
(shortwave radiation), allowing it to pass  through the air and to heat the Earth's surface. The Earth's
surface absorbs the sunlight and emits thermal radiation  (longwave radiation) back to the atmosphere.
Because some gases, such as carbon dioxide (CO2), are not transparent to the outgoing thermal
radiation, some of the radiation is absorbed, and heats the  atmosphere.  In turn, the atmosphere emits
thermal radiation both outward into space and downward to the Earth, further warming the surface.
This process enables the Earth to maintain enough warmth to support life: without this natural
•greenhouse effect,* the Earth would be approximately 55ฐ F colder than it is today.  However,
increasing concentrations  of these greenhouse gases are projected to result  in increased average
temperatures, with the potential to warm  the planet to a level that could disrupt the activities of today's
natural systems and  human societies.
      Albedo is the fraction of light or radiation that is reflected by a surface or a body. For example, polar ice and
cloud cover increase the Earth's albedo. "Radiative forcing11 refers to changes in the radiative balance of the Earth,
i.e., a change in the existing balance between incoming and outgoing radiation.  This balance can be upset by
natural causes, e.g., volcanic eruptions, as well as by anthropogenic activities, e.g., greenhouse gas emissions.


                                              2-1

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       Naturally occurring greenhouse gases include water vapor, carbon dioxide, methane
nitrous oxide (N2O), and ozone (O^.2  Some human-made compounds, including
chlorofluorocarbons (CFCs) and partially halogenated fluorocarbons (HCFCs), hydrofluorocarbons
(MFCs), which can substitute for CFCs and HCFCs, and other compounds such as perfluorinated
carbons (PFCs), are also greenhouse gases. In addition, there are photochemically important gases
such as carbon monoxide (CO), oxides of nitrogen (NOX), and nonmethane volatile organic
compounds (NMVOCs) that, although not greenhouse gases, contribute indirectly to the greenhouse
effect.  These are commonly referred to as tropospheric ozone precursors because they influence the
rate at which ozone and other gases are created and destroyed in the atmosphere.

       Greenhouse gases are emitted by virtually all economic sectors, including residential and
commercial energy use, industrial processes, electricity generation, agriculture and forestry.   Exhibit
2-1 contains a brief description of these gases, their sources, and their roles in the atmosphere.3
Exhibit 2-2 discusses how the  potential warming effects of these gases are usually expressed using a
common scale.  Figure 2-1 presents the U.S. contribution to integrated radiative forcing by the major
greenhouse gases. Later in this document,  Chapter 3 provides a complete list of emission sources
and Chapter 5 elaborates on the emission characteristics and options for addressing emissions from
each source.

       2.1.2   Potential Impacts of Global Climate Change

       Although CO2, CH4, and N2O occur naturally in the atmosphere, rising levels of these gases in
the atmosphere are attributed  mainly to anthropogenic activities. This buildup has altered the
composition of the earth's atmosphere, and possibly will affect the future global climate. Since 1800,
atmospheric concentrations of carbon dioxide have increased by about 25 percent,  methane
concentrations have more than doubled, and nitrous oxide concentrations have risen approximately 8
percent (IPCC, 1992a). And, from the 1950s until the mid-1980s, when international concern over
CFCs grew, the use of these gases increased nearly 10 percent per year.  The consumption of CFCs
is declining quickly, however,  as these gases are phased out under the Montreal Protocol on
Substances that Deplete the Ozone Layer.4 Use of CFC substitutes, in contrast, is expected to grow
significantly.

       Estimating the potential impact of increasing greenhouse gas concentrations on global climate
has been a focus of research within the atmospheric science community for more than a decade.
While there is considerable agreement within the scientific community that rising levels of greenhouse
gases will eventually result in  higher temperatures, there is much less agreement about the timing,
magnitude, or regional distribution of any climatic change.  Uncertainties about the climatic roles of
   2  Ozone exists in the stratosphere and troposphere.  In the stratosphere (about 12.4 - 31 miles above the
Earth's surface), ozone provides a protective layer shielding the Earth from ultraviolet radiation and subsequent
harmful hearth effects on humans and the environment. In the troposphere (from the Earth's surface to about 6.2
miles above), ozone is a chemical oxidant and major component of photochemical smog.  Most ozone is found in
the stratosphere, with some transport occurring to the troposphere through the tropopause (the transition zone
separating the stratosphere and the troposphere) (IPCC, 1992).

   3 For convenience, all gases discussed in this document are generically referred to as  'greenhouse gases,'
although the reader should keep in mind the distinction between actual greenhouse gases  and photochemically
important trace gases.

   4 In 1987, recognizing the harmful effects of chlorofluorocarbons and other halogenated fluorocarbons on the
atmosphere, many governments signed the Montreal Protocol on Substances that Deplete the Ozone Layer which
limits the production and consumption of a number of these compounds. As of June 1994, 133 countries had
signed the Montreal Protocol. The United States expanded its commitment to phase out these substances by
signing and ratifying the Copenhagen Amendments to the Montreal Protocol in 1992.  Under these amendments,
the United States is committed to eliminating the production of all halons by January 1, 1994, and of all CFCs by
January  1, 1996.


                                              2-2

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Thป Greenhouse Oa
Exhibit 2-1.  Greenhouse Gases and Photochemically Important Gases
                                              NSrous Oxide (N2O).  Anthropogenic sources of NjO emissions
tป                                          Include soil cultivation practices, especially the use of commercial
                                            end organic fertilizers, fossil fuet combustion, adipic and nitric acid
                                            production, and biomass burning.
  Carbon Dicudde (COJ. The combustion of Bquid, so8d, and gaseous
fossl fuels fe  the  major anthropogenic: source of carbon dioxide
emissions. Some other non-energy production processes (e.g., cement
production) also emS notable quantities of carbon dioxide.   CO?
emissions are also produced by forest clearing and biomass burning.
Atmospheric concentrations of carbon dioxide have been increasing at
a rate of approximately 0.5 percent per year (IPCC, 1992), although
recent  measurements suggest that  this rate of growth may  be
moderating (Kerr, 1994).

  In- nature, -carbon  dioxide cycles  between various atmospheric,
oceanic, land blotto, and marine blotte reservoirs. The largest fluxes
occur between the atmosphere and terrestrial biota, and between the
atmosphere and surface water of the oceans.  While there is a small net
addition ofCOj to the atmosphere from equatorial regions, oceanic and
terrestrial biota in the Northern Hemisphere, and to a lesser extent in the
Southern Hemisphere, act as a net sink of CO2 (r.e., remove more CO2
from the atmosphere than they release) (IPCC, 1 992).

  Methane  (CHJ.    Methane is  produced  through  anaerobic
decomposition of organic matter in biological systems.  Agricultural
processes,  such as wetland nee cultivation, enteric fermentation in
animals, and the decomposition of animal wastes, emit methane, as
does the decomposition of municipal solid wastes.  Methane is also
emitted during the production and distribution of natural gas and oil,
and Is released as a by-product of coal production and incomplete fuel
combustion. The atmospheric concentration of methane, which has
been shown to be Increasing at a rate of about 0.6 percent per year
(Steete et al..1992)r may .be stabilizing (Kerr, 1994).

  The major stnk for methane Is Its interaction wtth the hy droxy I radical
(OH) 'in the troposphere.  This interaction  results  in the chemical
destruction of the methane compound, as the hydrogen molecules in
methane combine with the oxygen in OH to form water vapor (HgO) and
CHj. After a number of other chemical interactions, the remaining CH,
(urns Into CO whfch ttsetf reacts with OH to produce carbon dioxide
      and hydrogen (H).
  Hatogenated  Ftuorocarbons, HFCs, and PFCs,   Halogenated
fluorocarbons  are   human-made   compounds   that   include:
chtorofluorocarbons  (CFCs), hafons,   methyl  chloroform,  carbon
tetrachloride, methyl bromide, and hydrochlorofluorocarbons (HCFCs).
These compounds not only enhance the greenhouse effect, but also
contribute to stratospheric ozone  depletion.   Under the Montreal
Protocol and the Copenhagen Amendments,  which  controls the
production and consumption of these chemicals, the U.S. phased out
the production and use of all batons by January 1, 1994 and will phase
out CFCs, HCFCs, and other ozone-depleting substances (ODSs) by
January 1 , 1996. Perfiuorinated carbons (PFCs) and hydrof luorocarbons
(HFCs), a family of CFC and HCFC replacements not covered under the
Montreal Protocol, are also powerful greenhouse gases.
                                              Ozone (OJ. Normal processes in the atmosphere both produce
                                            and destroy ozone.  Approximately 90 percent of atmospheric
                                            ozone resides in the stratosphere, where it regulates the absorption
                                            of solar ultraviolet radiation; the remaining 10 percent Is found in
                                            the troposphere and could play a significant greenhouse role.
                                            While   ozone  is  not  emitted directly   by  human  activity,
                                            anthropogenic  emissions  of  several   gases  influence  its
                                            concentration in the stratosphere and troposphere.  For example,
                                            chlorine and bromine-containing chemicals, such as CFCs, deplete
                                            stratospheric ozone.

                                              Emissions of carbon  monoxide,  nonmethane  volatile  organic
                                            compounds, and oxides of nitrogen contribute to the increased
                                            production  of tropospheric ozone  {otherwise known as urban
                                            smog). Emissions of these gases, known as criteria pollutants, are
                                            regulated under  the  Clean Air Act of  1970 and subsequent
                                            amendments.

                                            Photochemlcalrv Important Gases

                                            •  Carbon Monoxide (CO).  Carbon monoxide Is created when
                                            carbon-containing fuels are burned incompletely. Carbon monoxide
                                            elevates concentrations of methane and tropospheric ozone through
                                            chemical reactions with atmospheric  constituents (e.g., the hydroxyt
                                            radical) that would otherwise assist in destroying,methane arid
                                            ozone. It eventually oxidizes to CO2.

                                            •  Oxides of Nitrogen (NOJ. Oxides of nitrogen, NO and NOj, are
                                            created from lightning, biomass  burning (both natural  and
                                            anthropogenic fires), fossil fuel combustion, and in the stratosphere
                                            from nitrous oxide. They play an important role in climate change
                                            processes because they contribute to the formation of tropospheric
                                            ozone.

                                            •  Nonmethane   Volatile   Organic  Compounds   (NMVOCs).
                                            Nonmethane VOCs include compounds such as propane, butane,
                                            and ethane. Volatile organic compounds participate along with
                                            nitrogen oxides in the formation of  ground-level ozone and other
                                            photochemical  oxidants.   VOCs  are  emitted  primarily from
                                            transportation, industrial processes, forest wildfire*,  and non-
                                            industrial consumption of organic solvents (U.S. EPA. 1991).

                                            Source: U.S. EPA. 1994
                                                        2-3

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                              Exhibit 2-2: Global Warming Potential (GWP)


       The potential contribution to racfiailve forcing of the various greenhouse gases differ dramatically. Accurately calculating
the amount of radiative forcing attributable to given levels of emissions of these gases, over some future time horizon, requires
a complex and time-consuming task of calculating and Integrating changes In atmospheric composition over the period. For
poScy purposes, the need Is for an index that translates the level of emissions of various gases into a common metric in order
to compare the climate forcing effects wihout directly calculating the changes in atmospheric concentrations (Lashof and Tirpak,
1990). This Information can be used to calculate the cost-effectiveness of alternative reductions, e.g., to compare reductions
to CO2 emissions with reductions in CH4 emissions.

    :   A number of approaches, called Global Warming Potential {GWP} indices, have been developed in recent years. These
indices account forthe direct effects of carbon dioxide (C02), methane (CH^, chtorofluorocarbons (CFCs), nitrous oxide (NgO),
hydrofluorocarbons (MFCs), and perfluorinated carbons (PFCs). They also estimate indirect effects on radiative forcing due
to emissions of gases which are not themselves greenhouse gases, but lead to chemical reactions that create or alter
greenhouse gases. These gases include carbon monoxide (CO), nitrogen oxides (NOX). and volatile organic compounds (VOC).
aft of which contribute to formation of tropospheric ozone, which is a greenhouse gas (Lashof and Tirpak, 1990).

       The concept of global warming potential, which was developed by the Intergovernmental Pane) on Climate Change
(IPCC), compares the radiative forcing effect of the concurrent emission into the atmosphere of an equal quantity of C02 and
another greenhouse gas. Each gas has a different instantaneous radiative forcing effect in addition, emissions of different gases
decay at different rates over time, which affects the  atmospheric concentration.   In general, CO2 has a  much weaker
instantaneous radiative effect than other greenhouse gases; it decays more slowly, however, and hence has a longer atmospheric
ifetkne than most other greenhouse gases.  While there is relative agreement on how to account for these direct effects of
greenhouse gas emissions, accounting for indirect effects is more problematic.  Due to these uncertainties over the indirect
effects, they have not yet been included in the GWP of each gas (IPCC, 1992a).  The GWPs developed by the IPCC account
for only the direct effects of each gas on radiative forcing.

        GWPs are used to convert ail greenhouse gases to a CO2-equivalent basis so that the relative magnitudes of different
quantities of different greenhouse gases can be readily compared.  The GWP potential will.be an important concept for states
in determining the relative importance of each of the major emissions sources and in developing appropriate mitigation strategies.
A more detailed  discussion  on the  development of GWPs can be found in the  Phase I document, States Workbook:
Methodologies for Estimating Greenhouse Gas Emissions.
 oceans and clouds as well as the feedback effects of oceans, clouds, vegetation, and other factors
 make it difficult to predict with certainty the amount of warming that rising levels of greenhouse gases
 will cause.  Current evidence from climate model studies, however, suggests that the change in global
 average surface temperature in a world where carbon dioxide levels in the atmosphere are doubled
 will range between 2.7 and 8.1ฐ F (IPCC, 1992a).  Global warming of just a few degrees would
 represent an enormous change in climate.  For example, at the height of the last ice age, when
 glaciers covered the  Great Lakes and reached as far south as New York, the global average
 temperature was only 5 to 9ฐ F colder than today (Hodges-Copple,  1990).

         The impact of global climate change in various  geographic areas and on various sectors of
 the world economy could be significant.  Coastal areas are especially vulnerable. Sea level rise
 resulting from glacial retreat and thermal expansion of the ocean, for example, would intensify storm
 surges in low lying areas.5 Higher sea levels would cause shorelines to retreat as a result of flooding
 and erosion.  States could experience a loss of wetlands, with adverse impacts on fish productivity
     5 Storm surges refer to the flooding induced by wind stresses and the barometric pressure reduction
  associated with major storms.
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and overall harvest levels.  For
example, unless current trends are
reversed, up to 80 percent of
Chesapeake Bay wetlands could be
lost in the next century (Lashof and
Washbum, 1990).

       Higher sea levels could also
contaminate fresh water aquifers,
which would increase the costs of
fresh water supply either through
deeper well drilling or importation of
water from inland supplies.  Sea
level rise could also raise water
tables in low lying coastal areas,
which would increase flood damage,
impede drainage, and reduce the
effectiveness of sewage disposal
facilities (Lesser et al., 1989).  This
impact could also place additional
stress on infrastructure such as
roads and bridges.  Urban water
supplies in some areas could be
reduced.  For example, there may
be less winter  snowpack in western
mountains, which could dramatically
affect the ability of California and
other western states to store and
transfer water using existing
infrastructure.
                      Figure 2-1
    U.S. Greenhouse Gas Emissions and Sinks: 1990
     1500
     1000
              1352
                                              1444
  UJ
  o
      500
     -500
           CO2    CO2   CH4   N2O  HFC/    Net
         Emissions  Sinks               RFC  Emissions
                         Gas Type
      Pi C02
|CH4    ||N20
HFC/PFC
source: U.S. EPA, 1994
Note: MMTCE stands for million metric tonnes of carbon-equivalent
       Peak electricity demand may also rise as a result of increased residential and commercial
cooling needs (Lashof and Washbum, 1990). One analysis, which explores the impacts of climate
change on electricity generation in New York State and a Southeastern utility, finds that climate
change could lead to increased electric generating capacity requirements, increased generation of
electricity, decreased availability of hydroelectric generation resources, and increased annual
electricity production costs (Under, et al., 1989).

       Climate change may also affect ecosystems, with impacts on commercial forestry and
agriculture, on recreational and other uses of natural systems, and on the habitats of threatened or
endangered species.  In particular, climate change may affect forests by altering precipitation patterns,
increasing the frequency and intensity of storms, changing average annual temperatures, and shifting
the ranges of pests and fungi.  The extent of healthy forests in the U.S. may shrink substantially,
reducing wildlife habitat and accelerating rates of species extinction. Moreover, generally drier
conditions would cause declines in forest productivity and increase the frequency and intensity of
forest fires (Lashof and Washbum, 1990).

       Higher temperatures and drier conditions in the interior of the continent could also shift
agriculture northward. EPA estimated an overall reduction in agricultural acreage for the Great Plains
states of between 4 and 22 percent due to warmer, drier weather. There would be an associated
increase in the demand for irrigation.  The agency projected that irrigated acreage could increase by 5
to 30 percent  (Smith and Tirpak, 1989). Average yields of soybeans, corn, and  wheat may be
reduced.  Higher temperatures are expected to shorten crop lifecycles and increase the number of
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days above specific crop temperature thresholds, resulting in declines of annual yields  (Lashof and
Washbum, 1990).

       Finally, regardless of a state's landscape or geological features, increased summer
temperatures are expected to affect human health, potentially contributing to higher mortality among
the elderly and the very young.  Furthermore, increases in the persistence and level of air pollution
episodes associated with climate change may have adverse health effects (Smith & Tirpak, 1989).

       While scientists cannot predict the magnitude of climate effects from greenhouse gas
emissions with absolute precision, the decision to limit emissions cannot wait until the full impacts are
evident Because greenhouse gases, once emitted, remain in the atmosphere for decades to
centuries,  stabilizing emissions at current levels would still allow the greenhouse effect to intensify for
more than a century (Lashof and Tirpak, 1990).  Thus, our emissions today  have committed the planet
to climate change well into the 21st century.  Delaying control measures will increase this 'global
warming commitment* still further.6


2.2    POUCY CONTEXT FOR CLIMATE CHANGE MITIGATION

       The scientific evidence indicates that continuing emissions of greenhouse gases are altering
global climate.  In response, governments at the international and national levels are taking  action to
reduce emissions of greenhouse gases.  Many individual states have also recognized the potential
dangers that global climate change presents to both current and future generations.  This section first
describes international and national responses to climate change and then  discusses the role of
states in addressing this global concern.

       2.2.1   Introduction to International  and National Responses to Climate Change

       The international community has coordinated efforts to address the potential  impacts of
climate change, particularly within the last decade.  Some of the more important events are  described
below.

       •       7987 Villach and Bellagio Workshops:  The Villach workshop assessed the role of
               carbon dioxide and radiatively active constituents under various climate scenarios and
               assessed the potential impacts under each. The goal of this workshop was to provide
               a technical basis for a subsequent policy workshop  in Bellagio, Italy.

       •       The Montreal Protocol on Substances That Deplete the Ozone Layer.  In response to
               growing international concern about the role of CFCs in destroying stratospheric
               ozone, 47 nations reached agreement on a set of CFC control measures in September
               1987.  The control measures, known as the Montreal Protocol on Substances that
               Deplete the Ozone Layer, laid out a schedule of production  and consumption
               reductions for many CFCs. In June 1990 the Parties to the  Protocol agreed to a
               complete phaseout of CFCs and other ozone-depleting substances (ODSs)  (this
               agreement is known as the London Amendments).  In November 1992 Parties
               accelerated the phaseout schedule for ODSs and agreed to phaseout dates for
               HCFCs, which are CFC substitutes in many current applications (this  agreement is
   6 While this document concentrates on policy formulation to reduce or stabilize greenhouse gas emissions in
order to mitigate climate change, other EPA and state research focuses on state-level adaptation to the significant
impacts described above should the greenhouse effect intensify. Materials on adaptation issues, including more
details on specific effects at the local level, are available through EPA and various state agencies.
                                             2-6

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known as the Copenhagen Amendments). As of February 1994,131 countries had
ratified the agreement.

1988 Toronto Conference: This international conference focused on the implications of
climate change for world security and established a goal for industrialized countries to
reduce carbon dioxide emissions by 20 percent of 1988 levels by 2005. It was
attended by more than 300 policy-makers and scientists from 48 countries.

The Intergovernmental Panel on Climate Change:  Under the auspices of the United
Nations  Environment Program (UNEP) and the World Meteorological Organization
(WMO),  the Intergovernmental Panel on Climate Change (IPCC) was formed in 1988 to
conduct studies on global warming. Efforts undertaken include identifying emission
sources, assessing possible consequences, and developing mitigation strategies.

The International Geosphere/Biosphere Program: This program was established
through the International Council of Scientific Unions in 1988 to facilitate
understanding the present state of the earth and the potential impacts of global
climate change. This extensive program maps  recent global deforestation, produces
documents on climate and atmospheric changes, and combines space-based scrutiny
of climate change with extensive surveys of land and sea

7989 Noordwijk Conference on Atmospheric Pollution and Climate Change:  The final
declaration at this conference encouraged the IPCC to  include in its First Assessment
Report an analysis of quantitative targets to limit or reduce CO2 emissions, and urged
all industrialized countries to investigate the feasibility of achieving such targets,
including, for example, a 20 percent reduction of carbon dioxide emissions by the year
2005. The Conference also called  for assessing the feasibility of increasing net global
forest growth by 12 million hectares per year.  During its Third Plenary, the IPCC
accepted the mandate.

7989 Hague Declaration: This conference and Declaration (signed by 23 nations)
established support for new principles of international law. These principles promote
the creation of standards to guarantee protection of the world's atmosphere and
combat  global warming.  The U.S.  and Soviet Union were not invited to the conference
to avoid potential  East-West policy conflict.

7989 Cairo Compact: The compact calls on affluent nations to provide developing
countries with the technical and financial assistance to  address  global climate change.

7990 United Nations World Climate Conference:  The IPCC reported the findings of the
IPCC Working Groups to the  United Nations (Scientific Assessment, Impacts
Assessment, and  Response). The IPCC report, adopted by the General Assembly, set
the stage for future international negotiations on a framework convention on climate
change.

Intergovernmental Negotiating Committee (INC):  On December 21, 1990, the U.N.
General Assembly established the  INC to prepare an effective framework convention
on climate change, containing appropriate commitments and any related legal
instruments as might be agreed upon. The INC, supported by the WMO and UNEP,
has convened for ten sessions since its formation. The INC serves as the international
mechanism to monitor and enforce the provisions of the United  Nations Framework
                               2-7

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              Convention of Climate Change (FCCC). The INC is also currently negotiating to adopt
              a framework to implement a joint implementation regime.7

       •      1992 United Nations Conference on Environment and Development (UNCED):  On June
              12 at UNCED (the Earth Summit) in Rio de Janeiro, 154 nations, including the U.S.,
              signed the U.N. Framework Convention on Climate Change. The Convention contains
              a legal framework that commits the world's governments to voluntary reductions of
              greenhouse gases,  or other actions such as enhancing greenhouse gas sinks, aimed
              at stabilizing atmospheric concentrations of greenhouse gases at 1990 levels.  To
              facilitate this, Article 4-1  requires that all parties to the FCCC develop, periodically
              update, and make available to the Conference of the Parties, national inventories of all
              anthropogenic  emissions of greenhouse gases not controlled by the Montreal
              Protocol, using comparable methodologies. In October 1992, the U.S. became the
              first industrialized nation to ratify the Treaty, which came into force on March 21,1994.
              The Convention also contains other binding agreements related to its establishment,
              support, and administration.8

       •      Bilateral Sustainable Development Accord Between Costa Rica and the U.S.: On
              September 30, 1994, the U.S. and Costa Rica signed a bilateral accord intended to
              facilitate developing joint implementation projects.  These projects are intended to
              encourage the use  of greenhouse gas-reducing technologies (including energy
              efficiency  and renewable energy technologies); develop educational and training
              programs; diversify  energy sources; conserve, restore, and enhance forest carbon
              sinks (especially in  areas that promote biodiversity conservation and ecosystem
              protection); reduce  greenhouse gas emissions and other pollution; and promote the
              exchange of information regarding sustainable forestry and energy technologies. This
              accord should  provide the basis for future similar arrangements between  countries
              and contribute to establishing an international joint implementation regime that is
              sensitive to environmental, developmental,  social and economic priorities.  The accord
              is intended to encourage partnerships involving the federal government, private sector,
              non-governmental organizations, and other interested entities.

       In the negotiations that led  to the FCCC, the United States 'supported an approach to global
action that focused on the development of national policies and measures to mitigate and adapt to
climate change, recognizing that  only concrete actions will enable the world community to effectively
address climate change, and that measures and policies must be rooted in specific national
circumstances and fashioned from  a comprehensive set of options addressing all sectors, sources,
and sinks of greenhouse gases' (U.S. DOS, 1992). To fulfill this goal, the United States has
undertaken actions to address climate change, including scientific and economic research, policy
analysis, and program development. These actions culminated in the release of the Climate Change
Action Plan (CCAP) by the Clinton Administration in October, 1993 .  The CCAP presents the U.S.
strategy for reducing greenhouse gas emissions to 1990 levels by the year 2000. This strategy
   7 The concept of 'joint implementation* (Jl) was introduced early in the negotiations leading up to the 1992
Earth Summit in Rio, and was formally adopted into the text of the FCCC.  The term "Jl" has been used
subsequently to describe a wide range of possible arrangements between interests in two or more countries,
leading to the implementation of cooperative development projects that seek to reduce or sequester greenhouse
gas emissions.

   8 To fulfill its obligation under the FCCC Article 4-1, the U.S. government published the Inventory of U.S.
Greenhouse Gas Emissions and Sinks: 1990-1993 (U.S. EPA, 1994). The U.S. also published the Climate Action
Report  (U.S. Government, 1994),  in accordance with Article 4-2 and  12. The Climate Action Report provides a
description of the U.S. climate change program.
                                             2-8

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includes approximately 50 initiatives that span all sectors of the economy and focus on reducing
emissions of greenhouse gases in a cost-effective manner. These initiatives call for cooperation
between government, industry, and the public, and, since they are primarily voluntary in nature, are
designed for rapid implementation.

       Also at the national level, the Department of Energy has recently released a set of draft
guidelines for entities to. voluntarily report their reductions of greenhouse gas emissions and fixation of
carbon, achieved through any measure. The purpose of these guidelines is (1) to provide a database
of information for entities seeking to reduce their own greenhouse gas emissions; (2) to establish a
formal record of emissions and emission reductions and carbon sequestration achievements; and (3)
to inform the public debate in future discussions on national greenhouse gas policy.

       The CCAP and other U.S. actions are the outgrowth of more than $2.7 billion in global change
research conducted since 1990 (U.S. DOS, 1992).  This research includes a variety of multinational
scientific projects. For example, the U.S. Global Change Research Program coordinates research of
the EPA, the National Aeronautics and Space Administration (NASA), the National Oceanic and
Atmospheric Administration, the National Science Foundation, and the Departments of Energy,
Agriculture, Interior, and Defense. The objectives of the Research Program are to evaluate and further
Current research activities in the U.S. that address scientific questions concerning global climate
change, to define future research needs, and to establish federal agency roles.  The Research
Program is also intended to develop national and international partnerships between governmental
bodies, the academic science community, and the  private research sector to achieve long-term
scientific goals.  Much of this research has focused on steps to strengthen the ability of economic,
social, and ecological systems to adapt to adverse change; concrete measures to mitigate the risk of
future climate change through greenhouse gas reduction  measures; aggressive research to improve
understanding of climate, climate change,  and potential responses; and international cooperation to
broaden the global effort  in each of these areas.

       To foster international cooperation, the Climate Change Action Plan makes provisions for
reducing emissions internationally through the U.S. Initiative on Joint Implementation (U.S. IJI).  U.S. Ml
is a voluntary pilot program that will contribute to the international knowledge base regarding joint
implementation, through projects demonstrating a range of approaches for reducing or sequestering
greenhouse gas emissions in different  geographic regions. U.S. IJI will provide public  recognition and
selected technical assistance to approved projects. These projects are expected to contribute to
emissions reductions by promoting technology cooperation with and sustainable development in
developing countries and countries with economies in transition.

        Many individual states and localities have also initiated independent  climate change
responses. Since the late 1970s California has implemented numerous conservation and energy
efficiency measures,  including the most stringent automobile emission standards in the country. Cities
have also coordinated on an international scale. The International Council of Local Environmental
Initiatives (ICLEI) is coordinating a project to develop local climate change solutions. As part of this
effort, known as the Urban CO2 Reduction Project,  fourteen cities around the globe, including cities in
the U.S., are setting goals to reduce carbon dioxide emissions.  For example, Portland, Oregon, as
one of the project's participants, proposes to reduce carbon dioxide emissions from the Portland
metropolitan area to  20 percent below the 1988 level by the year 2010 (PEO, 1993). The Urban CO2
Reduction Project, which is a joint effort between cities, highlights both the international collaboration
needed to combat global climate change as well as the key role local  governments can take in
implementing solutions.

        In addition to those deliberate  efforts to address climate change, many other recent state and
local actions have helped to reduce greenhouse gas emissions.  These include initiatives in energy
efficiency, urban planning, transportation planning, forest  management, agricultural management, and
other areas.  For example, the Iowa State Energy Bureau's Building Energy Management Program


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promotes cost-effective energy management improvements in state buildings, schools, hospitals non-
profit organizations, and local government facilities. The program covers measures designed to
reduce energy consumption, including replacing lights and ballasts; replacing boilers and controls;
improving heating and ventilation controls; and improving insulation of roofs, walls, and pipes. By
reducing the demand for electricity, much of which is generated from fossil fuel combustion, these
measures reduce emissions of both greenhouse gases and other air pollutants.  The program also
provides financial savings to a state that imports 98 percent of its energy and creates jobs (Wells,
1991).  In Minnesota, more stringent energy standards have been adopted for the new construction of
residential dwellings and government offices.  Oregon has increased the weatherization standards in
the construction of low income homes.  New York  has recently established a public-private partnership
to encourage and support schools in making their facilities more energy efficient (Energy Smart
Schools), and Colorado has established the Colorado Green Program, which assists builders and
honors residents who construct homes that conserve natural resources and increase energy
efficiency.  As in  Iowa these programs  reduce greenhouse gas emissions and other air pollutants (by
lowering electricity demand), while simultaneously  providing financial savings and promoting energy
security.

       States are also increasing the use of compressed  natural gas (CNG) in state and municipal
vehicles, primarily school buses and buses used for public transportation.  For example,  in
Mecklenberg  County, North Carolina all school buses have been converted to CNG vehicles, and in
Maryland, the Department of Transportation has replaced its fleet of diesel fuel shuttle buses at BWI
with 20 new CNG vehicles.  Also in Maryland,  the governor signed an executive order which formally
expressed Maryland State Government's commitment to improve air quality and to comply with the
clean fuel provisions of the Clean Air Act Amendments of 1990 (CAAA of 1990) and the Energy Policy
Act of 1992 (EPAct).  The order established an interagency 'Alternative Fuels Work Group* which is to
evaluate and  recommend alternative fuels for use in state fleets.  These types of programs provide
economic and environmental benefits beyond climate change mitigation. Similar activities are
highlighted throughout this document.

       2.2.2  Importance of State Action

       On both  a total and per capita basis, many states  emit carbon dioxide in amounts comparable
to some of the highest emitting countries in the world.  Although problems such as global warming
need to be addressed through cooperative national and international efforts, many of the critical
responses can be initiated locally.  If the adverse effects of climate  change are to be avoided, states
will need to take  an active and immediate role in addressing greenhouse gas emissions.  The section
below presents several of the foremost reasons that states may wish to take definitive action to reduce
greenhouse gas  emissions.

Stares retain much of the policy jurisdiction over emission sources.

   .     States have the power to alter greenhouse gas emission patterns significantly through their
influence and authority over utilities, land use, transportation, taxation, environmental programs, and
other relevant policy areas.  State governments hold direct regulatory authority over  electric and gas
utilities, which are responsible for more than half of the current carbon dioxide emissions (Lashof and
Washbum, 1990). In addition, state public utility commissions (PUCs) oversee decisions  regarding the
need for new generating capacity and the choice of fuel mix.  Many PUCs are now requiring utilities to
include environmental considerations explicitly in their decision making. The federal government does
not have jurisdiction over many of these areas.

        States can also encourage local governments to revise or establish building  codes and land
use regulations.  Some local governments have implemented stringent energy efficiency requirements
for new housing.  For example, two California  cities, Davis and Berkeley, require compliance with
minimum residential energy standards as a condition for the sale of a home (Randolph, 1988).  The


                                            2-10

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state's authority to conduct land use planning can also have a dramatic impact on emissions from the
residential, commercial, and transportation sectors. For example, several cities have undertaken large-
scale tree-planting programs to improve air quality and lower summer temperatures, thereby reducing
summer energy needs for air conditioning.

       Other opportunities for state and local action to reduce greenhouse gas emissions include
management of landfills and regulation of existing stationary sources of air pollution. For example,
state regulation of municipal solid waste management  could reduce methane emissions and promote
industrial energy savings from secondary materials manufacturing (Lashof and Washbum, 1990).

The Climate Change Action Plan creates new opportunities for states.

       The Climate Change Action Plan offers both opportunities and support to state action in a
number of sectors.  For example, the federal government has made a commitment to promote
integrated resource planning (IRP) by utilities, specifically including technical and financial assistance
to states.  Similar opportunities are being fostered in the transportation, agriculture, and other sectors.
The CCAP also commits federal agencies to further link their programs to state and local initiatives.

States have the capacity for enacting 'low risk" policies to address climate change.

       States can implement many climate change mitigation measures that have immediate, non-
climate related benefits. This opportunity enables states to supplement existing policy goals with
climate change policies. For example, in addition to reducing greenhouse gas emissions, investments
in energy  efficiency will lower energy bills of state residents and reduce emissions of local air
pollutants. Promoting energy efficiency not only benefits the consumer, but may also provide for a
stronger and more efficient economy.  By saving  energy costs in the production of goods, energy
efficiency can improve the  competitive position of states in both national and international markets.
Energy efficiency provides  increased energy  and economic security by lessening dependence on
foreign oil and other fuel supplies (Schmandt et al., 1992).  Reforestation and urban tree programs not
only sequester carbon but  can  also reduce cooling energy requirements and aesthetically improve the
urban and rural environment. Movement away from certain fertilizers in agricultural  practices  may
reduce problems of groundwater contamination from their residues. Finally, composting agricultural
crop wastes enhances soil fertility while reducing paniculate emissions and smoke.  All these actions
reduce greenhouse gas emissions.

       These types of measures often present little economic or political risk to policy-makers.  Many
policies provide states with economic benefits regardless of any future changes in climate. For
example, the EPA's Green  Lights Program encourages the use of energy efficient lighting. Energy
efficient measures result in lower energy bills and the overall benefits that society gains from such
programs often outweigh the total costs incurred. In addition, in most instances these policies carry
little political risk because they complement existing programs.  For example, policies on greenhouse
gas emission reductions in New York  are generally framed in the context of state energy planning.
New York's State Energy Plan was developed jointly by the State Energy Office, the Department of
Environmental Conservation, and the Public Service Commission. Together, these agencies
developed energy policies  to achieve  environmental, energy, and economic policy objectives. Thus,
adopting low risk measures can not only result in multiple benefits, but also enhance economic and
political feasibility.

        Many other 'low risk* programs are already in place. For example:

        •       The Connecticut Department of Transportation has pioneered programs to increase the
               use of car  pools, van pools, and public transportation. By assisting commuters to find
               alternatives to driving  alone, these programs reduce traffic congestion, pollution, and
               greenhouse gas emissions.
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       •      TTie Georgia Governor's Office of Energy Resources is increasing energy and
              agricultural efficiency by facilitating six programs targeted to crop, poultry, and
              livestock producers. These programs conserve energy and save money in addition to
              reducing greenhouse gas emissions.

       •      The Missouri Department of Natural Resources has created a reforestation program
              designed to reduce heating and cooling needs with strategic landscaping, to arrest
              soil erosion, enhance natural water filtration, and remove carbon dioxide from the
              atmosphere. The program coordinator of this multifaceted project, called Operation
              TREE, must work to involve every division of the Department of Resources and
              encourage cooperation among other state agencies (Wells, 1991).

       •      The Alabama Broiler Litter Program, co-sponsored by the Science, Technology and
              Energy Division of the Alabama Department of Economic and Community Affairs and
              the USDA's Tennessee Valley Resource Conservation and Development Council,
              addresses energy conservation, reduces the landfill waste stream, promotes recycling,
              and improves agricultural productivity.  In this program newspaper is shredded and
              blown over the poultry house floor, where it becomes matted and slick from droppings
              and moisture content.  When the litter and paper is gathered from the floor, it is
              spread on crops as fertilizer, or is mixed with feed and is fed to livestock. The paper
              also acts as an insulator for the poultry house, thereby reducing energy needs
              (Conservation Update, September 1993).

       •      The Minnesota Department of Public Service, Energy Division has adopted new
              standards to achieve higher levels of energy efficiency in new construction.  These
              regulations will not  only decrease energy demands of consumers, but will also reduce
              consumers' overall  energy bills while simultaneously reducing CO2 emissions through
              decreased electricity demand (Conservation Update, July 1994).

       •      The Governor of Wisconsin signed a major energy policy directive that mandates state
              agencies and local  governments to implement the following priorities when making
              energy decisions: (1) energy efficiency; (2) non-combustible renewable energy
              resources; (3) combustible renewable energy resources; and (4) non-renewable
              combustible energy resources (natural gas first, then oil, then coal with low sulfur
              content, and then other carbon-based fuels) (Conservation Update, June 1994).

       These measures demonstrate how states have already implemented programs that address
climate change, and that action in this area does not place policy-makers on entirely new ground.
Further, the existence of such programs highlights coalition building as an important part of
addressing climate-related problems, since the responsibility for solving many environmental problems
is often widely spread among diverse state agencies (this issue is discussed in greater detail in
Chapter?).

Sfates will feel the impacts of climate change and will likely be called upon to address them.

       Although climate is a growing concern, climate-related problems will ultimately affect local  and
state economic sources.  Further, recent surveys indicate that public opinion supports a greater
environmental consciousness. A growing number of Americans are becoming "green consumers* and
•green voters,' i.e., they incorporate environmental considerations into their buying habits and political
choices (Cale et al., 1992). Thus, state governments may face public and political pressure to respond
to climate change.

       Because state governments are often more attuned to local public  sentiment than are their
federal counterparts, the state planning process can incorporate localized public input and priorities.


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Federal agencies, however, must craft programs that cover larger regions of the country. As a result,
state and regional priorities may be overwhelmed by national interests during federal planning. By
initiating their own programs, states can make adjustments according to their own needs, allocate
resources as they see appropriate, and complement other state policy goals in ways that the federal
government may not consider.

       As greenhouse gas emissions continue to emerge as an international and national priority,
federal policies and programs will also continue to develop.  States that have already started to plan
accordingly will experience the least social and  economic disruption. By delaying the transition to a
more energy efficient economy, for example, a state risks having to make rapid and disruptive
adjustments in the future. In addition, by acting now, states will influence future decisions at the
national level.

       Further, states have the opportunity to assume a leadership role in the global climate change
arena  The ten states with the highest carbon dioxide emissions each produce more than the
Netherlands, which has taken a key role in promoting international agreements to curb climate
change.  Denmark would rank 31st among the states with respect to C02 emissions (Lashof and
Washbum, 1990).  Even states with relatively small contributions to climate change can demonstrate
to the U.S. and to the world that emission levels can be reduced while economic growth is sustained.
As summarized in Exhibit 2-3, a number of states are already arguing for the key role that states can
play in this critical area.

       State agencies do not shoulder this burden alone. As EPA notes, 'no single activity is the
dominant source of greenhouse gases; therefore,  no single measure can stabilize global climate.
Many individual components, each having a modest impact on greenhouse emissions, can have a
dramatic impact on the rate of climate change when combined* (Smith and Tirpak, 1989). The state
role in solving this global problem can be significant. Although national and international effort is
essential for an overall solution, states are uniquely positioned to reduce emissions and, in doing so,
to encourage the appropriate national and international responses. The United States and other
nations have already recognized the threat that climate change poses and the need for action.
States, armed with the same understanding, now face the same decision.
 2.3     GENERAL FRAMEWORKS FOR CUMATE CHANGE POLICY ANALYSIS

        Policy formulation can be a complex undertaking that involves understanding the issues at
 hand, envisioning the range of actions that governments can take to address those issues, and
 selecting from within this range the approaches that offer the most potential for achieving multiple
 public goals. The policy formulation process must respond to local circumstances and must fit within
 institutional, fiscal, political, and other constraints. The presence of uncertainties, diverse economic
 sectors, and long lag times between emissions and affects, as well as the political sensitivity
 associated with the climate change issue, further complicates actions to reduce greenhouse gas
 emissions.

        To help clarify this complex issue, this document develops an analytic framework that
 suggests, first, establishing strong and well-founded focal points for program development and then
 structuring programs around these focal points.  This approach  recognizes that states face
 impediments in effectively  reducing greenhouse  gas emissions.  These impediments take three forms:
 barriers that inhibit actions to reduce greenhouse gases, perverse incentives that actually encourage
 greenhouse gas production, and time frame issues that complicate the whole process.

        This section addresses each of these three factors. First, it presents the types of barriers that
 may inhibit effective policy implementation.  Next, in order to provide a general orientation and
 organizing principle for various policy options, it  reviews the general structure used to present ideas


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                                            Exhibit 2-3
                          State Reasons for Climate Change Response
                    Motivation (as published in state documents)
 State (Source)
... it's a powerful concept, to think we can adjust the way we live and could have a
powerful effect on our global climate.  It's a challenge we should take seriously and should
accept
Louisiana
(Hodges-
Copple, 1990)
Americans, lowans included, have become both more informed and more concerned about
the environment in the last two years to three years.  Public consciousness has absorbed
the positive message of Earth Day as well as the horror of environmental disasters.
Iowa (Gale et al.,
1992)
Vermont has a strong incentive to lead the way in developing energy policies which
properly account for environmental risks. ... Two problems stand out as demanding
special attention: global warming, which threatens all of the planet's people and
ecosystems and to which Americans make a disproportionate contribution; and acid
deposition, which poses a particular threat to Vermont's environment and way of life.
Vermont
(Vermont Oept
of Public
Service, 1991)
... the limited nature of federal leadership means that California's efforts to reduce
greenhouse gas emissions will influence, rather than be directed by, federal leadership.
... In any event, while unilateral California action to reduce emissions will not solve the
problem, California leadership could help facilitate greater cooperation between the States,
the federal government, other countries to begin reducing greenhouse gas emissions.
California
(California
Energy
Commission,
1991)
Everyone is familiar with the need to pay insurance today for risks that may occur in the
future. Actions to slow global warming are the insurance paid to accommodate the risks
from global warming.  The insurance proposed in this report would also pay a dividend in
a more efficient and resilient economy, cleaner air, and less dependence on foreign oil
supplies. Responding to global warming is another reason to manage resources wisely.

While this is a global problem, everyone must be part of the solution.
Oregon (Oregon
Task Force on
Global Warming,
1990)
... good environmental stewardship and energy efficiency will make Missouri stronger
economically, improve our flexibility in the face of uncertain international markets, and fulfill
our environmental responsibilities. These benefits prevail regardless of whether Missouri
experiences substantial or subtle climate change.

If we fail to be accountable for our role in climate change and ozone depletion, we will pay
with diminished quality of life for ourselves and our children. Missouri, as a responsible
global citizen, has an important opportunity to create environmental and economic benefits
from this challenge.
Missouri
(Missouri
Commission on
Global Climate
Change &
Ozone
Depletion, 1991)
The legislature recognizes that waste carbon dioxide emissions, primarily from
transportation and industrial sources, may be a primary component of the global
greenhouse gas effect that warms the earth's atmosphere and may result in damage to the
agricultural, forest, and wildlife resources of the state.
Minnesota
(Minnesota
Statutes 116.86)
... although Washington's contribution to the greenhouse effect is small, the state can
demonstrate to U.S. and world policy-makers that C02 emissions can be reduced while
sustaining economic growth.
Washington
(Lesser et a).,
1989)
Because Texas has a lot at stake in preserving and protecting its water and coastal
resources, it is incumbent upon state officials to start to develop the most cost-effective
strategies now.... Texas does have a role in solving this problem. Indeed, with so much of
the structure in  place to correct this problem to which we so heavily contribute, it can be
asserted that we have an obligation.  The next question is:  Do we have the political will?
Texas
(Schmandt et
al., 1992)
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for policy solutions in Part II of this document.  Finally, this discusses timing issues in climate change
policy development.

       2.3.1  Barriers to Emission Reductions

       Designing climate change mitigation strategies is not a straightforward task. A number of
barriers to emission reductions confound the policy design process and may inhibit implementing
mitigation programs. These barriers may include technological capacity, information flow constraints,
price structures and other market related elements, legal or regulatory issues, organizational or
institutional considerations, political considerations, and analytic constraints. These barriers, in
particular situations, can either inhibit emission reductions or can actually create incentives that lead
directly or indirectly to emissions.

Technological Capacity

       Greenhouse gases are produced through the fundamental processes that help our economy
and our society function, including food production, commerce, and generation of other goods and
services on which we depend in our everyday lives.  Improving the technologies critical to these
necessary and desirable processes could result in lower greenhouse gas emissions as well as
decrease the undesirable activities. Frequently, technologies that can achieve specific greenhouse
gas reduction goals are available but not widely disseminated, while in other situations technological
improvements or new ways of approaching these fundamental tasks in our society have not yet been
developed.

Information Flow Constraints

       Information barriers can take three forms.  First, in the climate change field, incomplete
understanding of the atmospheric science as well as to the probable effects of various policy options
on greenhouse gas concentrations impedes developing effective policies. Second, those who emit
greenhouse gases, including the general public, may not fully appreciate their role and responsibility.
Third, the information that would empower members of society to reduce greenhouse  gas emissions is
frequently not available or understandable to them. This is often the case when technological
improvements to various processes have been developed but are not known to the actors who use
those processes in the field.

Price Structures and Related Market Elements

       Three distinct factors relating to prices and costs of goods and services can contribute to
greenhouse gas production and emissions.  First, government subsidies and taxes, which are
designed to promote goals unrelated to climate change, can conflict with climate change mitigation
policies. Second, prices and costs often do not account for the environmental damage being caused
by consumption of the goods or services in question; thus, greenhouse gas emissions are an
•externality" not reflected in prices.  Third, transaction costs' for obtaining information  about, or
converting to, more environmentally friendly processes are often high.

Legal or Regulatory Issues

       Legal issues affect greenhouse gas emissions in several ways.   First, many of  the
informational and market distortions presented above originate in previous regulatory or other legal
action.  In these cases, the law itself inhibits reduction of greenhouse gases or even encourages their
production.  Sometimes this may be to society's benefit because of higher priorities, while in other
cases the law inappropriately or inefficiently pursues its objectives, some of which may be outdated.
An example of this type of barrier occurs in the regulations that require flaring of methane at landfills,
which may exclude its recovery and sale as a fuel source.  Second, the absence of regulations or


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legislation may itself serve as a barrier, as when the absence of certain consumer protection measures
inhibits new environmentally friendly technology or product acceptance. Third, ill-defined or vague
property rights governing commercially valuable greenhouse gases, such as methane produced from
coal mines, can inhibit recovery efforts and thus increase emissions.

Organizational and Institutional Considerations

       Institutional factors also may constrain implementing emission reduction policies.  Public
agencies responsible for developing, analyzing, implementing, and enforcing policies must maintain
the skills, resources, and  motivation necessary to do this job; without sufficient institutional support,
many programs cannot be implemented.  In addition, designing emission reduction programs and
formulating policy may require distinct institutional mechanisms for coordinating action between public
agencies and with many diverse private sector actors.  If these channels do not exist, programs can
be difficult to develop and administer.

Political Considerations

       Greenhouse gas emission reduction policies can affect many actors across all sectors of
society. Competing and conflicting interests across these individuals, groups, and organizations can
generate significant political tension.  In this context, politics may become either an impediment or an
asset to climate change policy formulation.  Political viability in the climate change arena, thus,
depends on the coordination of affected interests, popular or legislative familiarity with the policy
instruments being pursued, the perceived fairness of policy ideas, and consistency with other major
political agendas.

Analytic Constraints

       Several analytic factors may inhibit climate change policy formulation. These revolve around
the difficulty and costs of acting when the magnitude and  timing of policy impacts are highly
uncertain.  Chapter 8 discusses many of the issues that create such uncertainty, such as
intertemporal comparisons of costs and benefits and issues of interaction between different emission
reduction policies.

       2.3.2  Structure of Policy Approaches

       Because climate change responses must address the wide variety of barriers and constraints
presented above, arranging a similarly varied portfolio of policy approaches can enhance program
effectiveness. The specific options available for greenhouse gas reduction programs, which are
detailed in Chapters 5 and 6, are grouped into four categories:

       •      Providing information  and education;
       •      Restructuring legal and  institutional barriers;
       •      Providing (and correcting distorted) financial incentives; and
       •      Implementing direct regulations.

Each of these policy approaches is elaborated on below.

Providing Information and Education.

       Information provision generally takes three forms:  identifying informational needs, generating
new information, and disseminating information. Such efforts are usually intended to change the
behavior of some target audience (e.g., consumers, corporations, managers, or school children) in
order to reduce emissions. Doing so generally requires that policy-makers understand the target
audience's current level of knowledge as well as the links  between that knowledge and how the


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audience behaves. For example, energy consumers may not know the most effective ways to save
energy, the time and costs involved, or even the linkage to greenhouse gas emissions. By identifying
what consumers do generally understand, policy-makers can take action to fill gaps in understanding
and knowledge, with  the intent to change consumer behavior.

       Information dissemination programs may include public advertising or educational campaigns,
the provision of information through technical reports, publicity around voluntary standards, public
service announcements, media coverage of government activities, support for research and
development, technology or process demonstration projects, and direct technical assistance.

Restructuring Legal and Institutional Barriers

       Certain legal  and institutional barriers not only constrain but prevent effective implementation
of greenhouse gas reduction measures.  These can include: laws with alternative purposes, such as
economic stimulation or public safety, that inadvertently  and unnecessarily inhibit greenhouse gas
reductions; existing and long-standing operating procedures in public and private organizations that
interfere with how policies are implemented; and a lack of institutional orregulatory support capacity
for greenhouse gas reduction policy action.

       Policy approaches to addressing these barriers frequently include changing existing laws,
formulating new laws, and  developing new  institutional procedures for administering these activities.
For example, resolving legal issues concerning the ownership of coalbed methane resources would
establish incentives for investment in methane recovery projects (U.S. EPA, 1993b).  Similarly, revising
outdated laws governing fat content ratings for milk and beef production  to reflect modem consumer
preferences could result in methane reductions in the livestock sector,  by requiring less food intake
and digestion per animal for the same quantity of usable food output.

Providing Financial Incentives

       Financial incentives involve stimulating private and public sector transactions in order to
induce actions that reduce greenhouse gas emissions.  This can include changing how current
transactions take place, like subsidizing or taxing certain fuel prices to  induce choice of cleaner home-
heating or transportation fuels, or it can involve fostering new actions all together, like subsidizing or
rewarding research on technology development.

       Three main categories of action can provide financial incentives to promote public sector
goals: 1) direct government expenditures;  2) taxes, fees, loans, or subsidies that alter the
consumption of a good or service by changing its price  relative to other items consumers might freely
choose; and 3) market structures established by governments that stimulate transactions without
further direct government action.

       Financial incentives are often chosen as a least-cost mechanism for inducing a certain level of
production or consumption.9 For example, by allocating tradeable pollution permits, the federal
government is attempting to achieve a pre-determined level of emissions through market interactions,
avoiding the rigidity of direct regulation and achieving emission reduction goals at the least cost to
society. Similarly, the gasoline tax serves to decrease carbon emissions  by reducing gasoline
consumption.  The four predominant systems through which governments provide financial incentives
are tradable emission rights, emission charges, deposit-refund systems, and basic consumption taxes.
    9  See Chapter 8 for more information on least-cost planning.
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Implementing Direct Regulations

       Governments can also promulgate direct regulations to address the barriers to greenhouse
gas reductions. This may include any legislation or rule that directly limits the action of private and
public sector actors.  In the climate change field, regulations may force private firms to incorporate
social costs of global warming into their decision making process, although financial incentives or
other approaches may be more economically efficient and possibly more effective. Direct regulations
generally can take two forms: performance standards and technology controls.  Performance
standards set a limit on a firm's emissions (e.g., 20 Ibs./day of a specific pollutant) and allow a firm to
choose how to meet the standards.  Technology controls, in contrast, define specific design and
operating requirements, often specifying required emission control technologies by name.

       2.3.3  Timing Issues In Policy Development

       A final consideration when developing options for addressing climate change is the issue of
timing. Because of the dynamic and complex nature of climate change processes, policies for
addressing immediately controllable emissions in the short-term might be entirely distinct from long-
term policies necessary for tackling other types or levels of emissions. Given that scientific
understanding and the state of technology are evolving rapidly in this field, policy approaches should
maintain flexibility.  Flexibility is also necessary to respond to changing economic and political
circumstances.

       The general policy context surrounding climate change roughly spans three time frames - the
immediate- to near-term, the mid-term, and the long-term future. These are relative time frames that
help provide focus for programs and that should not constrain programs in any way.  Near-term policy
responses can usually be initiated quickly, within one to four years, with direct emission  reduction or
other important benefits. Ideally, they should be incorporated into larger, comprehensive programs.
For example, a technical assistance program to help farmers improve fertilizer application placement,
timing, and rate will help reduce N2O emissions immediately and may be the first step in a mid- to
long-term program to reduce emissions from the agricultural sector.

       Mid-term policies, typically set within five to twenty year periods, frequently depend on issues
such as the development and introduction of new technologies and institutional capacity for
administering new programs, and are often constrained by the time frames used in economic and
energy forecasts. A ten to twenty year span frequently represents the longest periods with which
analysts and policy-makers can anticipate the outcomes of their actions. For example, states may not
be able to implement programs to support large scale methane recovery and  use immediately
because of lack of institutional support,  but this constraint may be overcome within a few years of
program implementation. These policies should be flexible to react to changes in the scientific,
technical,  economic, and political arenas.

       Finally, long-term policies may take several decades to enact.  Modifying land use and
transportation systems in major cities, for example, can take twenty to fifty years.  It is expected that
dramatic changes in technology and lifestyles will occur and will have a substantial effect on the
climate change problem within this time frame. Thus, research and development and public education
are critical components of long-term policy planning.

       The policy implications of these three relative time frames are defined  in greater  detail in
Chapter 7. It is important to note at the outset, however, that specific policies may address only one
time frame or they can be integrated across time frames.  Current policies, for example,  can be
designed to maximize emission reductions now using available technologies and  set the stage
simultaneously for future reductions through research and development, education, institutional
strengthening, or other actions. Comprehensive state programs should integrate all three time frames
in order to maximize the benefits from climate change response strategies. More specifically, effective


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policy design should ensure that emission reduction goals set in the near-term allow for scientific,
technological, economic, and political changes in the mid-term and set the groundwork and the
context for addressing long-range objectives.

       Each chapter in this document addresses time frame issues. Chapter 3 considers time frames
in the context of measuring and forecasting greenhouse gas emissions.  Chapter 4 discusses the
process of setting and adhering to short-, mid-, and long-term emission reduction targets and goals.
Chapters 5 and 6 describe approaches for greenhouse gas emission reductions within the context of
what is currently feasible and what scientists and others anticipate being feasible in the future.
Chapter 7 discusses how time frames can be used strategically to build political and institutional
support in the present and for the future, and provides examples and potential models of policy
formulation across time frames.  Chapter 8 explains how time frame issues can be incorporated in the
policy evaluation process.

       Exhibit 2-4 presents a model of public planning that illustrates many of the points made in this
chapter.  It describes the Air Quality Management Plan for the South Coast Air Basin, an effort
organized by multiple agencies that provides a wide variety of social benefits. This plan  establishes
long-term program goals and then employs different policy approaches set within three distinct time
frames, highlighting land use  changes that fall under state and local jurisdictions. The policies
described here include information and education projects, institutional restructuring and
strengthening, and implementation of financial incentives and direct regulations.
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                  Exhibit 2-4: The South Coast Air Quality Management Plan


         In July 1991, the South Coast Air Quality Management District and the Southern California Association
 of Governments adopted a revised, comprehensive Air Quality Management Plan {AQMP or Pian) designed to
 achieve national and state ambient air quality standards.  The 1991 AQMP continues the aggressive emission
 control program established by previous plans, but also addresses requirements of the California Clean Air Act
 (CCAA).  In addition, the AQMP has been expanded to address global climate change, stratospheric ozone
 depletion, arid air. toxics.  The 1991 AQMP sets forth programs which require the cooperation of all levels of
 government: local, regional, state, and federal. The AQMP can serve as a substantive and organizational model
..for state arid local governments in their emission reduction efforts. The Plan is organized Into three tiers, each
 distinguished by its readiness for implementation:

 Tier I

         Tier f calls for full implementation of Known technological applications  and effective management
 practices within the next five years.  This phase of the AQMP is action-oriented.  It identifies specific control
 measures for which control technology currently exists.

 Tier If

        1 Unlike Tier I, the second phase of the AQMP will require significant advances in current applications
 of existing technology and strong regulatory action for successful implementation within the next ten to fifteen
 years.  The proposed Tier II control strategy is composed mostly of extensions or more stringent applications
 of Tier  I control measures.

 Tier IB

         The .final Her of the AQMP depends on the development, adoption, and implementation of new
 technologies within the next twenty years. Achievement of Tier III goals depends on substantial technological
 advancement and breakthroughs that are expected to occur throughout the next two decades.  This requires
 an aggressive expansion of Tier II research and development efforts.

         Since the adoption of the 1991 AQMP, the District has been studying the feasibility of implementing
 a market-based regulatory program for the Basin.   Recommendations and findings from this study were
 presented as the Regional Clean Air Incentives Market (RECLAIM).  An  amendment to the 1991 AQMP
 incorporates the concepts of RECLAIM into the existing Marketable Permits Program control measure originally
 proposed In 1991. RECLAIM calls for declining mass emission limits on the total emissions from all sources
 within a facility and requires facilities to meet prescribed annual emission reduction targets. Facilities  under
 RECLAIM wilt be given a facility-wide permit that will detail all emission sources in their facility.  Allowing sources
 to "bubble* facility emissions to meet annual reduction targets increases compliance flexibility at each facility.
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                                         CHAPTER 3

               MEASURING AND FORECASTING GREENHOUSE GAS EMISSIONS
       Determining whether or not a particular mitigation strategy, program, or project is acceptable
involves calculating the difference between "what would happen in the absence of a greenhouse gas
mitigation strategy* and "what would happen if specific mitigation measures were undertaken.'
Therefore, the definition and development of the scenarios plays a significant role in mitigation
assessments. The approach and methods chosen to help develop emission scenarios can, in part,
predetermine the outcome of an assessment.

       Two crucial elements in developing an effective climate change response strategy, therefore,
are the measuring and forecasting of greenhouse gas emissions. Measuring current emissions
enables policy-makers to determine the extent and nature of greenhouse gas emitting activities in their
state and to begin targeting priority sources.  Forecasting future emissions enables states to identify
trends in their greenhouse gas emissions and to evaluate the effectiveness  of alternative policy
options for reduction.  The purpose of this chapter is to illustrate methods to calculate both current
and future greenhouse gas emissions.


3.1    MEASURING CURRENT EMISSIONS

       The first step in addressing climate change is to identify all greenhouse gas emitting source
categories in a state and determine their current emission levels.  By developing an inventory of
greenhouse gas emissions, states can  identify those source categories within their jurisdiction that
contribute the most to global warming and establish a base for developing greenhouse gas mitigation
policies.  To address this need, EPA developed a workbook, under Phase I  of the State and Local
Outreach Program, containing methodologies to prepare greenhouse gas emissions inventories. This
document, States Workbook:  Methodologies for Estimating Greenhouse Gas Emissions, offers both
simple approaches to conducting an emissions inventory and more sophisticated approaches
depending on the amount of data available and the level of effort a state can expend. States should
review this document as a first step in developing policies and strategies to reduce greenhouse gas
emissions.1  Exhibit 3-1 presents the emissions sources included in the Phase I document along with
a list of the independent variables that  drive the emissions calculations.2 Regardless of the specific
methodologies followed, states should thoroughly document their inventories so that all calculations
are easy to understand and comparisons can be made between estimates from different states.


3.2    FORECASTING EMISSIONS

       Uncertainty is a significant concern when forecasting greenhouse gas emissions. States need
to consider time frames for projecting emissions and should extend emission forecasts only as far as
their data remain reliable. Given the degree of uncertainty already associated with existing
methodologies and available data, carrying projections beyond this point can undermine the
usefulness of these estimates. The maximum time frame for projecting emissions in most situations is
likely to be 15 to 20 years - the typical time frame for energy use projections. Beyond that,
   1 See Chapter 1 for more information on the Phase I States Workbook.

   2 The results of equations used in the Phase I document to calculate emissions from each greenhouse gas
source are determined by the values assigned to a set of independent variables.  These variables reflect the
measurable quantities or intensities of various factors that produce greenhouse gases, such as fossil fuel
consumption, area of city landfills, or the amount of crop fertilizer used in a year.

                                             3-1

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                                                                          Exhibit 3-1
              Independent Variables That Drive Emission Calculations In the States Workbook: Methodologies for Estimating Greenhouse Gas Emissions
Source Category
Required Data
Greenhouse Gases from the Residential Sector
State Residential Energy Consumption for the following fuel types:
•  Gasoline               • LPG                  • Distillate Fuel Oils
•  Kerosene              • Other Solid Fuels       • Petroleum Coke
•  Distillate Fuel           • Other Liquid Fuels      • Natural Gas
•  Residual Oil            • Coal (by type)          • Blomass Fuels
                                                                                                                                         Naphtha
                                                                                                                                         Asphalt & Road Oils
Greenhouse Gases from the Commercial Sector
State Residential Energy Consumption for the following fuel types:
•  Gasoline               • LPG                  • Distillate Fuel Oils
•  Kerosene              • Other Solid Fuels       • Petroleum Coke
•  Distillate Fuel           • Other Liquid  Fuels      • Natural Gas
•  Residual Oil            • Coal (by type)          • Biomass Fuels
                                                                                                                                         Naphtha
                                                                                                                                         Asphalt & Road Oils
Greenhouse Gases from the Industrial Sector
State Industrial Energy Consumption for the following fuel types (list may not be inclusive):
•  Gasoline               • Other Liquid Fuels      • Other Solid Fuels
•  Distillate Fuel           • Bituminous Coal        • Natural Gas
•  Residual Oil            • Sub-Bituminous Coal    • Biomass Fuels
•  LPG                   • Lignite
Greenhouse Gases from the Electric Utility Sector
State Energy Consumption from the Electric Utility Sector for the following fuel types:
•  Gasoline              • Other Liquid Fuels      • Other Solid Fuels
•  Distillate Fuel          • Bituminous Coal        • Natural Gas
•  Residual Oil           • Sub-Bituminous Coal    • Biomass Fuels
•  LPG                  • Lignite                 • Anthracite
Greenhouse Gases from the Transportation Sector
State Transportation Energy Consumption for the following fuel types:
•  Gasoline (by type)       • LPG                  • Other Solid Fuels
•  Distillate Fuel           • Other Liquid Fuels      • Natural Gas
•  Residual Oil            • Bituminous Coal        • Biomass Fuels
                                                                                                                                         Jet Fuel (by type)
Greenhouse Gases from Production Processes (CO2 from Cement
Production)
  Annual Cement Production
  Annual Adipic Acid Production
  Annual Nitric Acid Production
  Annual C02 Manufacture
Annual Soda Ash Production
Annual Soda Ash Consumption
Annual Lime Production
Annual Lime Use
Annual Aluminum Production
Annual HCFC-22 Production
Methane from Oil & Natural Gas Systems
  Amount of Oil Produced
  Amount of Oil Refined
  Amount of Gas Distributed
Amount of Oil Transported
Amount of Oil Stored
Amount of Gas Produced
Amount of Gas Processed
Methane from Coal Mining
 Annual Coal Production from Surface Mines
 Annual Coal Production from Underground Mines
 Amount of CH4 Recovered
                                                          3-2

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                                                          Exhibit 3-1
Independent Variables That Drive Emission Calculations In the States Workbook:  Methodologies for Estimating Greenhouse Gas Emissions
Source Category
Methane from Landfills
Methane from Domesticated Animals
Methane from Animal Manure
Methane from Rice Fields
Nitrous Oxide from Fertilizer Use
Greenhouse Gases Due to Logging and Wood Use
Greenhouse Gases from the Abandonment of Managed Lands
Required Data
• Amount of Waste In Place in the State
• Fraction of Waste in Place at Small vs. Large Landfills
• Average Annual Rainfall in the State
• Amount of Landfill Gas that is Flared
• Amount of Landfill Gas that Is Recovered as an Energy Source
State Animal Populations for the Following Animals:
• Dairy Cattle • Horses • Sheep
• Beef Cattle • Mules • Goat
• Range Cattle • Asses • Swine
• Buffalo
State Animal Populations for the Following Animal Types:
Feedlot Beef Cattle Dairy Cattle Other
• Steers • Heifers -Sheep
• Heifers • Cows • Goats
• Cows/Other Swine • Donkeys
Other Beef Cattle • Market • Horses/Mules
• Calves • Breeding
• Heifers Poultry
• Steers • Layers
• Cows • Broilers
• Bulls • Ducks
• Turkeys
• Percentage of Animal Manure Handled in Each Manure Management System
• Total Area Harvested (Not including Upland or Deepwater Rice Fields)
• Length of Growing Season
• Annual Fertilizer Consumption
• Forest Area Logged Non-Sustalnably
• Mature or Old-Growth Forest Area Replaced
• Annual Average Area Abandoned (in the inventory year and over a 25-year
• Average Annual Loss of Soil Carbon
• Carbon Fraction of Aboveground Biomass
• Carbon Fraction of Soil
• Natural Regeneration Rate of Aboveground Biomass
period)
                                           3-3

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                                                                          Exhibit 3-1
              Independent Variables That Drive Emission Calculations In the States Workbook:  Methodologies for Estimating Greenhouse Gas Emissions
Source Category*
Greenhouse Gas Reductions/Sequestration from Forestry Projects
Greenhouse Gases Due to Conversion of Grasslands to Cultivated
Lands
Greenhouse Gases from Burning of Agricultural Wastes
Methane Emissions from Wastewater Treatment
Required Data
• Annual Area of Plantation Established
• Initial Aboveground Blomass Carbon Per Unit Area
• Aboveground Biomass Carbon per Unit Area at Maturity
• Number of Years Required for the Plantation to Reach Maturity
• Area of Managed Forests that are Restocked
• Average Aboveground Blomass Carbon Added per Unit of Area over the
Restocked Trees
• Number of Year Required for the Restocked Trees to Reach Maturity
• Area of Non-Plantation Tree Planting (e.g., urban tree planting)
• Average Aboveground Biomass Carbon Added per Unit of Area over the
Non-Plantation Trees
• Number of Year Required for the Non-Plantation Trees to Reach Maturity
Lifetime of the
Lifetime of the
• Area of Grassland Converted
• Average Annual CH4 Uptake Rate per Unit Area Before Conversion
• Annual C02 Emissions Rates Before and After Conversion
• Annual Production of Crops with Residues that are Commonly Burned, e
Wheat Barley Corn Oats
Rye Rice Millet Sorghum
Pea Beans Soybeans Potatoes
Feedbeet Sugarbeet Artichoke Peanut
•flf-:
Lentils
Sugarcane
• State Population Data
• Pounds of Biogeochemlcal Oxygen Demand (BOD) Per Capita
• Percentage Wastewater Treated Anaerobically
• Amount of CH4 Recovered
Note:  The source categories presented in this table do not match the categories addressed in Chapter 5. The source categories in Chapter 5 are based on the categories listed
         above, but have been modified somewhat to facilitate presentation of available policy options.
                                                          3-4

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uncertainties in technological changes alone will likely call the precision of those projections into
question.

       There are a variety of detailed and complex methods states can use to forecast greenhouse
gas emissions.  However, a simplified  approach analysts can use to estimate emissions is to
extrapolate the Phase I States Workbook inventory methodologies using predicted data Using this
approach, states can forecast emissions by predicting changes in either the independent variables or
the coefficients in the emission equations, and then recalculating emissions from each affected source
category using the Phase I methodologies.  Changing the independent variables indicate that policy
alternatives are expected to affect the quantity of the resources or resource consumption that
produces greenhouse gases, such as the amount of fossil fuel consumed or the area of land used for
landfills in cities.  Exhibit 3-2 illustrates how changes in the independent variables can be used to
forecast emissions.

       Alternatively, changing the coefficients in the emissions equations, or the structure of the
equations themselves, indicates that policy alternatives are expected to alter fundamentally the level of
greenhouse gases produced per unit of resources that exist or that are consumed.  For example,
technology improvements may change how much electricity is produced per unit of fuel consumed or
how much methane escapes into the atmosphere per ton of municipal solid waste placed in landfills.
Exhibit 3-3 illustrates how changes in coefficients can alter emissions forecasts.

       Forecasting can also become extremely complex because all impacts and benefits from
greenhouse gas reduction measures are not achieved simultaneously. Moreover, the relationship
between emissions and sequestrations and the interaction between greenhouse gases and the entire
atmospheric system further complicate this process. Also, there are many external factors that can
affect future emissions, such as population growth,  economic growth, technological improvements,
degree of urbanization, etc. Possible methods to use to account for these external factors include the
following:

       •      Expert judgement relies on the insights of experts to forecast future values of key
              variables. This approach can be effective in considering difficutt-to-quantify factors, as
              well as important interrelationships that may be accounted for by quantitative
              forecasting methods.

       •      Content analysis is a technique sometimes used to forecast broad social and
              technology trends.  This technique involves reviewing and analyzing the content of the
              information carried through various  medias with respect to emerging social trends.

       •      Trending methods are  simple linear  or logarithmic projections of historical trends, and
              are rarely used as stand-alone forecasting methods. A more sophisticated variant of
              trending uses statistical time-series  techniques to extract more precise information
              about trends from historical data. Trend and time-series analyses may be most
              applicable to short-term forecasts where the influence of structural factors is not
              expected to be great.

       •      Economic forecasting methods use  multiple regression techniques to relate behavior
              to a series of explanatory  independent variables. The  specific quantitative form of an
              economic model is estimated using historical, and in some cases, cross-sectoral data
               pertaining to the model's independent variables. Forecasts of economic activity, the
              demand for transportation or forestry products, and emissions can be understood in
              terms of underlying economic behavior, and therefore, have wide application in the
              assessment of alternative  mitigation strategies.

        •     End-use forecasting  models primarily provide a finer level of detail to forecast
               emissions from the energy sector by representing energy demand within  sectors.


                                              3-5

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             Exhibit 3-2:  Example of a Policy That Affects Independent Variables

        in 1990, gasoline consumption in Connecticut's transportation sector was 160.7 trillion Btu (U.S. DOE,
1993). Using the Phase f methodology, C02 emissions from gasoline consumption are calculated as follows:

        CO2 Emissions =        Consumption x Carbon Content Coefficient x Percent Oxidized x 44/12

        CO2 Emissions =        160,700,000 mfflfon Btu x 41.8 Ibs C/106 Btu x 99% x 44/12

     .   CO2 Emissions =        24.38 million tons C02

        One strategy for reducing C02 emissions from the transportation sector is to reduce total vehicle miles
traveled (VMT), thereby reducing the amount of fuel consumed. The Connecticut Department of Transportation
has helped estabSsh nearly 12,000 car pools and 180 van pools since 1980, saving an estimated 1.1 trillion Btu
in gasoSne consumption annually.  Thus, this measure alone could decrease gasoline consumption to 155.2
trillion Btu tn 1995.  CO2 emissions can then be projected using the Phase I methodology:

        CO2 Emissions =        Consumption x Carbon Content Coefficient x Percent Oxidized x 44/12

        CO2 Emissions*;        155,200,000 million Stux 41.8 Ibs C/106 Btu x 99% x 44/12

        CO2 Emissions =        23.54 million tons CO2

        Policy Impact  =       24.38 million tons C02 - 23.54 million tons C02
                      =       820,000 tons C02

Thus, the impact of this policy is an annual CO2 emissions reduction of 164,000 tons CO2.
          Exhibit 3-3:  Example of a Policy That Affects Methodological Assumptions

        In 1990 there were 704 thousand head of beef cattle in Oregon (USDA, 1990).  Using the Phase I
methodology, methane emissions from this source are calculated as follow:

        CH4 Emissions = Animal Population  x Emissions Factor

        CH4 Emissions = 704,000 head  x 152  Ibs CH4/head/yr

        CH4 Emissions = 107.008,000 Ibs., or 53.5 thousand tons CH4

        One strategy for reducing methane emissions from domesticated animals is to change the diets of
cattle. For example, certain feed additives can increase feed efficiency by approximately 10%. This change will
have a direct effect on the emissions factor above, regardless of  any changes in animal population.  The
magnitude of this change can be calculated using equations provided in the Phase I document.  Suppose such
an increase in feed efficiency decreases the emissions factor by 3%, to 147.4 Ibs CH^head/yr. Let us also
assume that there is no net change in the number of beef cattle in Oregon by the year 2000.  To forecast
methane emissions from Oregon beef cattle, we simply apply the Phase I methodology to these new data:

        CH4 Emissions = Animal Population  x Emissions Factor

        CH4 Emissions - 704,000 head  x 147.4 Ibs CH4/head/yr

        CH4 Emissions = 103,769,600 Ibs., or 51,9 thousand tons CH4

        Policy Impact   = 53.5 thousand tons CH4 - 51.9 thousand tons CH4
                       = 1,600 tons CH4

Thus, the impact of this policy is a CH4 emissions reduction of 1,600 tons CH4.
                                              3-6

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              These methods forecast demand as a function of the efficiency characteristics of
              specific types of end-use equipment, the utilization of the equipment, and the number
              of pieces of the equipment in use. Total demand for a given fuel is estimated by
              aggregating over end-uses, at which point carbon content coefficients and emission
              factors for other gases can be applied to determine the future emissions potential of
              various options.3

       Also, as discussed previously, the time-dependent nature of forecasting raises a number of
issues.  Principal among these are the following:

       •      Treatment of time-dependent behavior. Forecasting methods can be viewed primarily
              as replicators and predictors of behavior.  Predictive methods place emphasis on
              behavior only to the extent that,  in a purely statistical sense, behavioral variables
              improve the method's predictive capacity. Behavioral methods  place greater emphasis
              on trying to understand how decisions are made by including behavioral structures in
              forecasting models. Behavioral methods also permit the user to test policies more
              easily by mimicking different behaviors.

       •      Reflecting the past in the future.  Forecasting inherently is an exercise in projecting the
              future based on the past. However, methods which are based  heavily on the use of
              historical relationships will be of limited value if these relationships change
              significantly.4

       Both these issues are inherent to forecasting and, while  some methods may be better than
others in some respects, the principal characteristic of forecasting is that it is an unreliable guide to
the future.  This argues for an analytical process that preserves  a role for expert judgement in the
definition and projection of baseline and alternative emission scenarios.
    3 The preceding bullets were taken from "Methods for Assessment of Mitigation Options' written for the IPCC
Second Assessment Report by IPCC Working Group II.  The report is in the interim-draft stage and is due for
publication later in 1995.
    4 Ibid.
                                              3-7

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                                          CHAPTER 4

    ESTABUSHING EMISSIONS REDUCTION PROGRAM GOALS AND EVALUATIVE CRITERIA
       An appropriate mitigation strategy must
combine individual projects and programs into a
coordinated approach that meets both mitigation
objectives and the broader set of state economic,
industrial, agricultural, environmental, and other
goals.  The first step, thus, in a mitigation
assessment is to define the set of objectives a
mitigation program and/or strategy should meet and
to develop criteria for evaluating the success or
failure of alternative mitigation strategies. This
chapter examines the process of setting broad
program goals and specific policy evaluation criteria
and highlights the complexities that surround these
issues (see Exhibit 4-1 for definitions of the terms
goals and criteria).  States can  choose to set
priorities and develop strategies in different ways.
For example, goals could be oriented around
specific time frames  rather than infinite time horizons,
focused on quantitative targets rather than qualitative
objectives, or based on technical or scientific   /
recommendations rather than on perceived emission
reduction capabilities.  Exhibit 4-2 presents the key
questions states may wish to pose when defining
and prioritizing emission mitigation goals. After
defining program goals and establishing evaluation
criteria, analysts can then assess the feasibility and
viability of implementing alternative greenhouse gas
mitigation options, such as those presented in
Chapters 5 and 6, in light of other state policy
objectives. The  material presented in this chapter
also provides the basis for the discussion in Chapter
8 on analyzing state mitigation  strategies.
4.1     EXAMPLES OF GREENHOUSE GAS
        REDUCTION GOALS
Exhibit 4-1: Goals and Criteria
   Goals:  Program goals explicitly state the
   broad aims that every climate change action
   should support. By doing so, they provide a
   consistent focal point for use across diverse
   situations and between state agencies and
   across sectors.

   Criteria: Criteria are the standards that
   policy makers can use to assess alternative
   policy options. Criteria are fundamentally
   rooted in two types of state policy goals: (1)
   those that support the climate change
   mitigation program; and (2) those that ensure
   that climate change mitigation policies do not
   impede or negate other state policy priorities
   or objectives. In contrast to program goals,
   criteria are more specifically defined and are
   frequently more directly measurable.
Exhibit 4-2: Key Questions Related to Goal
Setting
          Should an emission reduction goal
          be relative measured against a prior,
          current, or future reference year?

          How do mitigation objectives relate
          to existing energy, agricultural, and
          development policies?           :

          What type of processes can be
          used to reach a decision on specific
          mitigation objectives?

          How can objectives be prioritized?
        For guidance in setting explicit goals, states
can draw on the experience of and research
conducted by multilateral organizations, such as the
IPCC, and other country, state, and local
governments. For example, emissions reduction targets established by the Framework Convention on
Climate Change (as discussed in Chapter 2) encourage nations to  reduce emissions of greenhouse
gases to 1990 levels by the year 2000.1 Several individual countries and some U.S. states and cities
have also established their own  near- and long-term greenhouse gas reduction goals.  Exhibit 4-3
provides examples of these explicit local, state, national, and international program objectives.
    1 This target is for Annex 1 countries only (i.e., developed countries).
                                               4-1

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       In addition, some national and state level governments have chosen to concentrate on those
policy options that promise to reduce greenhouse gas emissions while providing additional non-
greenhouse gas-related benefits. For example, measures to increase energy-efficiency in appliances
and other technologies not only reduce greenhouse gas emissions, but also increase energy
independence and economic competitiveness, and lower emissions of criteria air pollutants. Policy
options of this type are referred to as 'no-regrets' measures, i.e., policies that provide benefits other
than those directly related to climate change, such as increased energy security or the creation of
jobs.  Options that can provide significant additional benefits often encounter less resistance politically
and gamer more public support than mitigation policies that focus solely on the reduction of
greenhouse gas emissions.


4.2    COMPLEXITIES IN EMISSIONS REDUCTION GOAL SETTING

       This section addresses the factors that make goal setting an analytically difficult task, such as
contending with technological, economic, and political constraints. As a result of these factors, goal
setting often becomes an iterative  process of gathering technical and economic data, analyzing these
data and potential response options in the context of resource constraints, projecting future
emissions, and then repeating this process until a realistic program can be developed that meets state
objectives. Some state governments have conducted this type of iterative analysis before setting any
program goals, in order to determine the most realistic approach.  Other analysts, however, have
based their goals from the outset on pursuing actions required to meet specific mitigation targets, and
then mold their programs to meet competing demands at a later stage.  Section 4.2.1 presents four
basic variables that, among others, policy-makers may wish to address during the goal setting
process. Section 4.2.2 elaborates on the complications that can arise during this process.

       4.2.1   Four Variable Aspects of Goal Setting Processes

       Policy-makers  may find it valuable to consider four primary distinctions in goal setting when
formulating the core focal points for their climate change programs. These are discussed below.

Goals oriented around specific time frames versus permanent or perpetual goals

       While each state should optimally establish a definitive primary objective for programs, such
as no net increase in greenhouse  gas emissions or stabilization to some baseline level, more specific
goals and program milestones set within distinct time frames can provide critical guidance for policy
development  and implementation.  In the context of a long-term baseline goal, for example, specific
near-term reduction targets may provide important motivation to agencies and private sector actors to
implement options.  Similarly,  certain policy actions are appropriate in the near-term and others in the
mid- or long-term.  Careful goal structuring that accounts for these time frame differences can
significantly strengthen program development. Policies adopted in the near-term may substantially
lower the costs and increase the acceptance of future actions by, for example, focusing on the
development  of technologies that minimize emissions or  by  demonstrating early the cost-effectiveness
of an option.

Quantitative goals versus qualitative goals

       Programs may pursue specific  numerical targets for emission  controls, or they may focus on
qualitative issues, such as promoting the use of the most energy-efficient technologies and processes
in all economic sectors. Setting quantitative emissions reduction goals, such as Oregon or Missouri's
                                             4-2

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                   Exhibit 4-3;  Examples of Climate Change Program Goals
Local Goals
.   Portend, Oregon, set a target to reduce carbon dioxide emissions from that metropolitan area to a level
    20 percent below 1988 levels by the year 2010.  This means a reduction of 42 percent from the 2010 level
    of emissions currently projected.
                                                                                                  v
State Goals

ป   Oregon state Jaw requires the Oregon Department of Energy and other agencies to develop a strategy to
    reduce greenhouse gas emissions by 20 percent from 1988 levels by 2005.  However, this is not a formal
    state goal; the Oregon State Department of Energy wซf use a goal of holding carbon dioxide emissions to
    1990 Jevete as they prepare the State's 1995 biennial energy plan.

•   The Massachusetts Department of Public Utilities set an explicit qualitative goal to provide electricity at the
    towest possible financial, social, and environmental cost. Toward this end, the department assigns a dollar-
    per-ton figure to the greenhouse gases carbon dioxide, methane, nitrous oxide, and carbon monoxide. The
    exploit values assigned to these environmental costs, known as 'externalities,* will  induce an overall
    reduction of greenhouse gases from Massachusetts utility plants.

•   California initiated research and analysis by state agencies to examine whether quantitative goals should
    be adopted, and if so, at what levels and within what time frame. While this work is still in progress, the
    executive directive to examine these goals has served as a valuable focal point for public and private sector
    actors (CEC, 1991),

ป   Missouri established an overall 20 percent emissions reduction goal and has also designed projects around
    specific emission reduction objectives. For example, their tree planting project is designed to displace
    almost 200,000 tons of carbon dioxide, offsetting a significant portion of state emissions by sequestering
    carbon and providing urban shading (Missouri, 1991).

•   Trie New York State Energy Plan recommended that the stabilization of greenhouse gas emissions by the
    year 2000 at 1990 levels be established as an interim target, while continuing to examine actions necessary
    to achieve reductions of up to 20 percent by 2008.

National  Goals

ซ   in the October, 1993, Climate Change Action Plan, the United States set a target of returning U.S.
    greenhouse gas emissions to 1990 levels by the year 2000 with cost-effective domestic actions. This
    includes measures in all sectors of the economy targeted at all significant greenhouse gases.

•   Sweden passed legislation in 1986 to stabilize its carbon dioxide emissions at 1988 levels.

•   The German cabinet has established a goal of twenty-five percent carbon dioxide emission reductions from
    1986 levels by 2005.

international Goals

•   The twelve nation European Community has agreed, in principle, to stabilize carbon dioxide emissions at
    1990 levels,

•   The objective of the U.N. Framework on Climate Change, established at the  1992 U.N. Conference on
    Environment and Development (UNCED) and  ratified in March of 1994, is to stabilize greenhouse" gas
    concentrations in the atmosphere at a level that  would prevent dangerous anthropogenic interference with
    the climate system and to do so within a time-frame sufficient to allow ecosystems to adapt naturally to
    climate change.
                                                4-3

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twenty percent target, can be extremely effective in focusing state efforts across sectors.  Quantitative
goals may also allow analysts to assess more easily the feasibility for alternative policy options to meet
specific targets and to monitor with greater accuracy the progress of these options.  The Oregon
target for example, seems to provide continuing focus as policies are developed and revised over
time.  Similarly, the California state directive to evaluate the pros and cons of a CO2 reduction target,
although it has not actually produced a formal quantitative target, has prompted important analysis of
how existing and potential new state policies may affect projected greenhouse gas emissions.

Goals based on prescriptive emissions targets versus goals based on perceived emission reduction
capabilities

                                                Exhibit 4-4:  Goal Setting In Oregon
       Policy-makers may decide to set goals
based on technical or scientific prescription of
emission levels necessary for climate change
mitigation (e.g., stabilization at 1990 levels), on
actual emissions or technological projections
(i.e., implement measures that will achieve the
maximum amount of emissions reductions
possible given the current and projected state of
technology), on state administrative and
analytical capacity for implementing and
supporting certain types of programs (e.g., base
emissions reductions targets on the number of
climate change projects/programs state
agencies can realistically manage over the
period being considered), or on a range of other
emissions reduction criteria This choice will
often determine how aggressive or conservative
program development and policy selection are,
and it will also affect the types of demands
programs place on state resources.

Broad versus narrow substantive goals

        Goals can cover all greenhouse gas
emissions or they can emphasize specific
greenhouse gases or particular economic
sectors.  This again will hinge on each state's
motivations and institutional structures and will
probably vary significantly with greenhouse gas
emissions characteristics in different geographic
regions. Many domestic and international
efforts focus explicitly on carbon dioxide or on fossil fuel consumption in transportation and electricity
generation, for example, since these source categories account for the majority of anthropogenic
greenhouse gas emissions. Similarly, some areas choose to focus on stationary source emissions
rather than mobile source emissions, since stationary sources are often easier to monitor.

        4.2.2   Complications that Affect Goal Setting

        Distinct economic, environmental, and political circumstances in each state will probably
determine the relative importance of the above four issues for the policy formulation process.  This
section elaborates on specific issues that complicate the analysis,of the four aspects of goal setting
discussed above including: the scientific uncertainty associated with greenhouse gas emissions
estimation and climate change-related impacts; the actual impact of mitigation measures on emissions
and on climate change;  and questions of measurability.  Chapter 7 examines how states might
                                                          Oregon has been a pioneer in
                                                   responding to global climate change. The Oregon
                                                   legislature passed a law requiring the Oregon
                                                   Department of Energy (ODOE) and other agencies
                                                   to develop a strategy to reduce greenhouse gas
                                                   emissions by 20 percent from 1988 levels by the
                                                   year 2005.  ODOE fulfilled this mandate by
                                                   incorporating a greenhouse gas reduction strategy
                                                   Into Its 1991 biennial energy plan, although the
                                                   strategy did not become a format state goal. Stilt,
                                                   the presence of this strategy in the energy plan
                                                   helps the state project hew it will meet Its future
                                                   energy needs and offers specific policies and
                                                   actions.  In this context, the energy plan calls
                                                   explicitly for the development of a state action
                                                   plan to deal with climate change, with a target of
                                                   stabilizing emissions at 1990 levels.  This target
                                                   was set as a state benchmark through
                                                   recommendation of a 'Progress  Board' headed by
                                                   the Governor. Furthermore, within the context of
                                                   the energy plan, Oregon's qualitative goaf is to
                                                   achieve reliable, least-cost, and environmentally
                                                   safe sources of energy. Oregon is able to
                                                   monitor and update its progress towards
                                                   achieving these quantitative and qualitative goals
                                                   through the preparation of energy plans every two.
                                                   years.

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structure programs to take full account of these issues in all aspects of program design. Exhibits 4-4,
4-5, 4-6, and 4-7 present examples of how states have dealt with these complications in setting
emissions reductions goals and targets.
                                                Exhibit 4-5: Goal Setting In Missouri
Scientific and Technical Uncertainties

       Achieving permanent stabilization could
require carbon dioxide emission reductions of
fifty to eighty percent from currently projected
levels, as well as significant reductions in the
other greenhouse gases.  This stabilization goal
would be extremely difficult to achieve at the
present time, and few analysts seem sure about
what levels of emissions reductions are actually
feasible.  Scientific uncertainties underlie many
aspects of our understanding of climate change
processes, such as the uptake of CO2 by
forests and the oceans. Further, uncertainties
exist in estimating emissions from various
source categories and in assessing the potential
greenhouse gas and associated impacts of
specific control technologies.  Given these
uncertainties, the idea of an optimal emission
reduction target is subject to considerable
controversy and often  becomes defined by other
criteria

Uncertain Impacts and Interactions of Policy
Approaches

       Some policies may be effective in the
short-term, while others will take longer to
produce desired results. Also, some options
have benefits other than those related to
greenhouse gases, such as increased energy
security or decreased  soil erosion.  At the same
time, however, these options may prove to be
politically unpopular and thus perhaps not feasible, as a result of potentially significant sectoral
economic impacts or required changes in  behavior.  As one illustration of these issues, policy
measures such as taxes and  other economic incentives can be the most effective in modifying
consumer behavior, but they also frequently generate the highest levels  of political resistance.

        Similarly, broader and more qualitative goals may be effective in addressing these issues, but
complications surround them as well.  For example,  Massachusetts' explicit goal of providing electricity
at the lowest possible financial, social, and environmental cost accounts for the social effects of
carbon dioxide from energy production in  addition to addressing the environmental impacts of energy
production.  The energy goal thus incorporates a variety of social objectives and may serve as a
model for addressing the impacts of greenhouse gas emissions from many sources, including utilities,
industries, commercial and residential buildings, and transportation.  This approach may be especially
valuable in situations where different sectors could be unevenly affected by emission reduction
policies if clear  groundwork is not laid in advance. However, this broad, qualitative goal may
complicate the projections of emission reductions resulting from the policies, and  create political
controversy over methods and procedures adopted for quantifying benefits.
                                                          Missouri's 85th General Assembly
                                                   adopted a resolution in 1989 that created the
                                                   Missouri Commission on Global Climate Change
                                                   and Ozone Depletion. The commission consisted
                                                   of 14 members with various backgrounds and
                                                   was charged with assessing Missouri's
                                                   contribution to these global environmental and
                                                   social problems, and to offer possible policy
                                                   alternatives. The Commission's report was
                                                   presented to the Missouri General Assembly, in
                                                   1990. This report was well received and has
                                                   served as a catalyst for discussion throughout the
                                                   state. As a result of the Commission's
                                                   recommendation, Missouri's Environmental
                                                   Improvement and Energy Resources Authority and
                                                   the Division of Energy of the Department of
                                                   Natural Resources have initiated a comprehensive
                                                   state energy study. Furthermore, the
                                                   Commission's charge was extended in order to
                                                   study and fully develop options for preparation
                                                   and mitigation of effects associated with global
                                                   climate change and ozone depletion. In addition,
                                                   Missouri established a non-binding goal of
                                                   reducing greenhouse gas emissions by twenty
                                                   percent. This goal has apparently provided a
                                                   valuable focal  point and source of motivation for
                                                   the state legislature, state agencies and other
                                                   organizations.
                                                4-5

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Measuring Results
       The direct effects of important climate change-related policy actions are often extremely
difficult to measure or forecast For example, quantitative goals, while often politically and analytically
difficult to set and agree upon, are frequently much easier to assess and communicate than qualitative
goals. On the other hand, many qualitative and inherently difficult-to-measure actions, like broad
public education on climate change and energy-
efficiency issues,  may offer some very good       Exhibit 4-6: Goal Setting in Vermont
opportunities for achieving long-term climate
stabilization.
        Similarly, the emission impacts of short-
term actions are frequently easier to measure
than those of longer-term policies, largely
because the longer-term actions (especially
those with twenty year or longer time horizons)
are subject to complications and interactions
from many unforeseeable economic, physical,
and environmental developments.  To address
this issue, states can set detailed near-term
targets within the context of broader mid- or
long-term qualitative or quantitative goals. This
structure, elaborated in Chapter 7, provides a
way of focusing measurable or monitorable
policy formulation in the short-term and fostering
momentum for future program development. It
also provides a mechanism to ensure that
emphasis on the most promising short term
policies does not override or exclude
consideration of critically important long-term
actions.
       Jn October 1989, Vermont's governor
signed an executive order calling for a
comprehensive review of all forms of energy used
in the state and for the development of a plan to
modify energy usage In order to achieve specific
goals relating to environment quality, affordability,
and renewability. Goals include a reduction in
per-capita non-renewable energy use of twenty
percent and a reduction in emissions of
greenhouse gases and acid rain precursors by
fifteen percent, both by the year 2000. To meet
this charge, the Vermont Comprehensive Energy
Plan was developed cooperatively by the Vermont
Department of Public Service, the Agency of
Natural Resources, the Agency of Transportation,
and many of Vermont's leading authorities on
energy usage. The Plan showed that through
actions to modify and adapt the state's energy
usage to meet the goals laid out in the executive
order, Vermont can reduce greenhouse gases by
twelve percent, acid rain precursors by eighteen
percent, and the per-capita use of non-renewable
energy by twenty-seven percent
4.3     ESTABUSHING CRITERIA FOR EVALUATING POUCIES

        Clear and consistent policy evaluation criteria can provide a strong base for ensuring that all
policies support fundamental program goals. The criteria should  not only recognize that some goals
may be competing, but should also account for substantive, administrative, and political factors.  As
opposed to creating strict guidelines to which all policies must adhere, carefully developed criteria
establish a framework with which to compare the implications of different policy options.  Compiling
these criteria carefully at the outset will help ensure that important issues are not overlooked at any
time during program and policy development.

        Each of the criteria delineated below represents factors that are potentially important to state
policy-makers and that, if adopted by an individual state, could be applied to every policy
consideration.  These should not necessarily serve as constraints that must be met, but rather as
guidelines to ensure comprehensive and consistent consideration of all relevant factors during policy
selection.  At the same time, to evaluate and compare policies effectively,  states will probably prioritize
among the criteria they adopt.  The criteria presented here are drawn from various state experiences
and may not be appropriate for all new programs. Each state should develop a set of clear and
distinct criteria that reflects their individual priorities and circumstances.

        As with the development of quantitative or qualitative program goals,  application of specific
policy evaluation criteria may vary across time frames. In the immediate-term, for example, existing
institutional structures and politics may dominate policy selection. For the mid- or long term, however,
                                               4-6

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policy flexibility and overall economic efficiency
may be more important for some states. Some
criteria will certainly apply in all time periods.
Urban tree planting programs, for example,
illustrate these points. While the carbon
sequestration value of urban tree planting may
be small, this project focuses public attention on
the global climate change issue in the near-
term, potentially builds political support, and
helps alleviate the 'urban heat island*
phenomenon in the long term.  Similarly, some
far-reaching and potentially expensive policies
may not seem justified if their benefits within the
near-, mid-, and long-terms are not all
acknowledged.  This is especially relevant with
regards to climate change, where the impacts
and direct mitigation  benefits of some actions
will probably not be felt for decades.

        •       Effectiveness in Reducing
               Greenhouse Gas Emissions.
               This is a key criterion for climate
               change mitigation policies.
               Every policy should help reduce
               current or future greenhouse
               gas emissions.  However,
               several issues could confound a
               policy-makers' perceptions of
               the effectiveness of alternative
               policy options.  These issues
Exhibit 4-7: Goal Setting In Iowa
          The Iowa Department of Natural
   Resources delivered .the state's first Energy Plan
   to the General Assembly In 1990.  The plan
   "pointed out the way to a future of wise energy
   use, economic stability, and environmental
   quality/ With the plan, updated In 1992, Iowa
   aims to achieve two tong term quaSative goats:
   1} to meet att new energy demand with efficiency
   rather than new supp&es of fossil fuels, and 2} to
   effectively double, then double again the share of
   renewable, "homegrown* resources in the state's.
   energy mix. The plan also sets the objective of
   continuing to explore how to meet these goals.
   Towards this end, the state has taken and
   continues to take steps to create innovative utility
   energy efficiency efforts, to encourage efficient
   homes through building ratings, to stimulate *
   alternative energy industries, and to promote
   research and development through university
   centers.

          The DNR is currently conducting a study
   that tooks at the direct, indirect, and induced
   effects of increased investment in energy
   efficiency and renewables. The study is focussed
   more on the economic rather than environmental
   analysis of options, since utilities and consumers
   typically focus on the cost-effectiveness of options
   rattier than the direct environmental benefits.
               include the timing of a policy's
               effects, the certainty of results from different types of government actions, the degree
               of control that the public sector seeks to retain, the continuing effectiveness of a policy
               in the face of economic fluctuations and growth, the responsiveness to technological
               change, and the degree and impact of interaction among various concurrent policies.

               Private Sector Costs and Savings. Most policies will alter the costs recognized by the
               private sector, including industry and consumers.  Policies regulating technology use,
               industry reporting, or emissions taxes, for example, will impose costs on the private
               sector and ultimately on the consumers of affected products.  At the same time, these
               or other measures may promote cost savings through energy-efficiency and similar
               mechanisms. The timing, distribution between affected actors, and magnitudes of
               costs may all be important to consider.

               Public Sector Costs.  New policies frequently require implementation, administration,
               and enforcement support from state agencies. This support costs the agencies, and
               thus the state government, additional resources in terms of direct financial
               expenditures, staffing, equipment, and building space.  These costs are especially
               relevant in terms of administering and coordinating programs and maintaining
               adequate records. For example, all policies will probably require some level of staffing
               for general administration, and certain non-voluntary emission reduction goals and
               directives may require additional administrative and field resources for ensuring
               compliance.                                                    •   .
                                                4-7

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              Institutional Capacity. In addition to general public sector resource expenditures for
              program administration, as noted above, certain types of policies may require distinct
              institutional capabilities, like the ability to perform specific types of scientific or
              economic analysis.  Similarly, policies may require substantial levels of interagency or
              public- and private-sector cooperation.  An important criterion may be whether states
              have the existing or foreseeable capacity to meet these types of policy implementation
              requirements.

              Enforceability.  In addition to imposing direct enforcement costs, some policies may
              require new legal powers for state agencies to administer, while some policies may
              simply be difficult to enforce. This is especially relevant given complications in
              measuring some greenhouse gas emissions and in measuring the effectiveness of
              certain policy options. Similarly, regulatory approaches that target large numbers of
              decentralized emission sources, such as individual consumers who use polluting
              products or services, may pose especially difficult enforcement problems.  For these
              reasons, the general enforceability of policy options may be an important criterion.

              Economic Efficiency. Although many policies can reduce greenhouse gas emissions,
              policy-makers may want to emphasize options that use resources most efficiently -
              i.e., achieve emissions reductions using the least amount of private and public
              resources. Policies that focus first on sources that can provide the lowest cost
              reductions usually promote these objectives.  From a national perspective, cooperation
              between states and regions may promote least-cost emission reductions.

              Social Equity. Both costs and other impacts may be distributed unevenly across
              certain geographic locations, income groups, or economic sectors.  Policies that affect
              prices of basic consumer goods, such as home heating costs, may have a
              disproportionate impact on low income  individuals.  Similarly, some policies may
              adversely affect one economic sector more than others. For example, policies
              targeted at nitrous oxide emissions may affect agriculture more than they will affect
              manufacturing.  Additionally, since the impacts and costs relating to climate change
              extend far into the future, policy-makers may need to grapple with intertemporal
              inequity between generations.

              Political Impact and Feasibility. Public or political acceptability is an essential  element
              of a successful emission control program.  Some recommended measures, such as
              taxes and other economic incentives, for increasing economic  efficiency or changing
              consumer and producer behavior, can generate significant  popular resistance. Near-
              term policies or actions that include public education or that encourage public input
              and involvement in the climate change decision making process may help build public
              support.

              Legal Constraints.  The introduction of some emission reduction policies and goals
              may be constrained by existing legal barriers.  For example, setting land aside for tree
              planting, requiring  utilities to undertake  least-cost planning, or  addressing
              environmental 'externalities' may all require new or revised  laws. Some additional
              technical approaches for emissions reduction, such as methane recovery from landfills
              and coal mines, have not been actively  pursued before, in part because of legal
              complications arising from public safety or other concerns.   Frequently, these legal
   2 As part of the CCAP, methane recovery from landfills and coal mining is being aggressively pursued.  These
programs focus on recovering methane for use as an energy source. These programs, the Landfill Methane
Outreach Program and the Coal Bed Methane Outreach Program, are federally-sponsored voluntary programs
committed to working with state regulators and industry representatives to maintain public safety, revise current


                                             4-8

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              constraints can be overcome by modifying or broadening regulatory guidelines to
              permit new activities that still promote initial regulatory objectives, such as public
              safety, without excluding certain approaches to reducing greenhouse gas emissions.
              For example, changing landfill methane emission laws to permit recovery and sale of
              methane, as being pursued in the CCAP, rather than requiring methane flaring as the
              only safe control measure, illustrates this point.

       •      Ancillary Benefits and Costs.  Some climate change mitigation actions could affect
              other state programs and priorities, either by design or unintentionally. Various
              potential emission reduction policies produce ancillary benefits  by enhancing
              environmental quality, promoting the sustainable  use of resources, enhancing social
              welfare, enhancing food security, or generating revenue for the government. For
              example, increasing the use of renewable fuels generated within a particular state
              could reduce emissions of pollutants from fossil fuel combustion,  increase energy
              independence, lower the balance of trade, and contribute to a state's economic well
              being. Alternatively, ancillary costs can occur when any policy  indirectly works against
              the factors described  above.  For example, tree planting programs that sequester
              carbon, halt erosion, and improve air and water quality may also require large tracts of
              land to implement, potentially increasing land prices in agricultural areas and thereby
              increasing prices for agricultural commodities.

       In addition to the substantive  criteria listed above, state policy-makers experienced with
climate change programs have recommended two additional process-oriented criteria that may help
provide focus for evaluating policy options.

       •      Measurability.  Policy-makers in  the climate change field repeatedly emphasize the
              benefits of being able to measure policy effects.  These benefits include accurate
              emissions forecasting, a sound  basis for policy comparison now and for future
              program analysis and modification, and increased political legitimization of certain
              options based on their measurable impacts. In addition to the complications
              surrounding measurability described above, however, some powerful long term and
              qualitative policies are inherently difficult to assess.  For example, it is difficult to
              quantify the impacts of public and  consumer education and of long range land use
              and urban planning changes. States should be careful not to eliminate these policies
              from consideration because they are difficult to measure, but rather should anticipate
              that such policies have different implications for analytic, administrative, and political
              processes during program planning.

       •      Flexibility. Programs and policies will need to change and adapt over time as more is
              learned about actual climate change impacts and about the effectiveness  of various
              options for mitigating those impacts. Similarly, flexible state programs may channel
              their internal and  external resources to the most effective applications. This
              underscores the importance of considering the appropriate time frame in initial
              program development and is also one of the primary reasons why states may benefit
              from initiating climate change mitigation  programs on their own terms now rather than
              waiting for less flexible national  or international standards.  This may have direct -
              implications for policy choice.
state and local regulations and industry standards, and promote a cost-effective alternative to flaring.
                                              4-9

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                                           PART II

                      TECHNICAL APPROACHES AND POUCY OPTIONS
                       FOR REDUCING GREENHOUSE GAS EMISSIONS


       The following two chapters provide an overview of specific steps states might take to reduce
greenhouse gas emissions.

  •    Chapter 5, Technical Approaches and Source-Specific Policy Options, is broken into twelve
       sections, each corresponding to a single emissions source.  It provides background technical
       information and offers policy options for addressing each source.

  •    Chapter 6, Cross-Cutting Themes and Program Development, discusses policy options and
       issues that are relevant to more than one emissions source and indicates areas with the
       greatest potential for comprehensive emission reduction measures.

       These chapters are designed to be used as reference materials,  providing self-contained
information on each emissions source.  Each section provides references to other sections where
appropriate. These  chapters are not necessarily intended to be read through in a comprehensive
way.

       These chapters present policy suggestions that generally follow the structure described in
Chapter 2 for addressing specific barriers to greenhouse gas emission reductions.  In this context, the
policy options here fit generally into four categories: education  and information provision,
restructuring of  institutional and legal barriers, development of financial incentives, and direct
regulation.

Greenhouse Gas Sources Not Elaborated in this Document

       This document does not elaborate on several sources of greenhouse gases, such as methane
emissions from  wastewater treatment and wetland drainage and carbon loss  from soils. These
sources are difficult  to address for various reasons.  In some cases, the current scientific
understanding of the emission source is insufficient to warrant thorough discussion.  Similarly, the
scientific uncertainties surrounding the emission reduction options for these sources are often too
great to consider such measures as viable alternatives.  For other emission sources, there are no
viable technical  approaches to reduce emissions effectively.

       Rather than to address these tangential sources, this document emphasizes areas where
states can focus their efforts and resources to mitigate significantly the threat of future climate change.
States should, however,  still include these sources as part of a complete greenhouse gas emissions
inventory since  they are  a part of a state's overall contribution to global warming. The most significant
sources not elaborated in detail in Chapters 5 and 6 are summarized below.

  •    Wetlands Drainage: This document does not contain emission reduction measures for wetland
       drainage because of the potentially offsetting effects of this activity on climate change. That
       is, wetland drainage may decrease  emissions of one greenhouse gas, methane, while
       increasing emissions of another, carbon dioxide.  Wetlands drainage results in  a reduction of
       methane uptake and an increase in carbon dioxide emissions as the  soils change from an
       anaerobic to an  aerobic state.  However, depending on the fate of the drained wetlands,  these
       soils may also become a net sink of methane.  It is difficult, therefore, to quantify the net  effect
       of any reduction measures.  Furthermore, while net emissions of nitrous oxide and carbon
       monoxide may be affected by this activity, the direction  and the magnitude of the effects  on
       these gases are highly uncertain. It may be more useful for states to implement policy
       measures that have a clearer mitigative  impact.
                                              -1

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     •    Conversion of Grasslands to Cultivated Lands: This document does not address conversion of
          natural grasslands to managed grasslands and to cultivated lands because of the scientific
          uncertainties associated with this emissions source.  Conversion of natural grasslands to
          managed grasslands and to cultivated lands may affect net carbon dioxide, methane, nitrous
          oxide, and carbon monoxide emissions.  Conversion of natural grasslands to cultivated lands
          may result in carbon dioxide emissions due to a reduction in both biomass carbon and soil
          carbon.  Such a land use change has been found (at least in the semi-arid temperate zone) to
          also decrease carbon dioxide uptake by the soils. The effects on nitrous oxide and carbon
          monoxide fluxes are highly uncertain.

     •    Greenhouse Gases from Production Processes:  Direct greenhouse gas emissions from the
          industrial sector result from a variety of chemical, thermal, and mechanical processes that are
          employed to extract, refine, and process raw materials and produce a variety of end-products.
          For example, aside from the emissions resulting from on site power generation and heating, a
          significant amount of carbon dioxide is released during cement production.  Similarly, nylon
          production results in the release of nitrous oxide.  Section D in the Phase I document contains
          a list of additional industrial processes that produce greenhouse gas emissions.  Because
          there are few additional reduction measures currently available, this document does not
          address other greenhouse gas emissions reductions from this source category. The most
          effective emissions reduction method for the industrial sector usually is to improve energy
          efficiency, which is discussed in Section 5.1.5.

     •    Methane from Wastewater Treatment Facilities: Anaerobic treatment of wastes produces
          methane. This is  generally considered to be a bigger problem in many developing  countries
          than in the United States, since most U.S. facilities treat waste aerobically. In addition, many
          municipal waste water treatment facilities in the U.S. already capture the methane they do
          produce and use  it during on-site energy production. While not addressed further in this
          chapter or the Phase I Slates Workbook, policy-makers should consider this issue as it applies
          to their  local circumstances.

     •    Emissions of Ozone-Depleting Substances:  This document does not address emissions of
          CFCs and other Ozone-Depleting Substances (ODSs) that, in addition to depleting
          stratospheric ozone, also function as greenhouse gases.  This document also does not
          address the greenhouse effect of many of non-ozone depleting chemical  replacements for the
          ODSs, such as hydrofluorocarbons  (MFCs).  ODSs and MFCs are emitted as a result of a
          variety of processes, including refrigeration, air conditioning, solvent cleaning, foam
          production,  and aluminum production. Emissions of ODSs,  except for those stemming from
          aluminum production, are already rapidly declining. They are being phased out under the
          Clean Air Act Amendments of 1990 in coordination with U.S.  obligations as a signatory to the
          Montreal Protocol on Substances that Deplete the Ozone Layer.  CFC replacements  such as
          MFCs, on the other hand, are controlled under EPA's Safe New Alternatives Program (SNAP)
          and are targeted for certain actions under the Climate Change Action Plan.

   Additional Information on Policies and Actions to Reduce Greenhouse Gas Emissions

          The CCAP presents a variety of programs and actions the federal government will be
   undertaking to reduce greenhouse gas emissions.  Exhibit 11-1 lists the specific actions highlighted in
   the CCAP. Many of these may supplement the policy ideas elaborated in Chapters 5 and 6.  A copy
of the CCAP can be obtained from  EPA.
                                                 -2

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                                       Exhibit 11-1:  Actions Specified In the U.S. Climate Change Action Plan
Foundation Actions
•  Launch the Climate Challenge to encourage electric utilities and other eligible
   firms to submit voluntary greenhouse gas reduction portfolios
•  Launch Climate-Wise Companies to encourage U.S. industry to take
   advantage of the environmental and economic benefits associated with
   energy efficiency Improvements and greenhouse gas emission reductions

Commercial Energy Efficiency Actions
•  Coordinate DOE Rebuild America and EPA Energy Star Buildings
•  Expand EPA's Green Lights Program
•  Establish State Revolving Fund for Public Buildings
•  Expand Cost-Shared Demonstrations of Emerging Technologies
   Establish Energy Efficiency and Renewable  Energy Information and Training
   Programs

Residential Energy Efficiency Actions
•  Form Golden Carrot Market-Pull Partnerships
•  Enhance Residential Appliance Standards
•  Promote Home Energy Rating Systems and Energy-Efficient Mortgages
•  Expand Cool Communities Program in Cities and Federal Facilities
•  Upgrade Residential Building Standards
•  Create Residential Energy Efficiency Programs and Housing Technology
   Centers

Industrial Energy Efficiency Actions
•  Create a Motor Challenge Program
•  Establish Golden Carrot Programs for Industrial Air Compressors, Pumps,
   Fans and Drives
•  Accelerate the Adoption of Energy-Efficient Process Technologies Including
   the Creation of One-Stop-Shops
•  Expand and Enhance Energy and Diagnostic Centers
•   Accelerate Source Reduction, Pollution  Prevention, and Recycling
•   Improve Efficiency of Fertilizer Nitrogen Use
•   Reduce Pesticide Use

Transportation Actions
•  Reform the Federal Tax Subsidy for Employer-Provided Parking
•  Adopt a Transportation System Efficiency Strategy
•  Promote Greater Use of Telecommuting
•  Develop Fuel Economy Labels for Tires
Energy Supply Actions
•  Increase Natural Gas Share of Energy Use Through Federal
   Regulatory Reform
•  Promote Seasonal Gas Use for Control of Nitrogen Oxides (NOX)
•  Commercialize High Efficiency Gas Technologies
•  Form Renewable Energy Market Mobilization Collaborative and
   Technology Demonstrations
•  Promote Integrated Resource Planning
•  Retain and Improve Hydroelectric Generation at Existing Dams
•  Accelerate the Development of Efficiency Standards for Electric
   Transformers
•  Launch EPA Energy Star Transformers
•  Reduce Electric Generation Losses Through Transmission Pricing
   Reform

Methane Reduction and Recovery Actions
•  Expand Natural Gas Star
•  Increase Stringency of Landfill Rules
•  Expand Landfill Outreach Program
•  Launch Coalbed Methane Outreach Program
•  Expand RD&D for Methane Recovery from Coal Mining
•  Expand RD&D for Methane Recovery from Landfills
•  Expand AgStar Partnership Program with Livestock Producers
•  Improve Ruminant Productivity and Product Marketing

HFC. PFC and Nitrous Oxide Reduction Actions
•  Narrow  Use of High GWP Chemicals Using the Clean Air Act and
   Product Stewardship to Reduce Emissions
•  Create Partnerships with  Manufacturers of HCFC-22 to Eliminate  •
   HFC-23 Emissions
•  Launch Partnership with Aluminum Producers to Reduce Emissions
   From Manufacturing Processes
•  Improve Efficiency of Fertilizer Nitrogen Use

Forestry Actions
•  Reduce The Depletion  of Nonlndustrlal Private Forests
•  Accelerate Tree Planting in  Nonlndustrial Private Forests
•  Accelerate Source Reduction, Pollution Prevention  and Recycling
•  Expand Cool Communities  Program in Cities and Federal Facilities
                                                  II-3

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                                              CHAPTER 5

                  TECHNICAL APPROACHES AND SOURCE-SPECIFIC POUCY OPTIONS
        This chapter describes opportunities for state policy-makers to control greenhouse gas emissions from
specific sources. To facilitate presentation, these opportunities have been divided into technical approaches and
policy options. Technical approaches" refer to technical or engineering methods which, when implemented, will
reduce emissions from the source category.  "Policy options" are instruments through which one or more technical
approaches are promoted.  Exhibit 5-1 illustrates how these terms are used in this chapter.

                                              Exhibit 5-1
                               Examples of Terminology Used in Chapter 5
   Source Category
        Technical Approach
        Policy Option
   Greenhouse Gases from
   the Transportation Sector
Reduce Vehicle Miles Travelled
Improve Mass Transit Systems

Provide Incentives to Employees
to Establish Van Pools

Develop Tele-Commuting
Programs
   Methane from Landfills
Recover and Use Methane Gas
Sponsor Technology
Demonstration Projects

Develop Tax Credits for Methane
Recovery Projects

Initiate Regulatory Requirements
to Capture Gas
        Information regarding emissions, and approaches to reducing emissions, are not always easily categorized
for policy analysis.  The emissions sources or grouping of gasses to prepare emissions inventories are often
scientifically based  and do not necessarily support effective policy analysis and development.  This part of the
document is generally organized around the emissions source categories from the States Workbook, but adjusts
those categories where appropriate to facilitate policy development. Exhibit 5-2 shows the relationship between the
emissions sources  defined in the States Workbook and categories used to organize this chapter.

        Within each source category information is presented in the following format:

   •     An introduction to the source category summarizes how specific greenhouse gases are generated and
        emitted by the source and discusses federal, state, and local policy objectives that may be relevant to
        emission reductions.

   •     Each technical approach to emissions reduction is presented, including a general description of the
        approach  along with associated administrative and implementation considerations, such as emission
        reductions, cost, time frame, key drawbacks or limitations,  possible ancillary effects, and related examples.

   •     Policy options for each technical approach suggest ways state governments might be able to promote and
        implement that approach, drawing from a wide variety of perspectives and examples.

        As the introduction to Part II of this document explains, "cross-cutting" issues or policy options that
potentially affect more than one source category in this chapter are elaborated in Chapter 6. One important cross-
cutting issue of which policy-makers should be aware, and that affects or is affected by all source categories, is
that greenhouse gases are linked to energy consumption in all sectors. While Section  5.1 examines this issue, it is
important to note that energy consumption in all sectors of society result in greenhouse gas production. This
                                                  5-1

-------
encompasses, for example, agricultural, forestry, industrial, and residential concerns.  This issue is too broad to
examine exclusively and concisely without considering its relevance in the context of all other emission sources.
Accordingly, the rest of this document makes specific reference to energy consumption issues where appropriate.

        The information summarized in this chapter is designed to be used selectively, allowing policy-makers to
focus on the specific sources in which they are most interested. This document does not advocate particular
approaches or options.
                                                   5-2

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                                       Exhibit 5-2
Emissions Source Category As Defined
         In Phase I Workbook
Source Categories Described in
  Chapter 5 of This Document
Greenhouse Gases from the Residential Sector
Greenhouse Gases from the Commercial Sector
Greenhouse Gases from the Industrial Sector
Greenhouse Gases from the Electric Utility Sector
Greenhouse Gases from the Transportation
Sector
Greenhouse Gases from Production Processes
Methane from Oil & Natural Gas Systems
Methane from Coal Mining
Methane from Landfills
Methane from Domesticated Animals
Methane from Manure Management
Methane from Flooded Rice Fields
Nitrous Oxide from Fertilizer Use
Greenhouse Gases Due to Changes in Forests
and Woody Biomass Stocks
Greenhouse Gas Reductions/Sequestration from
Forestry Projects
Greenhouse Gases Due to Conversion of
Grasslands to Cultivated Lands
Greenhouse Gas Emissions from the
Abandonment of Managed Lands
Methane Emissions from Wastewater Treatment
Greenhouse Gases from Burning of Agricultural
Wastes
•#
•*
•*
•*
^
•*
-*
•+
•*
-ป
-• •
•*
•*
_ -• =-
^'
^
•*
-*
Greenhouse Gases from Energy Consumption:
Demand-side Measures
Greenhouse Gases from the Electric Utility
Sector: Supply Side Measures
Greenhouse Gases from the Transportation
Sector
Not addressed in Chapter 5
Methane from Oil & Natural Gas Systems
Methane from Coal Mining
Methane from Landfills
Methane from Domesticated Animals
Methane from Animal Manure
Methane from Flooded Rice Fields
Nitrous Oxide from Fertilizer Use
Emissions Associated with Forested Lands
Not addressed in Chapter 5
Not addressed in Chapter 5
Not addressed in Chapter 5
Greenhouse Gases from Burning of Agricultural
Wastes
                                          5-3

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5.1    GREENHOUSE GASES FROM ENERGY CONSUMPTION:  DEMAND-SIDE MEASURES

       Carbon dioxide is emitted through combustion of fossil- and biomass-based fuels to produce
direct heat and steam, and to generate electricity, either at utility plants or directly on-site where the
energy will be consumed.  The amount of carbon dioxide released to the atmosphere is directly
proportional to the carbon content of the fuel used.  Coal is the most widely used of all fossil fuels for
electricity generation and has the highest carbon content, natural gas is second in electricity
generation use while third in carbon content, and oil is third for electricity generation but second in
carbon content1  In the U.S., electricity use by the residential, commercial, and industrial sectors
each accounts for about one-third of total carbon dioxide emissions.

       Several perspectives may help policy-makers identify measures to decrease energy sector
carbon dioxide emissions:

  •    First, emissions reductions can be achieved through actions taken either to reduce energy
       consumption or to alter energy supply.

  •    Second, these actions can reduce emissions either by reducing energy consumption or by
       improving the efficiency with which energy is used. Decreasing the number of processes
       used, commonly called energy conservation, requires a reorientation of business practices
       and lifestyles, such as utilizing different transportation networks or following non-typical work
       schedules.  Energy-efficiency options, on the other hand, achieve the same level of output or
       activity while using less energy, often through improved technology.  A more efficient furnace,
       for example, may allow a household to maintain the same or even higher indoor temperature
       while using less fuel.

  •    Third, either energy conservation or energy-efficiency options on the consumption- or supply-
       side can be exercised using a variety of  policy levers. At the state level this usually means
       either undertaking direct  energy planning and programmatic initiatives through state energy,
       natural resources, and economic development offices (as many states have since the mid-to-
       late-1970s), or using utility regulatory authority to encourage or mandate  utility involvement in
       energy conservation, energy efficiency, and  load management programs  (as has been done
       increasingly since the 1980s).

       The remainder of Section 5.1 addresses energy consumption.  It identifies technical
approaches for improving energy efficiency and  briefly outlines both direct state actions and
regulatory agency-driven utility actions to implement those approaches. Section  5.2 presents energy
production and supply side issues.  Chapter 6 examines  integrated resource planning (IRP) as an
institutional mechanism for bringing consideration of supply- and demand-side actions together in a
consistent and comprehensive fashion.

       While separated here for descriptive clarity, these three sections are inextricably linked and
should be considered together during policy analysis and development. Each section, for example,
highlights how both the consumers and the producers of electricity can take actions to affect energy
demand and supply, and each section also points out how, in many circumstances, certain facilities
can simultaneously act as energy consumers and producers. Because of wide variations among the
states, the information included here should be considered as background to be investigated and
clarified further as it applies to distinct state circumstances.
   1 The burning of biomass-based fuels (wood, agricultural refuse, etc.) also releases carbon dioxide.  However,
biomass burning releases carbon that was sequestered from the atmosphere to begin with, rather than releasing
carbon that was previously stored deep in the earth as is the case with fossil fuels.  In this context, combustion of
biomass fuels that are sustainably grown (meaning each time biomass crops are harvested they are replaced with
new plants and trees)  does not significantly upset the atmospheric carbon balance while burning fossil fuels does.


                                              5-4

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Introduction To Consumption-Side Issues and Demand-Side Management

       Between 1973 and 1986, conservation and efficiency measures, combined with strategic
energy planning and increased use of renewable energy sources, helped keep U.S. energy
consumption at nearly constant levels while the country's gross national product grew by thirty-five
percent.  This demonstrates the significant potential for reducing the economy's energy intensity.
Enormous opportunities for further demand reduction are still available using existing and newly
developed conservation and efficiency measures.

       Demand-side management (DSM) is the term for programs that focus on getting end-users to
consume less energy. These programs are administered by a wide range of entities, ranging from
utilities to state agencies, local governments, community action agencies, and not-for-profit
organizations.  Basic types of demand-side management programs include:

  •    Building or business audits to identify potential energy savings;

  •    Performance based rebates paid on a per-kilowatt or per-kilowatt conserved basis;

  •    Technology  based rebates for specific energy-efficiency measures such as compact
       fluorescent lights and occupant sensing light switches;

  •    Reduced interest financing for energy-efficiency  investments;

  •    Direct installation of energy-efficient equipment;

  •    Energy load management programs designed to shift consumption of energy to different times
       of the day, including time-of-day pricing and peak-load pricing, imposition of demand charges,
       and voluntary load shifting agreements with particular commercial and industrial customers;

  •    Educational  and advertising campaigns targeted either at the general public or at specific
       commercial or industrial sectors; and

  •    End-use fuel substitution.

       A large array of federal, state, and  local policies affect the energy sector and influence
demand-side issues. The Federal Energy Regulatory Commission (FERC), for example, has
jurisdiction over wholesale (inter-utility) power transactions and natural gas transportation, while states
usually regulate utilities through public utility commissions (PUCs), which oversee rate setting and
approve energy supply expansion and power plant construction. Additionally, pollutant discharges
from utilities are regulated by an intertwined network of federal, state, and local environmental statutes.
Federal laws that directly affect energy-related emissions and the operation of utility companies
include the Clean Air Act (CAA), the Public Utilities Holding Company Act (PUHCA), the Public Utilities
Regulatory Policies Act (PURPA), the Federal Power Act, the Natural Gas Policy Act, and the Energy
Policy Act of 1992 (EPAct). Additionally, the federal government administers  several programs to
encourage energy efficiency and demand-side management.  These include, for example, EPA's
'Green Lights' program, which provides information, education, and technical assistance to
businesses and state and local governments to encourage use of energy-efficient lighting. EPA is
expanding this voluntary program to include other energy  uses such as heating and cooling, industrial
motors, and computer equipment in its Energy Star Buildings program. In addition, the Department of
Energy (DOE), sets  minimum energy-efficiency standards , under the National Appliance Energy
Conservation Act (NAECA), for certain appliances. DOE also administers many programs to research
and promote energy efficiency,  including, public information initiatives requiring disclosure of efficiency
ratings for competing appliances and programs that target research on energy use in  buildings.

       State  and local governments  have  enormous opportunity to supplement federal actions,


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retaining jurisdiction in policy areas, including utility rate reform, city and regional planning, and
establishing of building codes (see Chapter 6).  In addition, proximity to local energy use allows states
to promote policies that considers their unique opportunities and constraints.
       Through greenhouse-gas reducing
actions in the energy sector, state and local
governments also support other policy objectives.
Foremost, policies that affect energy
consumption and production can reduce
emission of air and water pollutants and support
local economic development.  For example, some
states are promoting and supporting energy
efficiency as a way of lowering industry costs in
order to attract investments and increase their
state's economic productivity and
competitiveness.

       However, demand-side management
programs around the country have often been
slow to take hold as an effective mechanism for
helping regions meet their energy needs. While
the technologies to support large-scale energy
efficiency have existed for several years, those
technologies in most cases have not substantially
penetrated the residential, commercial, or
industrial sectors.  This problem is rooted in  a set
of common institutional and political barriers,
summarized below, that either prevent
development of more energy-efficient practices or
actually promote wasteful actions:

   •    Perceived High Initial Cost and Delayed
       Return on Investment in Energy Efficient
       Technology.  Many energy efficient
       technologies have higher up-front costs
       than the standard technologies they
       could replace.  Compact fluorescent light
       bulbs, for example, can cost up  to fifteen
       times as much as standard incandescent
Exhibit 5-3: EPA's Green Lights Program
          EPA's Green Ughts program was
   launched in 1991 to encourage major U.S.
   Institutions, including businesses, governments,
   and other organizations to use energy-efficient
   lighting as a way of preventing pollution.
   Participants in the program sign a Memorandum
   of Understanding (MOU) committing the
   organization to install energy-efficient lighting
   where it Is profitable and where lighting quality is
   maintained or improved.  In return, EPA provides
   a portfolio of technical support services to assist
   the organization in upgrading their buildings.
   Because lighting consumes such a large amount
   of electricity and often is used inefficiently
   (because of traditional technology and design
   practices), the Green Ughts program offers a
   substantial opportunity to prevent pollution and to
   do so at a profit. Lighting upgrades can reduce
   electric bills and maintenance costs without
   diminishing lighting quality.  Such investments in
   energy efficient lighting often yield 20 to 30
   percent rates of return per year.

          As of October 30,1994, there were 1,633
   participants in the program with a total footage of
   4.3 billion square feet  committed. Currently, 1.1
   billion square feet are being surveyed and
   upgraded for a projected  savings of 1.4 billion
   pounds of C02, 10.8 million pounds of SO2, and
   4.9 million pounds of NOX.  In terms of energy, 1.1
   billion Kwh or $19.1 million have been saved.  For
   more information on EPA's Green Lights Program,
   contact the Green Lights Hotline at (202) 775-
   6650.
        bulbs; the value of the electricity savings, however, significantly outweighs these costs but
        may not be realized for some period of time.  Consumers and firms may accordingly choose
        not to make the investment. Additionally, new technologies can require extra time and effort
        to install and  potential consumers often view installation as contributing to initial costs.2

        Lack of Information.  Consumers and firms are often  uninformed about the cost, performance,
        and reliability of efficient technologies.  Furthermore,  preconceptions of problematic  early
        energy-efficiency technologies persist, and may dissuade consumers from choosing energy
        efficient products and processes. In general, people are also unaware of the connection
        between energy usage and environmental degradation.
   2 While some energy-efficient technologies cost more than their less efficient counterparts, the use of integrated
approaches to improving building energy efficiency can lead to lower up front costs through downsizing of HVAC
system components.
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  •    Low Priority Given to Energy Consumption.  Energy costs typically represent a small fraction of
       a firm's overall budget; businesses focused on producing quality products for customers often
       overlook opportunities for savings through energy efficiency.

  •    Low Energy Costs.  Low energy costs have the dual effect of reducing the need for energy
       efficiency in consumers' minds and reducing the return of investments in energy-efficient
       technology.

  •    Limited Availability.  Energy-efficiency technologies in the residential, commercial, and
       industrial sectors are generally available only in selected geographic areas, often where they
       are targeted by government or utility programs, or where there exists substantial customer
       demand.  Correspondingly, retailers in rural areas are less likely to stock unknown or risky
       products.

  •    Popular Attitude and Consumer Habits. The use of unconventional technologies, such as wind
       generators, solar electric, solar thermal, or waste-to-energy plants may encounter resistance
       due to the "not-in-my-back-yard" syndrome, where communities reject the construction of
       some facilities in their neighborhoods  because of aesthetic,  health, or other concerns.
       Similarly,  technologies or processes that require changes in established business or personal
       routines can encounter resistance.

  •    Inaccurate Price Signals. The prices set for electricity and gas may not accurately reflect the
       actual costs of supplying energy at different times of the day and year. By not facing the
       actual costs of energy service, consumers choose levels of consumption that are suboptimal
       from  society's perspective.

       Reducing these barriers is the objective of direct state and PUC-driven DSM policies and
programs.  The barriers' complex and varied nature means that a successful state strategy for
reducing them  must itself be multi-faceted and comprehensive. The next section  describes briefly the
types of technical approaches available for reducing energy consumption in the residential,
commercial, and  industrial sectors.  Sections 5.1.2 and 5.1.3 then outline the types of direct state and
PUC-driven policy actions, respectively, that can be taken to encourage adoption  of these technical
approaches.  Sections 5.1.4 and 5.1.5 provide additional details on approaches for reducing energy
consumption in the agricultural sector and in urban areas through the use of tree-planting.

Exhibit 5-4: A Note on Energy Conservation and  Lifestyle
          Energy conservation cart often be accomplished by simple adjustments in people's everyday
   routines. Examples Include shopping for less energy intensive products and appliances, participating in
   recycling programs, adjusting thermostats, turning off lights when not in use, composting, purchasing tocal
   produce, installing extra Insulation, increasing public transportation  use, combining trips, car-pooling, shorter
   showering periods, altering work schedules to avoid rush-hour traffic, and working at home.

          Policy issues related to changes In lifestyles are often politically sensitive, frequently hinging on
   local attitudes and circumstances. In general, consumer behavior reflecting lifestyle choices depends on
   preferences for certain products and costs to acquire those products.  Consumers will not select energy-
   efficient goods and services that do not meet their preferences or that are perceived as too costly.

          Accordingly, policies to adjust consumer behavior through lifestyle alterations should generally aim
   to change the prices of certain goods and services  or to change people's preferences through education
   and Information dissemination.  These actions may take the form of direct information campaigns on the
   benefits of energy conservation, information distribution through citizen groups and clearinghouses,
   partnerships and support for these same groups, short or long term economic incentives, and support of
   research, demonstration and development projects aimed at developing and communicating lifestyle
   options.
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       5.1.1  Technical Approaches for improving Energy Efficiency and Reducing Energy Use

DESCRIPTION

       Aggregate energy consumption is the product of millions of individual decisions on the type
and level of energy service desired, the types of equipment and fuel to use to provide the desired
service, the types of buildings in which we live and work, and the kinds of commercial services and
manufactured products we buy. This includes, for example, the amount of energy used to produce
heat, light,  hot water, or manufactured products. Technical approaches for reducing greenhouse gas
emissions represent energy consumers' alternatives for reducing the amount of, or altering the source
of energy used to produce a desired level of energy services.

       These approaches fall into three general categories: improving energy efficiency; shifting
energy consumption patterns (i.e., load shifting); and fuel switching. Energy-efficiency improvements
can be further divided along three lines: building measures (e.g., building shell measures to reduce
heating/cooling requirements);  equipment improvements; and process changes. These are the exact
technical approaches, elaborated  in more detail  below, that the policies outlined in the remaining parts
of this section (5.1.2 through 5.1.5) aim to promote. These measures offer significant opportunities for
reducing greenhouse gas emissions. Significant energy improvements are available for addressing
each of these factors.

  •    Building Shell Measures.  Approaches to improve the efficiency of building shells include a
       wide range of building  design, construction, landscaping, and retrofit actions. Major
       decreases in energy use can be achieved by increasing insulation levels, installing improved
       window technologies, orienting the building to take advantage of the sun for heating, using
       thermal mass for storing solar energy, and minimizing north-facing window area Interior
       design can emphasize minimizing of ventilation energy requirements. While many building
       shell approaches are practical only during the design and construction of buildings, significant
       energy savings are available through shell retrofit measures designed to reduce infiltration  and
       heat loss.

  •    Device or Equipment Measures. These measures replace existing energy-using equipment
       with more efficient technologies, and are available for every energy end use at efficiencies
       substantially above current levels.  The applicability of energy efficient equipment in any given
       case, however, can be limited by technical, operational or economic barriers.

  •    Process Measures.  Substantial energy-efficiency gains can be achieved through changes  in
       the processes used to produce goods and services. Processes can range from substituting
       an energy-efficient fax machine or electronic-mail system for air couriers to the adoption of
       electric arc furnaces and installation of cogeneration systems to make use of waste heat in
       industrial and other facilities.

  •    Load Shifting.  Load shifting changes energy consumption patterns to different times of the
       day to reduce excess energy demand at peak hours. Load shifting does not directly increase
       energy consumption efficiency, but it can lead to more efficient operation and reduced
       emissions by energy suppliers. Electric  utilities  make significant use of programs to
       electronically cycle air conditioners during peak  periods, and peak  load pricing programs to
       shift consumption to off-peak hours, to increase the efficiency and lower the costs of power
       generation.  The potential for emission reductions from load shifting depends on the specific
       fuel mix and operating characteristics of each utility.
    3 In existing residential and commercial buildings, energy use for heating and cooling accounts for around 57
percent of carbon dioxide emissions, appliances account for around 20 percent, lighting for about 14 percent, and
hot water for around 9 percent (OTA, 1991).


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  •    Fuel Switching.  The substitution of one energy source for another often is viewed as an
       effective way to reduce greenhouse gas emissions.  This can occur at sites that provide
       power, such as large electricity generating stations, or on a much smaller scale such as in the
       home. Substituting gas for electricity to heat water, for example, can lead to a reduction in
       power plant fuel consumption and emissions.  Alternatively, replacing current gas technologies
       with very efficient electrotechnologies can produce net system reductions in energy use and
       emissions, even after accounting for the losses in the generation and transmission of
       electricity.  As with load shifting, the energy and emissions reductions realized by fuel
       switching are depend heavily on the specific situation.

CONSIDERATIONS

       Two general factors influence whether any given technical approach is feasible. The first
concerns whether an approach can be implemented in new, retrofit, and/or replacement situations.
Some approaches are feasible  only when a building is being constructed since they are key elements
                                                Exhibit 5-5: Energy Efficient Library in North Carolina
of the structure's design.  Other measures are
feasible whenever existing equipment is replaced
due to failure, while still other options can be
retrofitted at any time.  Energy used for heating
buildings, for example, is determined in large part
by the type of building, the quality of its
construction and level of thermal integrity.
Although building thermal integrity can be
improved by retrofitting it with better insulation,
once built, the building's basic heating and
cooling requirement can seldom be changed and
therefore applies for its remaining life, measured
in decades.

        The second factor affecting the feasibility
of the technical approaches listed above is that
some energy-efficiency options are not
compatible with existing equipment or energy
service needs.  Replacing electric resistance
heating in a home with an efficient heat pump, for
example,  may be impractical if the home does
not contain any duct work.  Certain commercial
HVAC systems are suited only to certain
applications and/or climate zones, or the lighting
needs of a retail store  may not be compatible
with the most efficient type of lighting systems
available.  The key to successful implementation
of energy-efficiency options, therefore, is to target the selected approaches to those segments of the
market in which the specific approaches are practical, feasible, and economic.

        As stated above, the following sections outline policy options for instituting these technical
approaches to reducing greenhouse gas emissions.

        5.1.2   Direct State Actions to Promote Energy Efficiency

DESCRIPTION

        Direct state actions to encourage adoption of the technical approaches described above
usually fit within five categories:
                                                          In 1982, the town commissioners of Mt
                                                   Airy, North Carolina,  planned construction of a
                                                   library that consumes 70 percent less energy than
                                                   a conventional building. By using clerestories
                                                   (skylights where the glass is mounted
                                                   perpendicular to the roof) across the top of the
                                                   library, the building provides glare-free, diffuse
                                                   light to all comers of the library without directly
                                                   illuminating the stacks,  thereby eliminating
                                                   unwanted heat and glare as well as minimizing
                                                   damage to the books from sunlight.  As a result,
                                                   the electricity used for lighting was reduced to
                                                   only one-eighth of the total energy consumption
                                                   for the building, as compared to the national
                                                   average of about one-fourth. The building design
                                                   also incorporates insulation and a zoned system
                                                   of heat  pumps.  Although the construction cost
                                                   was $88 dollars per square foot (as compared to .
                                                   $79 per square foot for a conventional building},
                                                   the library was found 1o use 53 percent less
                                                   energy than  a conventional design. Furthermore, "
                                                   the library uses 90 percent less energy than the
                                                   Mt Airy City Hall, a building of comparable size.
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  •    direct actions to apply these approaches in state-controlled facilities;

  •    technical assistance and similar efforts to support household, business, and local government
       efforts to reduce energy consumption;

  •    financial incentive or direct assistance programs, including tax credits, loans, and grants for
       energy-efficiency investments;

  •    energy-efficiency research, development, and demonstration projects; and

  •    enactment and enforcement of building codes and energy use standards.

CONSIDERATIONS

       States historically have  played an active role in promoting energy efficiency. Beginning in the
mid-1970s, most states took advantage of federal funding to create energy offices to develop and
implement federally-initiated programs. The federal programs generally allowed states substantial
discretion in the design and implementation of programs, leading to a diversity of creative approaches
to energy efficiency.
                                                Exhibit 5-6:  Home Energy Rating System in Indiana
       However, direct federal support for state
activities dropped off substantially in the 1980s,
leading to a reduction in state activity.  During
this time the availability  of monies from petroleum
violation  funds, combined with a number of
individual state initiatives, allowed many states to
continue promotion of energy-efficiency
investments.

       Although the availability of funding for
direct state actions may continue to be
constrained, state and local governments
possess a wide array of policy options to assist
households and businesses reduce energy
consumption.  Innovative use of these options
can produce substantial energy, economic, and
environmental benefits.

       A critical  role in this process for state and
local governments is the adoption of broad
energy use or energy-efficiency standards that
guide building construction, often through
mandatory state or local building codes.  One set
of standards that is often used by states as well
as the federal government is that produced by
the American Society of Heating, Refrigerating
and Air-Conditioning Engineers (ASHRAE).
ASHRAE is a voluntary  body of professional
engineers who are familiar with the technical and economic issues surrounding energy efficiency.
Additionally, a series of model building codes produced periodically by the Council of American
Building Officials, provides guidance for state and local governments on energy-efficiency measures.

        In most areas of the country, however, states and localities consider new standards and codes
only as they go through a normal building standards review cycle. This can create a lag of several
years between the time a new set of standards or model codes are produced and the time states and
       The Indiana Department of Commerce,
Office of Energy Policy is coordinating the design
and implementation of a Home Energy Rating
System/ Energy Efficient Mortgage (HERS/EEM)
program.  The HERS/EEM mechanism will have
two components.  The first is a rating system that
will classify new and existing homes according to
their energy efficiency. This efficiency rating will
provide estimates of utility costs and may include
recommendations for specific energy
Improvements.  The second component allows
mortgage lenders to incorporate the lower energy
bill expected in a more energy-efficient house
when evaluating mortgage applications. The goal
of the program is to improve the energy efficiency
of Indiana homes  and to allow home buyers to
make better informed decisions regarding the
costs of operating a home. Contract negotiations
have begun with Energy Rated Homes of America
to provide the rating system for this program.
Once the rating tool is customized for Indiana's
needs, a pilot program will be initiated in Lake and
Porter Counties. Significant progress is being
made in this effort because of the dedicated
cooperation of Indiana's builders, tenders, real
estate professionals, and utilities.
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localities adopt them or integrate their recommendations, frequently delaying use of the most modem
(and sometimes the most profitable, because of related energy savings) building measures.  Adoption
of these standards and codes is also frequently subject to high levels of political controversy due to
their impact on different private and public sector stakeholders and their varying geographical
applicability.  To remedy the problem of states
not upgrading their standards to the most energy efficient measures, EPAct strongly encourages
states to adopt energy-efficiency provisions that are at least equivalent to the ASHRAE standards for
commercial buildings and to the 1992 Model Energy Code for residential buildings. States including
Florida, Iowa, Indiana, New York, Washington and California have been particularly aggressive in
adopting and implementing energy-efficiency standards.    .
                                                 Exhibit 5-7: Light-Colored Roofing in Arizona
        Promoting energy efficiency in existing
buildings (as opposed to in new structures) is
complicated for several additional reasons.
Foremost, there have traditionally been few
efficiency standards for existing buildings.
ASHRAE has recently produced the first of such
standards to complement their established new
building standards.  In addition, some areas
currently require efficiency upgrades when
buildings are renovated. One Florida standard,
for example, now advises that existing structures
being renovated at a cost of more than fifty
percent of their value must be brought into
compliance with energy-efficiency codes.

        Besides the general need for building
standards and codes, the barriers discussed
earlier in this section also affects consumer
willingness to improve energy efficiency in
existing buildings.  Overall, the residential or
commercial landowners, managers, and renters
who may decide whether to improve energy
efficiency in buildings frequently are not aware of
the benefits, believe it will be costly, or think it will
interfere with their schedules and operations.

        Usually, the basic incentive to upgrade
the level of energy efficiency in  a building, for      ™~———^—^———
example, is to save money.  However, two distinct types of disincentives often inhibit these types of
upgrades from occurring.  First, tenants may feel that they will inhabit their building for short or
uncertain periods of time and therefore hesitate to make investments for which they may not capture
the long term benefits.  Second, potential investors in energy efficiency often do not pay the electric
bills and therefore do not realize the benefits. For example, a landlord  is rarely concerned  about
his/her tenants future electricity bills and, therefore, has no incentive to upgrade energy-efficiency.

        Another distinct factor inhibiting efficiency upgrades in existing buildings is the slow
replacement rate of existing  equipment. In the residential sector, for example, most homes in the U.S.
already have water heaters,  refrigerators, electric lights, and central heating and/or air conditioning.
The replacement rate of these conveniences with more efficient ones generally depends on the
installed appliances' expected lifetimes, which can range from five to twenty years or more.

POLICY OPTIONS

   •     Develop Institutional Planning and Support Structures. States without existing agencies to deal
       To help offset the urban "heat island"
effect, where asphalt and lack of trees raise
temperatures in city areas, the city of Mesa,
Arizona replaced or re-coated the roofs of four
buildings with light-colored insulation board and
spray styrofoam as part of an energy retrofit •
Because light-colored surfaces reduce the amount
of heat that a city absorbs, they can improve the
energy efficiency of individual buildings. Prior to
the retrofit, each of the buildings had a dark green
or black roof and no insulation. The new fight-
cofored roof will remain cooler on sunny days
than a darker roof,  reducing the cooling load in
the upper floors of the building. Additionally, light
surfaces radiate heat as effectively as dark
surfaces and will radiate heat into a building.  As a
result, the new roofs are expected to reduce the
heating and cooling toad attributed to the roof by
20 to 30 percent. The estimated payback for this
measure is quite long, about 20 years. However,
this project was completed as part of a retrofit that
Included the Installation of energy efficient lighting
and heating, and improvements in ventilating and
air conditioning (HVAC) systems, which all have
much shorter paybacks. Thus, most of the
savings from the entire retrofit will  be realized
sooner.
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with energy issues may consider developing them as a means for conducting planning and
analysis, administering programs, and providing support for utilities, industry, and consumers.
In many states these agencies have been instrumental in facilitating energy-efficiency
measures.

Institute Long-Range Planning. Many states, including Iowa, Illinois, New York, Vermont, and
Washington mandate energy agencies to provide assessments of state energy consumption
as well as potential ways to increase efficiency, reduce energy dependence, and increase use
of renewable energy resources.  These plans provide valuable focal points for policy
development through time and across the economic sectors that affect a state's energy
consumption.

Facilitate Interaction Between DSM Program Sponsors and Potential Customers.  States are in
a unique position to facilitate interactions between a variety of important participants and
stakeholders in the energy-efficiency field.  For example, states may act as the liaison between
federal energy-efficiency programs and local industries and governments, or between utilities
and potential commercial or industrial energy-efficiency clients. The 'Super Good Cents'
program in the Pacific Northwest, for example, is a state-utility partnership that involves
providing technical information and training, as well as rebates to consumers for energy-
efficiency investments in their homes.

In addition, state governments can lead collaborative efforts involving government agencies,
utilities, energy service companies, customers, and advocacy  groups to develop consensus
approaches to energy-efficiency policies and programs.

Rationalize State Tax Policy. Although practice varies from state-to-state, tax policies often
favor energy consumption over energy efficiency. In some states, purchases of gas and
electricity are exempted from states taxes, while energy-efficiency investments (more efficient
equipment, insulation, etc.) are not. At a minimum, tax policy  may cease to favor consumption
over efficiency, but may further serve to discourage inefficient consumption.

Provide Information and Education.  States can gather and disseminate information  (often
working with utilities) on the energy and financial implications  of energy-efficiency projects in
certain types of buildings and facilities and promote research, development, and
demonstration projects.  Through their university systems states may also promote  energy-
efficiency training in professional planning and urban design programs.

Take Direct Action to Reduce Energy Consumption in State Facilities.  States can reduce
energy consumption on their own properties, including schools and low-income housing
projects. Iowa, for example, is undertaking an energy-efficiency improvement program
designed to make all of its public school buildings energy efficient by 1995. This may involve
retrofitting existing state facilities, changing state building and procurement practices to
require energy-efficiency investments, and modifying state building design requirements. For
example, Florida has initiated  a broad effort to reduce energy  consumption in state  facilities by
30 percent within three years. The state also plans to use this effort as a model for local
governments and the private sector.

Establish and Enforce Efficiency Standards and Codes. States may wish to encourage more
integrated and aggressive approaches to promoting energy efficiency in buildings by
supporting and strengthening disparate and outdated building codes.  In addition, states
should develop mechanisms for agencies to enforce the codes they adopt. A recent initiative
in Florida, for example, requires construction agencies to disclose the material content of their
buildings to building inspectors  and to the buyer; this establishes a stronger feedback loop
and trail of liability if buildings are not built to energy-efficiency specifications, providing
incentives for contractors to adhere strictly to the codes. EPAct encourages states  to adopt
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       energy-efficiency provisions at least equal to ASHRAE standards for commercial buildings and
       the 1992 model Energy Code from the Council of American Building Officials for residential
       structures.

  •    Demonstrate Building Efficiency Measures and Facilitate Energy-Efficiency Programs.  States
       are uniquely situated to initiate energy-efficiency demonstration projects in buildings (often
       using their own facilities) and to publicize resulting information on energy and cost savings.
       Similarly, states are often well-situated to coordinate interactions between landlords and
       tenants, especially in the commercial sector, in order to facilitate efficiency improvements in
       existing buildings.  Programs to achieve these goals can include innovative approaches such
       as setting minimum efficiency standards for rental properties or developing shared savings
       programs where landlords and tenants both benefit from energy-efficiency investments.

  •    Provide Financial Incentives for Efficiency Improvements. States can provide financial
       incentives for accelerating  equipment replacement rates through tax credits or low interest
       loans on efficiency improvements, by taxing inefficient appliances  and equipment, or by
       working with utilities to sponsor rebate programs that induce consumers to purchase efficient
       products. Hundreds of these types of programs exist throughout  the country.  For example,
       the State of Oregon offers  a 35 percent Business Energy Tax Credit and a Small Scale Energy
       Loan Program.  Similar programs are supported by the Indiana State Energy Office through
       innovative public and private partnerships.

       5.1.3    Public Utility Commission and Utility Policies to Promote Efficiency in Energy
               Consumption

DESCRIPTION

       Increasingly, state regulators are using their authority to encourage electric and gas utilities to
promote the technical approaches described in Section 5.1.1 to their customers. The regulatory
policies directing utility involvement and the resulting utility programs are termed demand-side
management  (DSM) and integrated resource planning (IRP).  The last several years have seen a vast
expansion of IRP as a forum for developing innovative policies and programs. This trend is supported
in EPAct which encourages electric utilities to employ integrated resource planning. However, a
recent California proposal to allow 'retail wheeling' of electric power is expected to spur increased
competition and restructuring  in the electric utility industry, and thus affect the way DSM and IRP are
currently practiced, at least in California.  Although several utilities have recently cut their DSM
budgets in an effort to prepare for increased price competition, the precise implications of this
decision on DSM and IRP, as  practiced in the U.S. as a whole, remain unclear. This section briefly
outlines several options for promoting energy efficiency through IRP.  Section 6.1  provides a broader
examination of IRP as it cuts across various greenhouse gas emissions sources.

CONSIDERATIONS

       Electric and natural gas utilities reach virtually every household,  and supply the vast majority
of energy used by households and businesses.  In most states, these utilities are regulated by public
utility commissions charged with ensuring that, among other things, the utilities provide service at just
and reasonable rates, and serve the public interest.,  Because of the nature of the energy utility
industry and utility regulation,  increased demand for electricity or gas often translates  into increased
costs and environmental impact.

       Beginning in the late 1970s and early 1980s in an effort to control rapidly increasing utility
costs, state Public Utility Commissions (PUCs) began experimenting with the idea that utilities could
meet their customers' need for energy services by improving customer energy efficiency rather than
acquiring additional energy supply.  Utility demand-side management has grown rapidly as a policy
tool for state PUCs and, increasingly, has been incorporated into the IRP process.
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       However, while PUC interest and activity have increased, the full potential for utility DSM is far
from being realized. Most analysts agree that promoting more action in this area requires changing
the economic and regulatory rules under which the energy sector operates.  Under traditional PUC
regulations, while demand-side measures can provide a low cost form of 'new supply,' utilities are
reluctant to invest heavily in DSM programs because in doing so they would be working with
customers to reduce demand for their own product. The majority of states do not allow utilities to
capture the revenues lost because of energy-efficiency measures taken by their customers or even to
recoup basic expenses associated with DSM promotion.  Without extensive reforms to reward utilities
for engaging in DSM, or  at least to remove these types of penalties, few utilities will attempt to realize
the benefit of efficiency measures by actually making direct investments in customer facilities. State
executive or legislative action may encourage PUCs to initiate these types of reforms, or the PUCs
may take the initiative in  doing so themselves.  As a result of providing these types of incentives for
DSM programs, several states such as Maine, Wisconsin, Massachusetts and Rhode Island have
utilities which spend on average more than 2 percent of their revenues on DSM, compared to a
national average of 0.7 percent (NGA, 1991).

POLICY OPTIONS

  •    Adopt Formal IRP Processes.  The passage of the EPAct ensures that all states formally
       consider adoption of integrated resource planning for both gas and electric utilities. States
       not currently practicing IRP  can use the EPAct requirements to investigate opportunities to
       promote the goals of energy efficiency and greenhouse gas emissions reductions
       simultaneously.  Establishment of formal IRP processes will provide states with well-defined
       forums for exploring the links between energy and environmental policy.

   •    Implement Cost Recovery and Financial Incentives Mechanisms for Utility-Funded DSM.  To
       ensure that utilities aggressively pursue cost-effective demand-side options, PUCs should
       consider regulatory mechanisms that permit recovery of all direct program costs and lost
       revenues, and which provide an additional financial incentive for achieving energy and
       demand savings.

   •    Consider Alternative Incentive/Disincentive Systems. Although utility-funded financial incentives
       are the most common form of monetary incentive used to promote DSM, state PUCs may have
       a variety of other available tools including establishment of f eebate1 systems.  Utility hook-up
       fees, for example, could be set based on the efficiency of a structure and its equipment.  Less
       efficient buildings would be assessed higher fees than those exceeding some efficiency
       standard.

       5.1.4   Conserve Energy Through Improved Industrial and Agricultural Processes

       The preceding subsections have outlined technical approaches for improving energy
efficiency, and described general policy approaches - Direct State Action and PUC Policies - for
encouraging these actions.  Most of the technical approaches and policy options apply equally to the
residential, commercial, and industrial sectors. However, the industrial sector presents a challenge to
policy-makers  because of its diversity, the relative magnitudes of the savings available from individual
industrial facilities, and the investment costs required to achieve these savings.  The agricultural sector
presents challenges as well since many of the policy options exercised in  other sectors are not
applicable to agriculture. Perhaps more important, PUC-directed utility DSM programs may not be
available to rural customers who are served by rural electric cooperatives. For these reasons,
industrial and agricultural policy options are considered apart from the previous discussion.

       The industrial and agricultural sectors use large amounts of energy to produce their goods,
including heavy industrial products, consumer products,  and food.  Many industrial and manufacturing
technologies for extracting, refining, and processing raw materials and for building a variety of finished
goods are extremely energy-intensive.  Similarly,  modem farms grow, harvest, and refine crops,
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maintain livestock, and process meat and dairy products using machinery and equipment that draw
large amounts of energy. There is enormous potential for conserving energy in these sectors by
utilizing energy efficient machinery and processes. Actions to reduce energy use may also bring
significant ancillary benefits, like reduced costs, improved productivity and therefore general economic
stimulation in the regions where the industries and farms are located.

        Because it spans most types of industries, manufacturers, and farms, the full diversity of
approaches for reducing energy consumption in these sectors is too situation-specific to present here.
The general energy conservation principle is that these electricity consumers can either improve their
machinery and technologies to utilize less electricity, or they can use the by-products (sometimes just
heat) from their operations to produce energy on-site. The latter process often utilizes formerly
wasted resources and supplants the need to draw so much power from traditional sources.  Section
5.2 elaborates on these types of alternative energy production processes.

        Examples of the first category of energy efficient processes include use of variable speed
motors that adjust continuously to meet work load demand, thus saving energy when work loads are
light, and the use of infrared rather than more energy  conserving thermal processes for drying fresh
paint on consumer products like hardware items or for drying grain at agricultural sites.

        Several specific constraints, however, may inhibit efforts to improve energy efficiency. For
example, besides the general barriers that apply to adoption of all energy efficient technologies, which
the beginning of this section discusses, a relatively long time period is usually required for the
replacement of industrial equipment. Most energy-intensive industrial processes are  capital-intensive
and the rate of equipment turnover is often measured in decades. Additionally, the diversity of
technologies and  operations utilized in these sectors can sometimes make it difficult to apply one type
of efficient technology in distinct settings.

POLICY OPTIONS
                                                                                        i
        Programs to encourage energy efficiency and conservation through improved industrial and
agricultural processes can be designed in two ways.   First, they can concentrate on specific
categories of businesses, like steel producers, small engine manufacturers, or dairy farms.  Doing so
requires understanding the economic and technical environment surroundings the particular sector
being addressed, including how that sector uses energy, available energy-efficiency technologies in
that sector, and how these technologies will affect product quality and production.  By addressing the
distinct needs of each type of business being targeted, states can enhance the prospects for success
in reducing energy consumption. States including North Carolina, Louisiana, and New York have
developed effective programs of this type.

        The second approach is to promote energy efficiency across all categories of industries or
farms,  providing broad education or incentives to encourage innovation and energy efficiency in as
many areas as possible. Specific policy options are listed below.

   •     Support Research and Provide Direct Assistance Targeted at Specific Businesses or Sectors.
        States, often through energy agencies, can select particular energy-intensive industries  to
        assist with research, financial support, and technical assistance.  For example, the Louisiana
        State Energy Office works with the state's aquaculture industry to develop innovative
        engineering approaches for increasing that industry's energy efficiency and simultaneously
        enhancing their economic productivity.

   •     Sponsor Technology Demonstration Projects.  States, often working with leading firms in a
        targeted industry, may demonstrate the potential for using new energy-efficiency technologies
        to everyone in that industry.  The  demonstrations can both provide good public relations and
        prove the technology's success with an industry leader.
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  •    Provide Broad Incentives for Energy-Efficiency Research and Development.  Broad programs to
       solicit innovative ideas on energy efficiency from all sectors can provide incentives for
       research and development in areas that state programs will never directly address. These
       incentives may be research grants, energy-efficiency loans, or direct financial or publicity
       rewards for independent innovation.

  •    Provide Direct Financial Incentives for Energy-Efficiency Investments. Similar to subsidizing
       energy efficiency in buildings and in other sectors, financial assistance, low interest loans, and
       rebate programs targeted at specific energy-efficiency investments can promote technological
       conversions.  For example, the Bonneville Power Administration in the Pacific Northwest is
       currently working with its industrial customers to encourage energy conservation through
       equipment rebate programs (Washington, 1993).  Current program savings have consistently
       met or exceed the Power Administration's goals. These rebates are often customized to meet
       the distinct needs of particular customers and situations, in contrast to standardized
       technology based rebates that apply in other sectors.

       5.1.5  Promote Urban Tree Planting

       Another mechanism for reducing demand for energy is through strategic planting of trees and
shrubbery in urban areas. This type of program, though potentially significant, is often not considered
in traditional demand-side management programs.

       Landscaping offers the potential to reduce energy needs related to heating and cooling in two
ways.  First, by providing shade and lowering wind speeds, vegetation, such as trees, shrubs, and
vines, can protect individual homes and commercial buildings from the sun's heat in the summer and
cold winds in the winter. Second, collective tree planting provides indirect carbon  reduction benefits;
evapotransporation (the process by which plants release water vapor into warm air) from trees and
shrubs can reduce ambient temperatures and energy use for entire neighborhoods during hot
summer months.  Urban tree planting can also generate direct carbon  benefits.  Because half the dry
weight of wood is carbon, as trees add mass to trunks, limbs, and roots, carbon is stored in relatively
long-lived structures instead of being released to the atmosphere.  Thus, programs to support urban
tree planting can help reduce greenhouse gas emissions in a variety of ways

       Urban tree planting also provides a number of non-carbon benefits, such as improving air
quality, improving aesthetics, providing wildlife habitat, improving property values, and reducing noise.
Trees may also reduce runoff, prevent soil erosion, and slow the buildup of peak water flows during
an intensive rainfall.  Residential planting can also promote awareness  of the potential contribution
that the general public may make to reducing U.S. emissions of carbon dioxide.  Available data
indicate that over half of the available tree spaces in American cities are empty.  At the same time, a
variety of constraints can inhibit tree planting programs. These commonly include water restrictions in
some areas and the fact that compacted soil and urban irritants such as salt can inhibit a tree's
natural growth. Additionally,  improperly placed trees can reduce solar heat in the winter.

       With careful planning, however, tree planting programs can be highly successful. In
Minnesota, for example, the Twin Cities Trees Trust has blended the goal of employing disadvantaged
adults with environmental improvement in the form of urban tree planting and landscape construction
(Minnesota, 1991).4 The Sacramento Municipal Utility District in California has  contributed over a
million dollars annually to the Sacramento Tree Foundation for tree planting activities.  Grants from the
County and City of Sacramento, together with an Urban Forestry Grant from the California Department
of Forestry, also support Trees for Public Places, a community tree planting program.  At the national
   4 Minnesota has researched and produced a document entitled Carbon Dioxide Budgets in Minnesota and
Recommendations on Reducing New Emissions with Trees that specifically addresses reducing carbon dioxide
emissions and energy demand through tree planting.


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level, Cool Communities, sponsored by DOE, encourages the planting of shade trees to improve
energy efficiency, while simultaneously sequestering carbon. The Cool Communities program has
been tested, and found effective, in Tucson, AZ; Dade County, FL; Atlanta, GA; Springfield IL;
Frederick, MD; Tulsa, OK; Austin, TX; and Davis-Monatham Air Force Base, AZ.  It is currently being
further expanded under the CCAP.

POUCY OPTIONS

       State programs to support urban tree planting often involve providing technical assistance,
grants, and educational services to local communities and private organizations. More direct
programs may target residences and business.  Specific policy options include:

  •     Provide Institutional Support to Communities. Technical assistance can aid communities and
       utilities in designing residential tree planting programs and assessing their energy and carbon
       benefits.  This is especially helpful in areas where localities do not have access to the
       technical knowledge and resources necessary to coordinate programs.

  •     Provide Financial Incentives to Organizations and Individuals.  States can encourage private
       and local tree planting programs through cost-sharing or direct payments to homeowners or
       utilities or through direct program financing for local organizations.  Direct or guaranteed loans
       to encourage tree planting may also be successful.  Utility demand-side management
       programs in California directly subsidize residential and commercial tree planting activities.

  •     Support Research on the Effects of Tree Planting.  Support for research and development or
       pilot testing, in the form of direct technical assistance, grants, tax incentives, or loans, can
       help answer some of the outstanding questions in this area pertaining to the potential benefits
       and feasibility of tree planting programs  in different regions.  For example, state grants may
       encourage non-profit organizations or university groups to investigate the strategic placement
       of trees in cities or neighborhoods to maximize year-round energy savings.

  •     Regulate Tree Planting. Typically the purview of localities, landscape ordinances requiring tree
       plantings with new construction have been used in many cities.


5.2    GREENHOUSE GASES FROM ENERGY PRODUCTION: SUPPLY SIDE MEASURES

       As described in Section 5.1, measures to decrease carbon dioxide emissions from the energy
sector may focus on either reducing energy consumption or reducing emissions during electricity
production. This section addresses the electricity production category, highlighting the critical role of
utilities and independent power producers. Section 5.1 addressed the consumption category while
Chapter 6 combines these issues in a discussion of the broader economic and regulatory framework
that guides the energy market in the U.S.  While treated separately for ease of presentation, these
three sections of the document are closely connected and should be considered together.

       Several federal statutes affect the level of greenhouse gas emissions from electricity
production including the Public Utilities Regulatory Policy Act (PURPA), the Public Utilities Holding
Company Act (PUHCA),  and the EPAct.  Under PURPA, the federal government and state
governments can encourage efficiency among power producers and can encourage transitions to
modes of power production that result in lower greenhouse gas emissions, including use of alternative
and renewable fuel sources.  States can also affect greenhouse gas emissions in the power supply
sector through their jurisdiction pertaining to environmental protection, as well as through regulation of
powerplant siting and certification. States have some jurisdiction in controlling natural resource use,
for example, which the power supply sector relies heavily upon, and in protecting wildlife and
wildlands, which some utility emissions or power development  programs may threaten.
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       This section discusses approaches to reducing emissions from three types of energy
producers: utilities, independent power producers that sell the energy they produce (mostly to
utilities), and industrial and agricultural facilities that use their energy on-site to support their own
operations.  Although many policies to promote emission reductions will affect all three of these
producer categories, resulting in some overlap in the information presented below, the distinction
between the three remains useful because the size and scale of their operations varies significantly
and each faces a distinct set of potential motivations for reducing emissions.

       There are three primary actions each of the three types of producers can pursue for reducing
emissions, depending on the nature of their current operations:

  •    Transition Away from High Carbon Generating Technologies and Fuels.  In a greenhouse gas
       context, this frequently means utilizing natural gas, hydroelectric, or nuclear energy instead of
       coal or oil.  Universal constraints to switching to natural gas include the need for producers to
       have access to this fuel, which may be limited by infrastructural or legal constraints in some
       regions, the relative price volatility of gas, and questions regarding delh/erability.  Other
       constraints inhibit the  large-scale non-carbon alternatives. Hydroelectric power development,
       for example, is often limited by environmental concerns such as ecosystem damage through
       flooding and disruption of water supplies, and nuclear power production is constrained by
       public safety and environmental concerns,  as well as the cost of nuclear units and perceived
       financial risks. No new nuclear plants have been commissioned in the United States for
       several years.

  •    Use Renewable and Alternative Energy Sources. Alternative energy sources consist  of non-
       fossil fuel based power generating technologies and processes, including biomass,  waste heat
       used for on-site cogeneration, methane from non-traditional sources, wind, geothermal heat
       and pressure, solar thermal and solar photovoltaic processes,  and tidal currents.5 Initial
       installation  costs can create constraints and vary  significantly among sources and their ability
       to compete with fossil fuels.  Research and development on technologies to utilize many of
       these sources is gradually enhancing their cost-effectiveness.

  •    Reduce Emissions Regardless of Fuel Type Through  Technology and Process Upgrades.
       Using the most efficient electricity generating technologies and processes can minimize the
       average quantity of greenhouse gases emitted  per unit of electricity produced. This can be
       achieved either by operating existing equipment at optimal rates of generating efficiency
       (which means attaining the highest feasible energy output per unit of fuel input), or by
       installing hew technologies that offer higher levels of power generating efficiency than are
       currently available. The most frequent constraints on these processes are equipment
       investment costs and  fluctuations in energy demand that make it difficult to maintain optimal
       generating efficiency.  In addition, significant savings may become available through
       reductions  in transmission and distribution losses as new technologies are adopted, as well as
       through use of cogeneration and district heating.

       The sections below discuss each of these three mechanisms as they apply to utilities,
independent power producers, and on-site energy producers/consumers.

       Alternative  policies to  promote emission reductions may affect not only the different  types of
power producers but also the time frames within which certain approaches are implemented and their
greenhouse gas reduction benefits accrue.  Some approaches are feasible and offer emission
reductions immediately, like capturing and utilizing methane  at coal mines  and landfill sites,  while
others may take many years to implement, like decommissioning old power plants and utilizing new
   5 Chapter 6 examines biomass energy programs in more detail, describing how agricultural and forest crops
can be used to generate power or to produce liquid, gaseous, and solid fuels for other purposes.


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and more efficient technologies in utility generating stations.  While these long term projects in the
energy supply sector often require large-scale capital conversion, technological innovation, and
infrastructure development, they also offer the highest potential magnitude of emission reductions of
all greenhouse gas sources.

       Common constraints or barriers can inhibit approaches to reducing emissions during power
generation across all types of producers. These include high initial capital costs for new technologies,
lengthy government permitting processes for new or modified power production, and regulatory
limitations on the size or extent of power producing activities.  Other barriers include limited access to
transmission lines for remote energy sources (for example, wind or geothermal) and financial risks
which require rates of return higher than do traditional power sources. Finally, tradeoffs with other
state policy objectives (for example, promoting economic stability by supporting utilities or aesthetic
interests where extensive solar or wind power generating facilities are instead feasible) may also
impede emission reductions.  The policy options outlined under the following technical approaches
address these barriers.

       5.2.1   Reduce Utility Greenhouse Gas Emissions

DESCRIPTION

       Utilities either generate their own electricity through large scale power plants, acquire
electricity from independent producers, or purchase electricity from other utilities.6 They can
therefore help reduce greenhouse gas emissions by improving processes at their own power plants or
by selecting power generated externally using low-emission technologies.  As mentioned above, large-
scale emission reductions by utilities offer vastly higher potential greenhouse gas benefits than
measures to address any other greenhouse gas source.

CONSIDERATIONS

Improving processes directly at utility controlled facilities can include two types of actions:

  •    Switching to low-emission fuels and generating technologies.  Large scale electricity
       production with many of the alternative energy sources would require vast tracts of land to
       implement, since the "power density1 from these sources  is much lower than that of
       conventional sources.  Wind and solar power, for example, require much more land per unit of
       electricity produced than does natural gas generated power.  Similarly, biomass based power
       generation, where trees and other woody crops are burned in a process similar to coal
       combustion, often requires large amounts of land to reliably grow the biomass crops.  Many of
       the greatest opportunities for reducing emissions from utility controlled facilities that need to
       produce large amounts of electricity, therefore, often involve utilizing conventional fuel sources
       with low  carbon content, most often natural gas.7 New technologies being tested and
       demonstrated now, like combined cycle gas turbine engines, offer  high generating efficiency
       rates that make the natural gas alternative even more attractive.  However, some of these
       generating technologies may be more costly to install and operate than traditional equipment
       and may suffer from a lack of utility or investor confidence. Furthermore, these technologies
   6 For purposes of this discussion, independent power producers include exempt wholesale generators, and
qualifying facilities (cogenerators and small power producers as defined by PURPA).

   7 While natural gas offers the lowest carbon emission rates of the various fossil fuels used for producing
electricity, switching to any source with lower carbon content than the fuels currently used will yield greenhouse gas
benefits. In some situations, for example, this.could suggest switching from coal to oil rather than converting to
natural gas or other entirely distinct sources, although this choice may not be desirable for other reasons, such as
national security and trade balance concerns.
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       are usually applicable only when utilities are expanding their supply capacity or replacing old
       supply by generating additional power rather than through conservation or other measures,
       since few utilities will replace existing coal based generating equipment before that equipment
       wears out. Extensive literature is available on utility fuel and technology switching.

  •    Improving the efficiency with which energy is produced using existing equipment and facilities.
       Emission rates are usually minimized when generating equipment is run at its highest level of
       efficiency, usually meaning that the maximum amount of energy is extracted per unit of fuel
       input This is complicated because electricity demand varies throughout the day, requiring
       varying levels of power supply.  Utilities usually maximize their generating efficiency given the
       demand constraints because doing so improves their productivity regardless of emission
       issues.  However, technological innovations and PUC financial incentive structures may offer
       the opportunity to improve generating efficiency beyond commonly attained levels.

       The other way utilities can implicitly help reduce emissions is by acquiring power from
independent producers that use low-emission technologies.  Regulations governing the role of these
producers vary from state-to-state.  Section 5.2.2, Reducing Emissions by Independent Power
Producers, discusses these regulations and procedures in more detail.

       All efforts to induce utilities to minimize greenhouse gas emissions should generally address
the regulatory and economic considerations that feed into their electricity  production decisions,
especially in terms of how they develop energy supply to meet projected demand.  Depending  on
regulatory structures, for example, utilities may invest their resources in supporting independent power
generation and demand-side management to meet new power needs, rather than constructing  any
new power generating facilities. State public utility commissions play a critical role in determining the
incentive structure utilities face when making these decisions.

       For example, a number of states, through their PUCs, now require utilities to examine the
environmental externalities associated with .supply-side options.  In some cases, utilities are required
to 'monetize' these externalities, and incorporate the monetary values into the avoided costs used to
evaluate supply- and demand-side alternatives. Other states simply require utilities to increase
avoided costs by some amount to internalize environmental costs.  In lieu of these quantitative
methods, some states have directed utilities to examine qualitatively, the externalities associated with
various resource options. While there is little disagreement that utility power production creates
environmental externalities, there is as yet no universally accepted approach or set of estimates of
externality costs.  One of the challenges facing states as they develop policies for reducing
greenhouse gas emissions is to accurately account for these externalities in the resource planning
process.

       Because of this complicated regulatory framework it is important to view emissions from power
generation within the context of the overall integrated resource planning (IRP) and least-cost planning
measures discussed in Chapter 6, the demand-side measures covered in Section 5.1, and the
alternative energy source considerations presented below.

       Policies that are designed to induce utility-sector emission reductions should account for
several additional issues.  Foremost, the actions discussed above to reduce greenhouse gas
emissions generally support other environmental objectives as well, such as producing less particulate
air pollutants per unit of energy produced. However, switching away from high carbon fuels,
especially coal, will also have significant impact on economies in certain regions of the country  that
are rich in these resources. Additionally, limited infrastructure for supplying fuels like natural gas in
some areas may inhibit utilities from using these fuels for large scale power generating operations.
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POUCY OPTIONS

       Policies to reduce greenhouse gas emissions from the utility sector will ideally promote
demand-side management to mitigate need for new power sources, support alternative low-carbon
energy sources to meet new power needs whenever possible, and encourage the transition from
existing high-emission fuels and technologies to low-carbon options as fast as possible.

       Specific options for pursuing these objectives are listed below. Only a summary of each
option is provided here as each is highly complex and overlaps with broader policies to support
emission reductions throughout the energy sector.

  •    Initiate Regulatory Reform to Support Broad Energy Planning Measures. As Chapter 6
       discusses, integrated resource planning and utility least-cost planning encourage utilities to
       meet their energy supply needs through mechanisms other than conventional, high-emission
       energy sources. Measures to support these processes may include competitive bid
       processes for new energy supply, demand-side management, carbon or energy taxes, carbon
       offset programs that require utilities to sequester as much carbon as new operations will emit,
       and other similar measures.

  •    Incorporate Environmental Externalities into Avoided Cost Calculations. As indicated above,
       state action to incorporate environmental externalities into utility cost calculations may
       encourage use of more independent power sources (which tend to be lower emitters of
       greenhouse gases) under PURPA.

  •    Use Administrative Processes to Support Utility Sponsored Emission Reduction Initiatives.
       States can facilitate utility efforts to use power sources that reduce emissions by streamlining
       review and regulatory processes for proposed low-emission technologies and operating
       procedures. This may  mean granting preferential treatment to low-emission projects, allowing
       utilities more flexibility in managing electricity loads, or other actions to encourage utilities in
       these ways. These actions may require administrative or regulatory changes, and must  be
       balanced with  other important environmental and land-use policies.

  •    Strengthen Markets in Low Emission Resources.  States may be able to  promote investment in
       power production from  low-emission fuel sources by helping guarantee  adequate supplies of
       those fuels to utilities.  Utilities in some regions, for example, have expressed hesitation to
       invest  in biomass powered generating stations (usually power plants that operate with wood
       as their primary fuel) because wood supplies are not stable. Similarly, wood producers  have
       hesitated to contract with utilities because they doubt the reliability of this market given
       uncertainties surrounding this type of power generation.  States could facilitate  interaction
       between these wood producers and consumers.

  •    Promote Accelerated Capital Turnover Rates. States may encourage the rapid upgrading of
       old, less efficient plants through changes in investment tax codes,  revising the rate-of-retum
       regulations, and expediting licensing procedures for efficient plants or for plants using
       alternative energy sources. Such policies should recognize any potential utility  price
       implications.

  •    Use Environmental Regulations to Encourage Emission Reductions.  States may utilize their
       jurisdiction in administering natural resource and environmental laws to  promote greenhouse
       gas emission reductions. For example, mining regulations, environmental degradation laws,
       public health laws, and similar frameworks can reduce consumption of high-carbon fuels for
       reasons not specifically tied to climate change issues.
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       5.2.2   Reduce Emissions by Independent Power Producers

DESCRIPTION

       Independent power producers (IPPs) generate and provide electricity to utilities or to
dedicated users such as specific industrial facilities or local governments.  These producers operate
on a scale ranging from less than 100 kilowatts (103 watts) to hundreds of megawatts (106 watts), and
use either fossil fuels, excess heat from industrial processes, or alternative energy sources like wind or
solar. The approaches for reducing greenhouse gas emissions in this sector are conceptually the
same as those that apply to utility power stations - using low-emission fuels and improving the
efficiency with which energy is produced regardless of fuel type selected.  Much of the technical
information presented here also applies to small power producers who use their energy for their own
consumption in the industrial and agricultural sectors, as Section  5.2.3 discusses.

       Historically, the dominant energy source for independent power production was steam
injected cogeneration.  This involves using the steam and heat that is a byproduct of many industrial
and manufacturing processes to power turbines that generate electricity. While cogeneration will
continue to be important, other types of generators, often employing utility generating technologies,
will increase in importance following enactment of the EPAct. This is discussed in more detail below.

CONSIDERATIONS

       Technological innovation tends to be more  feasible within shorter time frames among IPPs
than with utilities.  This is generally because of the smaller scale of their operations, the large potential
for innovation relating to the many alternative energy sources that IPPs can draw upon, and the fact
that they are less directly regulated by public utility commissions and federal statutes. Within this
operating environment, IPPs are usually driven more by the price  competitiveness of their outputs than
by rate-setting requirements that affect utility actions.

       The link between IPPs  and utilities remains  strong, however, as the market for IPP electricity is
often defined by choices utilities make among alternative power sources for meeting their energy
supply needs.  Depending on regulatory and economic structures, utilities may choose among using
IPPs for electricity supply, engaging in demand-side management activities to induce energy efficiency
and conservation, or constructing new facilities of their own. The potential for IPPs to help reduce
greenhouse gas emissions, therefore, relates directly to the incentives utilities face when  selecting
among the various sources of power supply; these incentives are further linked to the broader power
sector regulatory  issues involving integrated resource planning and least-cost planning for utilities
(discussed in Chapter 6).

       In general, the  provisions of the Federal Public Utilities Regulatory Policy Act and EPAct set
the framework within which states can influence how utilities use IPPs as energy sources. PURPA
requires utilities to purchase electricity from independent 'qualifying facilities' at rates equal to the
utility's own avoided costs of additional power production.8  Generally, competitive bid processes and
policies that make utilities incorporate environmental externalities or other factors into avoided cost
calculations support the choice of IPPs as alternative energy sources.9  Additionally, some facilities
that use alternative energy sources do not qualify under PURPA because they are too large or are
   8 Small power producers, which are one category of "Qualifying Facilities," under PURPA generally may not
exceed 80 megawatts power production capacity, must rely on a qualifying alternative energy source for 75 percent
of its total energy input, and must fit restrictions regarding utility ownership as well. Cogenerators meeting certain
efficiency requirements also fall under the category of qualifying facility.

   9 Chapter 8 presents a table of values that various states and regions have placed carbon and other pollution
emissions.


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majority owned by utilities. EPAct created a new class of electric generation owner, known as an
exempt wholesale generator, that is essentially free from regulation as a utility on the federal level.

       The feasibility of alternative energy sources is also sometimes constrained by the IPP's need
for a reliable and consistent fuel supply, which can be difficult to guarantee., Methane supplies from
landfills and coal mines, for example, are not always steady.  Additionally, some of the most promising
renewable and alternative energy technologies are not quite mature and could suffer if rushed by
inappropriate policies; policy-makers should gauge their actions accordingly.

POLICY OPTIONS

       Besides the policies to promote utility demand for power from independent sources, as listed
throughout other parts of this document, states can directly support the alternative energy sector.
States can:

   •    Broaden Definitions of PURPA 'Qualifying Facilities'.  To encourage alternative  power
       development and expansion, states can shape the implementation of PURPA within their
       jurisdictions by broadening the applied definition of facilities that qualify for utility avoided cost
       energy purchases. States may modify restrictions on the power generating capacity of
       qualifying facilities beyond the PURPA stipulated 80 megawatts, for example, and may revise
       the mix of fuels that can be  used in these qualifying facilities.

   •    Provide Direct Incentives for Alternative Energy Development. States can promote alternative
       energy development through investment tax credits, equipment subsidies, low-interest loans,
       copayments with utilities on energy produced from alternative sources, and other incentive
       programs.

   •    Provide Information, Education and Technical Assistance to Support Alternative Energy
       Development.  Emulating measures encouraging the use of energy efficient technologies on
       the demand-side, states can conduct demonstration projects, do financial analyses, and
       spread information about alternative processes through the potential investment community.
       For particular projects, states may also be able to provide direct services like financial
       assessment or technology upgrade audits.

       5.2.3  Reduce Emissions  Through On-Site Power Production

       Various industrial and agricultural facilities can help reduce net greenhouse gas emissions and
save themselves money by utilizing  on-site resources to meet their energy needs. Coal mines can
capture methane and use it to generate electricity for their own use, for example, and dairy farms may
use methane from livestock wastes  as an energy source. In essence, power consumers in these
situations become small scale power producers.  They reduce greenhouse gas emissions by meeting
part of their energy needs that would traditionally have been met  by utilities and by, in many
circumstances, utilizing excess methane or biomass wastes that would otherwise have contributed
directly to greenhouse gas emissions.10

       Two types of energy are usually generated through on-site processes: thermal heat and
electricity. Thermal heat production involves capturing steam or other waste heat through
cogeneration processes and then using that heat to warm buildings or for other purposes. Electricity
can be produced either by using the steam from other processes to power turbines, or by using a
waste product like methane or biomass to fuel a furnace and turbine system directly. Innovative
combinations of these approaches can further enhance energy efficiency and reduce emissions of
    10 Methane is an important greenhouse gas. Biomass wastes contribute to methane and/or carbon dioxide
emissions when they are burned for disposal, left to decompose, or placed in landfills.


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greenhouse gases and other pollutants.

CONSIDERATIONS

       These actions can be considered as either production side emission reduction measures or
consumption side energy-efficiency measures.  They reflect distinct characteristics of each, including
the traditional demand-side barriers to energy efficiency that Section 5.1 discusses and the supply
side constraints for alternative energy production that independent power producers face, as
elaborated above in this section. In some parts of the country, these measures are promoted by
utilities as part of their demand-side management programs.

       Additional information on specific opportunities for on-site energy production and on source-
specific barriers that inhibit this process is presented in Section 5.2.2 for cogeneration issues, which
offer the largest opportunities for aggregate on-site emission reductions, and in Sections 5.5 through
5.9 for methane use issues.  Policy-makers should investigate the opportunity for promoting these
processes both in existing and in new facilities, as the incentive and support structures for retrofitting
existing facilities versus initial investment at new sites may vary.

POUCY OPTIONS

       Many of the same policies listed  in Section 5.2.2 for promoting development of alternative
energy sources will apply to on-site power producers in the same way they applied to independent
power producers who sell their energy. In addition, states can:

  •    Provide Direct Assistance for Equipment and Facility Conversion.  States may conduct
       technological and financial analyses for specific industrial facilities in order to demonstrate to
       value of cogeneration and similar practices. States may also be able to provide ongoing
       technical support to enhance industry confidence in new processes, and can initiate the type
       of financial support through taxes and subsidies listed in the previous section.

  •    Establish Programs and Regulations to Reduce Risk to Firms. States may guarantee financial
       support if new processes do not function as expected and may require utilities to provide
       backup power to industrial facilities, like coal mines, if those facilities' on-site sources do not
       meet their energy needs.  Without these provisions utilities may have incentives to distort
       prices or restrict power access to customers who are considering producing their own energy.

5.3    GREENHOUSE GASES FROM THE TRANSPORTATION SECTOR

       Carbon dioxide (C02) is the main byproduct resulting from combustion of gasoline and other
petroleum-based fuels used by the transportation sector. Carbon dioxide emissions are directly
proportional to the quantity of fuel consumed:  burning a gallon of gasoline releases approximately 20
pounds of carbon dioxide into the air (OTA, 1991).  In addition, the extraction,  processing, transfer,
and combustion of fossil  fuels produce other greenhouse gases, lead, and other pollutants, and
contribute to acid rain and urban ozone  precursors.11

       The transportation sector consists of highway and off-highway vehicles, marine vessels,
locomotives, and aircraft.  Highway vehicles include automobiles and light-duty vans and trucks up to
    11 These other pollutants include: methane, carbon monoxide, nitrous oxide, non-methane hydrocarbons,
oxides of nitrogen and sulfur, and paniculate matter. Nationwide, transportation is responsible for 70 percent of
carbon monoxide, 40 percent of volatile organic compounds, 40 percent of nitrogen oxides, and 35 percent of lead,
particulates, and nitrous oxide. While these other gases from the transportation sector are also considered to be
greenhouse gases, they are not thought to be major contributors relative to the carbon dioxide emissions; and,
unlike carbon dioxide, some can be partially mitigated through the application of emission controls (NAS, 1991).


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6,000 pounds in weight, light-duty trucks between 6,000 and 8,500 pounds in weight, heavy-duty
trucks and buses, and motorcycles.  Off-highway vehicles include farm tractors and machinery,
construction equipment, snowmobiles, and motorcycles.  This section focuses on options to reduce
emissions from the highway vehicles fleet.

       Activity to the transportation sector from all these vehicle categories is fundamentally a
product of the demand for mobility of either people or goods and services in our society.
Traditionally, as this demand for mobility increases, so do related emissions of carbon dioxide and
other pollutants. Policies to reduce emissions in this sector, therefore, can be targeted either at
reducing the demand for mobility in general, or reducing emissions at current or increasing levels of
transportation activity.  Both of these approaches are referenced throughout this section. In addition,
Chapter 6 discusses the potential for reducing emission from the transportation sector through land
use change and city and rural planning measures (see section 6.4).

       It is important to note that this section provides only a brief introduction to transportation
policy.12 In this complex field, in general, carbon dioxide emissions from the transportation sector
are currently not regulated, while regulation of other transportation-related  emissions and fuel
consumption standards have traditionally fallen under federal jurisdiction.  Criteria pollutant emissions
are controlled through the  Clean Air Act, while light-duty vehicle fuel efficiency is regulated through
Corporate Average Fuel Economy (CAFE) standards as established in the  1975 Energy Policy and
Conservation Act Some states, notably California and those in the New England region, have sought
additional improvements in their urban air quality through various measures to limit vehicle emissions
(South Coast, 1991; New England, 1990). These measures include transportation control and air
emissions standards that supersede existing federal standards. The  South Coast Air Quality
Management District's Air Quality Management Plan for the Los Angeles Basin, discussed in Chapter
2, represents an example of such a comprehensive plan for regional  emission reductions.

       Technical approaches for reducing greenhouse gas emissions from the transportation sector
include reducing vehicle miles travelled, reducing emissions per mile  travelled, and using alternative
fuels. The remainder of this section discusses these three approaches.

       5.3.1    Reduce Vehicle Miles Travelled (VMT)

DESCRIPTION

       Reducing total vehicle miles travelled involves decreasing the overall need or desire for
driving, replacing single-occupancy driving with alternatives such as mass  transit or car pools, or
shortening the time  and/or the distance required for each trip.  Collectively, these are known as
transportation control measures (TCM).  Reducing vehicle miles travelled in other transportation
categories, such as heavy  vehicles transport and trains, also involves switching  to alternative modes of
transportation or combining modes, increasing load factors (for example, reducing  empty or partial-
load trips for busses and shipping of products), reducing travel needs, and shortening of travel time
and/or travel distances.

CONSIDERATIONS

       The issues associated with VMT reduction measures influence how effective these measures
will be in attaining emissions reductions include:
   12 For a more comprehensive overview of the environmental implications of transportation measures, see
Kessler and Schroeer, 1993 and OTA, 1994. (Note:  OTA gives an overview of the U.S. transportation system and
options to increase energy-efficiency within this sector.)
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  •    Infrastructure Issues. Many regions, especially in the west and south, have less developed
       mass transit systems.  Additionally, transportation control measures might not be feasible for
       states that are predominantly rural.

  •    Financial Issues. Many cities and states currently do not have the financial means to
       implement extensive transportation control measures, urban light rail systems, or intercity high
       speed rail.  While some measures can be cost effective by reducing the time workers spend in
       traffic,13 or reducing the energy consumed per-passenger, implementing a transportation
       control measures package requires significant advance planning and preparation, and may
       also require extensive commitment from governments with limited resources.

  •    Institutional Issues.  Many Americans simply prefer driving over any other form of
       transportation or prefer goods which must be shipped long distances. Switching to alternative
       transportation modes or reducing VMT in other ways may require lifestyle adjustments.

       Experience from existing transportation control programs to reduce air pollution in various
cities offers insights into some ways these constraints can be addressed. These general insights
should be considered during the implementation of all types of policies.  Foremost:

  •    Transportation control measures are often most effective when multiple complementary
       measures are implemented simultaneously as a single package. This may include, for
       example, development of employee ride-share incentives, construction of high-occupancy
       vehicle lanes (carpool lanes), and increases in rates charged for parking.

  •    Transportation control programs achieve larger emission reductions historically when they are
       coordinated throughout a region and over an extended period of time.

  •    Transportation control programs function best if implemented locally, so that measures can be
       tailored to traffic patterns, infrastructure, and zoning ordinances in each individual area.  In  all
       situations, critical characteristics that transportation control programs  need to consider prior to
       new program implementation include factors such as population and  employment groupings,
       highway capacities and congestion levels, and major transportation routes and alternatives
       (OTA, 1991). Chapter 6 presents information on additional land use and city and regional
       planning considerations as they affect transportation control measures to reduce VMT.

       An additional analytic consideration relating  to transportation control efforts is that in many
areas there is latent demand for access to primary transportation corridors. This implies that as
congestion decreases because of  the transportation control measures, some people who were
discouraged from driving before due to congestion may  begin to use their cars as single-occupants,
thus negatively impacting emissions reduction efforts.

POLICY OPTIONS

       Options for reducing transportation demand, especially for reducing single-occupancy driving,
include:
       Information and education programs.  States may implement programs to encourage
       alternatives to driving, including public education campaigns and various types of
       demonstration or pilot projects.  For example, many states support campaigns to promote the
       benefits of high-occupancy vehicles lanes, ride sharing, and mass transit. In addition, states
   13 For example, the City of Denver, CO was able to reduce up to 40 percent of commuters' commuting time by
instituting high occupancy vehicle lanes and other transportation control measures.
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       can work directly with employers to develop new VMT reducing programs. Demonstration to
       employers the multiple benefits of offering employees a choice of cash rather than subsidized
       parking spaces, for example, can lead to decreased employee driving, increased use of mass
       transit, and therefore reduced carbon dioxide emissions.  California has recently enacted
       legislation requiring some businesses to pursue this type of program (South Coast, 1991).

  •     Institutional support programs. States may also improve mass transit systems, high
       occupancy vehicle lanes (HOV), mass transit lanes, and enhanced traffic management
       systems such as synchronization of traffic signals. Virginia, for example, has instituted HOV
       lanes on many of its new or improved highway system in Northern Virginia as part of its traffic
       .control effort.  Similarly, the Connecticut Department of Transportation has helped to establish
       nearly 12,000 car pools and 180 van pools since 1980, saving an estimated nine million
       gallons of gasoline yearly.

  •     Incentives to businesses and employers.  These include financial incentives (tax breaks or low
       interest loans) for businesses to initiate car and van  pools and encouragement to alter or
       stagger work schedules and work modes. This may include establishing four-day work weeks
       or tele-commuting where employees work from their homes or other non-centralized locations,
       thus mitigating the need for travel to work. A pilot tele-commuting program involving 134
       Arizona state employees, for example, reduced an estimated 97,078 commuting miles and
       saved over $10,000 in gasoline and other costs in a six-month period, and is being
       recommended for expansion (NGA, 1991).

  •     Incentives to transportation consumers.  These include incentives to use mass transit and
       bicycling or walking, parking management (higher parking fees and/or elimination of
       subsidized parking), congestion pricing (tolls on heavily traveled roads during peak periods),
       auto use restriction (higher registration and license fees), and
       increased gasoline and road taxes. One example is the Federal government's monthly cash
       allowance for  its employees within the District of Columbia metropolitan area who use public
       transportation.

  •     Direct state action.  States and cities may alter local  institutional guidelines and regulations
       that affect transportation.  One of the primary opportunities in this area is to zone urban or
       central areas to exclude expansive development of areas for parking, so that commuters have
       additional incentive to car-pool or use mass transit.  This approach, of course, depends on the
       ready availability of the low-emission transportation alternatives to single-occupancy vehicles.
       In a related measure, many state and city laws restrict private transportation system
       development to taxi cab services.  Loosening these restrictions, if in conjunction with other
       complementary actions, may result in the development of alternative transport systems such
       as the van services that are allowed for commuting between many urban centers and nearby
       airports.

  •     Other policy options. Additional options to reduce vehicle miles travelled include instituting
       auto insurance reforms to reflect the costs of driving (pay-as-you-drive auto insurance, for
       example) and promoting freight transportation system least-cost planning and/or imposing a
       load-weight-distance tax on heavy trucks to make trucking more expensive and encourage
       other less energy intensive modes of freight transport, such as rail.  Longer term measures for
       VMT reduction include urban light rail development,  intercity high-speed rail, and integrated
       and inter-modal transport systems.

       As mentioned above, most of these transportation control measures function best when
implemented in packages so that they support and reenforce each other.
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Exhibit 5-8: Automated Traffic Signal Controls in Missouri
          To move traffic more efficiently in two of the state's major metropolitan areas, the .Missouri
  • Department of Natural Resources' Division of Energy granted $560,000 to the Missouri Highway and
   Transportation Department to install automated traffic signals. The signal control system continually
   monitors traffic and automatically adjusts signal timing for optimum operation and traffic flow, greatly
   reducing fuel consumption and travel time for motorists. Each control system is located along a main
   corridor to allow the bulk of motorists to move efficiently.  One system was installed in Kansas City: the
   other near Si touts.

          In Kansas City, the automated traffic signals have reduced fuel consumption by 87,000 gallons per
   year, reduced the number of stops by vehicles by 16 million per year, and increased average traffic speeds
   such that annual  motorist travel time was reduced by 120,000 hours.  Similarly, in St Louis fuel
   consumption has been reduced by 353,000 gaBons per year, the annual number of stops has been reduced
   by almost 33 million, and average traffic speeds have increased to reduce annual travel time for motorists
   by 336,000 hours. All of these factors reduce carbon dioxide emissions.
        5.3.2   Reduce Emissions per Mile Travelled

DESCRIPTION

        Lowering emissions per vehicle per mile involves either improving the fuel efficiency of one
mode of transportation (such as automobiles or freight trucks) or substituting with a more efficient
mode (such as using trains rather than trucks).  Carbon dioxide emissions are linked directly to fuel
efficiency.  While vehicle fuel efficiency standards historically fall under the federal government's
purview, states can play a role in maintaining or improving the efficiency of the existing fleet by
accelerating the replacement of less efficient vehicles with less polluting and more efficient ones.  Poor
system integration between transportation modes is often the cause for higher energy  consumption as
well as lengthy delivery times for freight transport. Therefore, encouraging the inter-modal substitution
of transportation mechanisms,  such as using trains or ships for long distance freight and trucks for
local distribution, can also act to promote efficiency.

CONSIDERATIONS

        Emission reductions from gains in fleet efficiency can take longer to realize than the gains
achievable through transportation control measures described in the previous section.  Improving fleet
efficiency is dependent on the vehicle replacement rate. The most promising programs, therefore,
might specifically target high emitting vehicles, such as light duty trucks or  older, less fuel efficient
automobiles.

        Various institutional issues also affect efforts to increase efficiency.  A primary one is
behavioral:  people maintain well-established habits and preferences.  Customers prefer vehicles with
amenities and powerful acceleration, for example, while vehicles with higher efficiency often are
associated with a lack of amenities, slow acceleration, or certain safety concerns.

        The two most significant technological barriers to the propagation of fuel efficient technologies
in vehicle engines are reliability and availability.  Generally, technologies to  increase fuel efficiency also
increase the degree of technological complexity and often require a higher level of maintenance and
support. As with any newly introduced technology,  qualified technicians and/or  replacement
components may not be widely available, especially in rural areas.  Additionally,  policy-makers should
consider that  current and future mandated safety and smog control devices often counteract fuel
efficiency gains, impeding carbon dioxide emission reductions.  Decisions on efficiency will have to
balance these alternative benefits.
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POLICY OPTIONS

  •    Public information programs.  States may work with industry and other groups to educate
       consumers on the multiple benefits of fuel efficiency.  This may include campaigns to stimulate
       demand for more fuel efficient vehicles and educate people on optimal driving practices.  For
       example, states may consider expanding the EPA's current mileage rating system for new cars
       to apply to used vehicles as well and to include additional information such as estimated
       yearly fuel cost

   •    Incentives to vehicle users. These include fuel efficiency purchase incentives (feebates* or
       •gas guzzler* taxes, for example) and registration fees pegged to vehicle fuel efficiency, gross
       weight, engine horsepower, or emissions control equipment.  Other innovative measures, such
       as programs to retire older automobiles in some areas, including Southern California and
       Northern Virginia, have proven to be economic on the basis of air quality improvements alone.

  •    Wide-scale transportation planning.  States can support wide-scale transportation planning,
       including supporting on-going research on transportation efficiency and participating in federal
       and regional dialogues on fuel economy requirements. Connecticut, for example, has
       recognized and addressed the potential for traffic congestion and pollution from population
       growth and increased vehicle traffic through innovative pubic  and private research
       partnerships since 1980. This type of planning most often results in regional development of
       new transportation modes.

  •    Efficiency regulation. States may choose to establish efficiency standards for vehicles.
       Because of political sensitivities surrounding this issue, the most successful programs of this
       type often target distinct sectors, such as establishing fleet fuel efficiency standards for fleets
       or emission limits for fleets. This may include fleet-specific promotion and use of electric and
       alternative fuel powered vehicles, although the benefits of these vehicles may vary between
       regions for a variety of reasons.

  •    Support and sponsorship of institutional development. This may include establishing incentives
       for shifting between modes of freight transport, supporting regional efforts for rail electrification
       in areas where electricity is produced with little greenhouse gas emissions, and working with
       industry and other organizations to promote efficiency and support other innovative measures.

  •    Fuel efficiency regulation and enforcement.  This includes establishing and enforcing speed
       limits, establishing and enforcing state emission and  inspection/maintenance standards, and
       instituting used car efficiency standards.

       5.3.3   Use Alternative Fuels

DESCRIPTION

       In the long run, alternative transport fuels - fuels with lower carbon emissions - offer
opportunities to reduce greenhouse gas emissions per unit of travel.14 The National Academy of
Sciences' Mitigation Panel divided alternative fuels into three categories (NAS, 1991):
   14 Emissions from fuel production, such as the extraction and processing of fossil fuels, mining and
processing of uranium for electricity generation (and reactor waste), as well as emissions from the cultivation,
harvesting, and processing of energy crops for ethanol fuels are factors to consider while estimating long-term
emissions from gasoline and alternative fuels.


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       1)     Those that could result in increased greenhouse emissions relative to gasoline,
              including:  methanol from coal, electricity from coal-fired power plants, and ethanol
              from biomass but produced and transported using fossil fuels.

       2)     Those that will reduce emissions less than 25 percent, relative to gasoline, including:
              diesel, natural gas in any form, methanol from natural gas, clean/reformulated gasoline
              with up to 25 percent biomass-derived additives, electricity from gas-fired power
              plants, and electricity from current power plant fuel mix.

       3)     Those that eliminate or nearly eliminate greenhouse gas emissions, including:
              methanol and ethanol from wood biomass using biomass fuel to produce and
              transport, hydrogen from non-fossil fuel-generated electricity, and electricity from non-
              fossil fuels.

       Conversion to alternative fuels may be controversial because it requires long-term planning,
additional capital investment, infrastructure changes, and high levels of political commitment.

CONSIDERATIONS

       General consensus indicates that, of the alternative fuels that are under development, those
that are most ready for the marketplace will not reduce substantially greenhouse gas emissions from
the transportation sector. Those that offer the largest potential reduction in emissions are the furthest
from large-scale technical viability, and present the most challenges to wide-scale distribution.
Additionally, the successful implementation of any of the available alternative fuels could limit
prospects for others in the future, since the delivery systems or required infrastructure may not be
compatible.  The alternative fuels under consideration also offer shorter operating distances, which
may require more extensive supply/filling station networks.

       Also, at current oil prices, no single fuel listed above can compete in the marketplace against
gasoline. In order for any fuel to displace or even supplement gasoline, investments must be made in
the scale of the manufacturing process, in the distribution  networks and in fleet conversions..
Environmental or toxicity characteristics may be associated with the new fuel.

       Institutional resistance to alternative fuels could be significant:  converting to any of the
alternative fuels at this point  does not offer additional, tangible, and recognized benefits to vehicle
operators.  Without the certainty of a customer base, few suppliers would venture into the alternative
fuels arena Alternative fuels policies may,  therefore, need to address both supplier and customer
concerns to ensure program success.  An example of a federally-sponsored program designed to
address concerns of all stakeholders is Clean Cities (see box 5-9 for a description).

POUCY OPTIONS

       Policy options for promoting use of alternative fuels vary depending on time horizons,
government commitment levels, and emission reduction goals.   Options include:

  •    Target programs to utilize local alternative fuel sources.  The Corn-Belt states currently
       subsidize and publicize fuels made from corn, such as ethanol; other states could similarly
       promote and develop local resources.  These programs may provide experience and
       knowledge needed for the implementation of larger programs.

  •    Convert state or city-owned fleets to alternative fuels. Governments may directly reduce
       emissions and demonstrate alternative fuel feasibility by converting their own state vehicles
       and mass-transit vehicles to use alternative fuels.  For example, Burlington, Vermont,  and
       Portland, Oregon, are converting their fleets.
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5.4
       Support research and development
       programs, including research of non-
       fossil fuels, research of promising
       transition' strategies, and research and
       incentives for electric/hybrid design and
       development. Despite the barriers
       associated with alternative fuels, states
       could consider sponsoring pilot programs
       for demonstration and feasibility study
       purposes.

       Provide incentives to support institutional
       development, including incentives for
       vehicle conversion, filling
       station/distributor conversion, alternative
       fuel vehicle purchase, alternative fuel use
       in private and government fleet vehicles,
       and innovative programs to replace
       gasoline.
METHANE FROM NATURAL GAS AND
OIL SYSTEMS
                                                Exhibit 5-9. Clean Cities
        Clean Cities is a voluntary program
sponsored by the U.S. Department of Energy, ft
is designed to accelerate and expand the use of
alternative fuel vehicles (AFVs) in urban
communities and to provide refueling and
maintenance facilities for their operation. Under
the Clean Cities program, local governments are
encouraged to form a partnership with public and
private stakeholders, such as  utilities, fuel
suppliers, environmental groups, fleet managers,
vehicle manufacturers, consumers, and federal,
state, and local government agencies.
Stakeholders cooperatively draft an
Implementation plan that quantifies program goals
and outlines measures to achieve these goals.
DOE provides assistance by operating two
national hotlines (Clean Cities Hotline and
Alternative Fuels Hotline) and  maintaining ten .
regional support offices throughout the U.S.
Additionally, fleet operators interested in acquiring
AFVs can coordinate their purchases with the
federal acquisition program under the Federal
Vehicle Replacement Program. As of December,
1994, there were 34 designated Clean Cities.
Atlanta was the first of these and has established
a goal of having 25,000 AFVs in operation by
1996. By this time, it is estimated that Clean Cities
will result in the acquisition and operation of
250,000  AFVs and 1,000 refueling stations
throughout the country. Interested parties should
contact the Clean Cities Hotline at 1-800-CCmES
for more information.
       Methane is the principal component of
natural gas. Any leakage during the production,
processing, transmission, and distribution of
natural gas will therefore contribute to methane
emissions. Natural gas is often found in
conjunction with oil, and thus gas leakage during
oil production and transportation is another
source of methane, though minor in the United
States. Therefore, options for reducing methane emissions from oil production and transportation are
not addressed here.

       The U.S. natural gas system is subject to both state and federal regulations controlling
leakage,  primarily out of public safety concerns. As a result, the U.S. natural gas industry is one of
the most efficient systems in the world, in terms of methane emitted per quantity of gas produced.
More recently, regional stringent air quality regulations (e.g., controlling VOCs and NOx emissions)
impact the operation of natural gas systems, and compliance with these regulations will undoubtedly
affect emissions of methane from various stages of the gas system.  The rate regulation of the U.S.
gas industry by FERC and state PUCs can also help determine the economic feasibility of actions
taken by gas companies. State policies designed to reduce emissions from natural gas systems will
need to consider the influences of existing economic  and safety regulations.

       A number of technical approaches exist to reduce methane emissions from natural gas
systems.  Many of these approaches can be cost-effective for firms in the natural gas industry and
ultimately beneficial to natural gas consumers. In fact, many of the approaches discussed here are
already in use by companies in the U.S. natural gas industry.  State programs addressing
informational and institutional barriers to the continued implementation of these technologies could
reduce methane emissions in the short term.
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DESCRIPTION

       The natural gas system includes production sites, processing and storage facilities, and
transmission and distribution networks. Methane is emitted from a wide variety of components,
processes and activities in each of these stages. Because the majority of emissions occur in the
production, processing, transmission, and distribution stages, options for storage facilities are not
considered here. This section focusses on emission reduction options with the highest potential
impact, in terms of both the technical and economic feasibility of reducing methane emissions.

       The production and processing of natural gas accounts for about 40 percent of methane
emissions from U.S. natural gas systems, transmission of gas to distribution facilities accounts for
another 35 percent, the distribution of gas to end users through smaller, lower pressure pipes
accounts for around 10 percent, and compressor engine exhaust accounts  for about 15 percent. The
majority of these emissions result from leaks (fugitive emissions), venting from equipment such as
pneumatic devices and gas dehydrators, venting during routine maintenance, and compressor engine
exhaust (U.S. EPA, 1993a). Options are available for reducing emissions from all of these sources.

  •    Pneumatic devices are gas-powered devices used on heaters, separators, gas dehydrators,
       and gathering pipelines which control the flow of gas through the facility. Many designs vent
       (or 'bleed') the gas which is used to operate these devices. Options to reduce emissions
       from these devices include replacing high-bleed pneumatics (devices with high emissions) at
       the end of their useful life with low- or no-bleed designs where technically appropriate
       throughout the production stage.

  •    Fugitive emissions are unintentional and usually continuous releases associated with leaks
       caused by the failure of the integrity of the  system, such as a damaged seal, a corrosion pit
       resulting in a pinhole leak in a pipeline, or inadequately sealed valves, fittings,  and assemblies.
       The primary option for reducing fugitive emissions is the implementation of directed  inspection
       and maintenance programs.

  •    Gas dehydrators, which use a desiccant such as gtycol to remove moisture from produced
       gas, emit methane when the saturated desiccant is regenerated.  Options for reducing these
       emissions include installing flash tank separators before the regenerating unit,  and recovering
       and using the separated methane for boiler fuel (in the regenerating unit).

  •    Reciprocating engines are used throughout the industry to drive compressors that transport
       gas.  These engines emit considerable quantities of methane in their exhaust due to
       incomplete combustion.  The primary option to  reduce these emissions is to use turbine
       engines, which emit significantly less methane,  as new transmission lines are constructed and
       old reciprocators are replaced. This determination needs to be made on a site-specific basis.

  •    Venting during routine maintenance of pipelines occurs when the  natural gas must be removed
       from a section of pipe for safety reasons during repairs.  Options for reducing these emissions
       include using portable evacuation compressors to pump the gas from the section of pipe to
       be repaired to an adjoining section, rather than venting the gas to the atmosphere.  With
       current gas prices, however, this technology may not be cost-effective in the United  States.

       In addition to these near-term options for reducing emissions,  a variety of technologies and
practices that are currently under development may become available commercially  over the next
decade.  These options include:  (1) metallic coated seals would be used in place of the rubber seals
currently used on moving shafts - such as shafts in production wells and compressors; (2) 'smart
regulators' which adjust the pipeline pressure to better accommodate demand at a given time; (3)
clock spring composite wraps which can be used to repair leaks on major pipelines  without  venting
the gas; and (4)  catalytic converters, which would oxidize the methane released from reciprocating
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engines.  Catalytic converters are increasingly required to comply with air emission regulations for
NOx and other hydrocarbon emissions.

CONSIDERATIONS

       The implementation of options to reduce methane emissions from natural gas systems should
focus on high impact applications, such as those discussed above.  Because these options can
usually be implemented in a short period of time, they will have an immediate impact on reducing
emissions. The experience of gas companies in the U.S. shows that many of these options can be
cost-effective. Moreover, the economic feasibility of these options will likely improve with the
anticipated increases in gas prices over the next decades.

       The benefits of the options discussed are not solely related to reduced methane emissions.  In
addition to being profitable in their own right, these options improve operational efficiency and further
reduce safety risks associated with gas leaks. Options to reduce engine exhaust will also reduce the
emissions of local air pollutants that form low-level ozone, NOx and VOCs.

POLICY OPTIONS

  •    Provide  Information. A significant barrier to reducing methane emissions from natural gas
       systems is that information on the economic benefits of emission reduction techniques has not
       been disseminated widely throughout industry. The other benefits associated with these
       options  have also not been disseminated.  States could develop information campaigns to
       advertise successful programs to industry, regulatory institutions, and other relevant
       organizations.

  •    Address Institutional Barriers. In many cases, public utility rate structures provide little
       incentive for reducing methane emissions to the atmosphere. Allowing most of the cost of
       unaccounted-for-gas to be passed through to consumers, for example, provides little incentive
       for a company to exceed  existing safety standards.   State regulatory  agencies could develop
       incentives and remove disincentives to applying technologies and practices that reduce
       methane emissions. For example,  a state public utility commission could adopt regulations
       that would allow a distribution company that has demonstrated methane emissions reductions
       to receive a higher rate-of-return on investment so that the value of the gas saved could be
       allocated to shareholders rather than consumers.

  •    Support Research and Development. States could fund targeted research to reduce costs and
       to develop improved technologies and practices.


5.5    METHANE FROM COAL  MINING

       Methane and coal are formed together during coalrfication, a process in which biomass is
converted by biological  and geological forces into coal.  Methane is stored within coal seams and also
within the rock strata surrounding the seams. Deep coal seams have a substantially higher methane
content than shallow coal seams, because geological pressure intensifies with depth and prevents
increasingly larger amounts of methane from escaping.  Methane is released when pressure within a
coalbed is reduced,  either through natural  erosion or faulting or through mining.

       State and federal regulations concerning the release of coal mine  methane have been
developed as a result of safety, rather than environmental, concerns; methane is explosive in low
concentrations and hazardous in  underground mines. State mine inspectors and the federal Mine
Safety and Hearth Administration  (MSHA) share responsibility for monitoring methane levels in
underground mines.
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       For both safety and environmental reasons, other aspects of coal mining are heavily regulated.
Federal and state energy, environmental, labor, land management, and other agencies regulate
different aspects of the coal mining industry.  Significant federal controls include the Coal Mine Health
and Safety Act, which regulates virtually all aspects of mining methods and equipment design in order
to reduce the dangers of roof falls, explosions, exposure to respirable coal dust, and mechanical
accidents.  Environmental impacts associated with coal mining ~ including geological  and hydrological
disturbances, blasting, coal preparation, and waste disposal - are subject to regulation under the
Surface Mine Reclamation and Control Act (SMCRA) and state laws and regulations. Additionally,
regulations targeting emissions from coal combustion for electricity production significantly impact the
coal mining industry.  State policies designed to reduce methane emissions from coal mining will need
to be coordinated with existing federal and state safety and environmental regulations.

       There are two technical approaches for reducing methane emissions from coal mining. The
first approach is to recover methane before, during, or after mining and to use it as an energy source.
The second approach is to reduce coal-fired energy consumption, which would reduce the amount of
coal produced and, accordingly, the amount of methane released from coal mining.

       5.5.1   Methane Recovery and Use

DESCRIPTION

       Depending on the portion of coal that is produced by large and gassy mines in a state,
encouraging utilization of coal mine methane  can  significantly  reduce methane emissions. Methane
released  from underground mines can be recovered and sold to pipeline companies or used as a
feed stock fuel to generate electricity for on-site use or for sale to off-site utilities.  For  pipeline sales, a
coal mine would need to install gathering lines to  transport the methane to a commercial pipeline. For
power generation, a mine would need to install either an internal combustion engine or gas turbine,
both of which can be adapted to generate electricity from coal mine  methane.  Most methane recovery
and utilization technologies can be installed within a year.

       Coal mine methane is recovered in a  range of purities. Pipeline sales require  nearly pure
methane, while power generation is a technically viable option for methane concentrations as low as
30 percent (U.S. EPA, 1993b).  Techniques for recovery include drilling wells before, during, or after
mining. Wells drilled several years in advance of  mining will generally be the most expensive, but will
recover large amounts of nearly pure methane (up to 70 percent of the methane that would be
otherwise emitted).  Wells drilled during or after mining can also recover substantial quantities of
methane (up to 50 percent of emissions), but the  methane may be contaminated with mine ventilation
air (U.S.  EPA, 1993b). While such a methane/air mixture is normally  suitable for power generation,
injection  into pipelines would require enrichment of the gas, which may not be economically feasible.

       Established techniques exist for recovering methane.  In fact, over 30 U.S. mines already use
recovery wells as a supplement to their ventilation systems to  ensure that methane concentrations
remain below acceptable levels (U.S. EPA, 1993a). However, this recovered methane is normally
released to the atmosphere.

       In addition to the highly concentrated methane produced by recovery wells, methane that is
emitted in low concentrations in ventilation air also could be utilized.   Ventilation air may be used as
the combustion air in an on-site turbine or coal fired boiler.  However, at the current time, utilization of
ventilation air has not been technically demonstrated.

       In cases where it is not possible to utilize  the recovered methane as an energy source, the
gas could potentially be flared, which involves burning the methane so that primarily carbon dioxide,
rather than methane is emitted. However, flaring  is not currently considered to be a feasible option for
coal mines due to safety considerations, although research is being  conducted on this topic.  For
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example, the Energy Policy Act of 1992 includes a provision for further study of this technical
approach.

CONSIDERATIONS

       Implementation of methane recovery systems should focus on large and gassy mines; in
general, recovery and use will be economic only for mines with high coal production and high
methane emissions per ton of coal mined. A majority of these mines are located in the Central and
Northern Appalachian basins (primarily Pennsylvania, Virginia, West Virginia, and eastern Kentucky),
the Warrior basin (Alabama), and a few southwestern states. However, other states may also have
mines for which methane recovery and use may be economic.  •

       A few large and gassy mines can account for a very large portion of total state coal mining
emissions, and encouraging their use of coal mine methane can significantly reduce emissions.
Furthermore, developing methane recovery and utilization projects will have an immediate impact on
reducing greenhouse gas emissions.  Recovery wells and utilization equipment can usually be
installed within  a year.

       Implementation of programs to encourage recovery  and use of methane is facilitated by the
fact that such projects can be profitable for coal mines. Currently, ten mines located in Alabama,
Virginia, and Utah are making a profit by selling recovered methane to pipelines (See Exhibit 5-10).  In
1993, these ten mines recovered for sales to pipelines about 25 bcf of methane that would other wise
have been emitted to the atmosphere (U.S. EPA, 1994b).  On-site power generation may also be
profitable for coal mines. Given their large electricity requirements, coal mines may realize significant
economic savings by generating power from
recovered methane. Nearly every piece of        Exhibit 5^10. Jim Walter Resources: Methane
equipment in a mine operates on electricity,       Recovery Projects
including mining machines, conveyor belts,
                                                         Since the early 1980s, Jim Walter
                                                  Resources (JWR) has recovered methane from
                                                  four coal mines in Alabama  Each year, about 13
                                                  Bcf of high-quality methane is produced from a
                                                  variety of mine degasification approaches sold at
                                                  a nearby pipeline.  JWR estimates that this
                                                  program has reduced mining costs by more than
                                                  $1/ton and enabled the continued economic
                                                  operation of these coal mines. In addition, the
                                                  company is preventing a significant amount of
                                                  methane from being emitted each year.
ventilation fans, and elevators for workers.
Furthermore, the gassiest mines may be able to
generate power in excess of their own on-site
needs; this excess power could be sold to a


       Finally, the benefits of methane recovery
and use are not limited to reducing emissions.
Recovery and use of methane reduces the risk of
explosion in mines, reduces costs for mine
ventilation, contributes to energy efficiency by
utilizing an otherwise wasted resource, and may
create additional financial revenues for coal mines and additional jobs in methane production.

POLICY OPTIONS

       Policy options described here focus on programs that could either best be developed at the
state level or that could augment federal programs that are planned or already in progress.15

  •    Provide Information. The utilization of recovered methane is still a relatively new concept in the
       coal mining industry.  States can disseminate information on methane recovery options and
       highlight instances  of successful methane recovery projects.  State agencies may also find a
    15  Under the National Energy Policy Act of 1992, the Secretary of Energy, in consultation with the EPA and the
 Department of Interior, is instructed to study the technical, economic, financial, legal, regulatory, institutional and
 other barriers to coalbed methane recovery.  This study is to be submitted to Congress in October 1994.


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       role in identifying and attracting investors in coal mine methane projects and facilitating
       linkages between local coal companies and potential partners.

       Support Research and Development.  Several technologies that might help reduce coal mine
       methane emissions - such as gas enrichment processes and utilization of mine ventilation air
       as combustion air - lack technical demonstration. Additional research is also needed on
       flaring. States may be able to support research on the potential application of such
       technologies at coal mines within their jurisdictions.16

       Address Legal Barriers. Unresolved legal issues concerning the ownership of coal mine
       methane resources constitute one of the most significant barriers to coal mine methane
       recovery.  For example, ambiguity regarding who may demand compensation for resource
       development provides a disincentive for investment in coal mine methane projects.  Potentially,
       entitlement could rest with the holder of the coal rights, the owner of the oil and gas rights, the
       surface owner, or a combination of the three.  As part of the Energy Policy Act of 1992, states
       will be required to develop a mechanism to address ownership issues.17  One option,
       enacted by Virginia, is to force pooling of all potential interests in the resource.  Under forced
       pooling, until such  time as ownership is decided, payment of costs or proceeds attributable to
       the conflicting interests are paid into an escrow account.  This legislative effort resulted in the
       rapid development of coal mine methane projects in Virginia (U.S. EPA, 1993b).

       Address Institutional Barriers.  Pipeline capacity is severely limited in many coal producing
       regions, which can make it difficult for coal mine methane producers to gain reliable access to
       pipelines or may necessitate the construction of extensive gathering systems.  Accordingly,
       states with limited pipeline capacity may wish to encourage or expedite new pipeline
       construction. Similarly, electric utilities in many coal producing regions have excess capacity
       and low generating costs. Accordingly, utilities may have low 'buy-back* rates for power
       generated from coal mine methane. Furthermore, due to concern over losing a large
       customer, utilities may  discourage coal mines from  generating power for their own use. States
       could consider adopting provisions to encourage power generation from environmentally
       preferred  power producers, such as coal mine methane projects. States may also evaluate
       the need for actions to ensure that utilities do not inappropriately discourage power generation
       for on-site use.  Section 5.2 of this document, which addresses "supply-side1 measures for
       reducing greenhouse gas emissions from the electric utility sector, discusses these policy
       options in greater detail.

       Provide Financial Incentives. Though methane recovery and use may be immediately
       profitable for some mines, others may find these projects economically feasible only if given
       appropriate financial incentives. For example, low interest loans for investment in recovery
       and utilization projects could encourage recovery methods that would  capture the greatest
       amount of methane.  A state-issued production tax  credit could also encourage methane
   16 States should be aware that the Energy Policy Act of 1992 mandates the establishment of a federal
demonstration and commercial application program for advanced coalbed methane utilization technologies.

   17 As part of the Energy Policy Act of 1992, those states determined by the Secretary of Interior as not having
statutory or regulatory procedures for addressing ownership concerns will have three years to enact such a
program.  If the state does not act, the Secretary of Interior will impose a forced pooling mechanism similar to that
enacted in Virginia.


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       recovery (e.g. a $/mcf of gas or cents/kwh of electricity produced credit against state tax
       liability).1*

  •    Ensure Appropriate Operating Standards. Coal mine methane wells, although similar to
       conventional natural gas wells, have important technical differences that may necessitate the
       development of state regulations specifically addressing this type of production.  These
       regulations may be related to well spacing, coal mine safety, and produced water treatment
       and disposal. States without an existing coal mine methane industry may need to investigate
       the adequacy and applicability of existing regulations and modify them as appropriate to
       ensure the safe, environmentally beneficial, and effective production of coal mine methane.
       The coalbed methane industry has cooperated with regulators in states like Alabama and New
       Mexico to facilitate the rapid development of appropriate regulatory frameworks.  Such
       regulations may serve as a model for state initiatives to expedite coal mine methane
       development.

  •    Require Methane Recovery and Use. States could directly require underground mines to
       recover and use methane.  However, this may not be a viable policy option for several
       reasons, including:  (1). methane recovery and use is most economic for mines with high
       methane emissions; and (2) recovery and use could not be mandated unless there were
       guaranteed gas or electricity markets for the recovered methane.

       5.5.2   Reduce Coal-Fired Energy Consumption

       A second technical approach to controlling coal mine methane emissions is to reduce coal-
fired energy consumption. This approach would reduce the demand for coal and thus reduce the
level of mining activities and the resulting methane emissions.  Importantly, this approach could  be
adopted by most states, regardless of the amount of coal they produce because nearly all states
consume electricity from coal-fired  power plants. Reducing coal-fired energy consumption could be
achieved by encouraging energy efficiency and/or by encouraging fuel switching from coal-fired
electricity production to less polluting energy sources. Programs designed to reduce coal-fired energy
consumption would likely  be implemented in conjunction with general policies targeted to encourage
energy efficiency and fuel-switching.  See Sections 5.1 and 5.2 for more information on energy
consumption and production.


5.6    METHANE FROM LANDFILLS

       Landfills are the largest single anthropogenic source of methane emissions in the United
States. Municipal solid waste (MSW) landfills account for over 95 percent of landfill methane
emissions, with industrial landfills accounting for the remainder (U.S. EPA, 1993a).  Methane is
produced during the bacterial decomposition of organic material in an anaerobic (i.e., oxygen
deprived) environment.  The rate of landfill methane production depends on the moisture content of
the landfill, the concentration of nutrients and bacteria, temperature, pH, the age and volume of
degrading material, and the presence or absence  of sewage sludge. Once produced, methane
migrates through the landfill until a vertical opening is reached and the gas escapes into the
atmosphere.

       There are two basic approaches for reducing methane emissions from landfills.  The first
approach is to recover the methane and to either flare the gas or use it as an energy source.  The
   18 In 1979, the U.S. Congress enacted the 'Section 29" tax credit in order to encourage the development of
unconventional gas resources. The eligibility of coalbed methane production under the Section 29 tax credit has
expired as of the end of 1992 and gas produced from coalbed methane wells will only be eligible for the credit if
they are drilled prior to the expiration date.


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second approach involves reducing the quantity of degradable organic waste produced and
deposited in landfills.  In addition, these plans support other state environmental and public health
priorities, such as protecting air, surface water and ground water resources.

       5.6.1    Methane Gas Recovery

DESCRIPTION

       Landfill  gas produced in a sealed landfill can easily be captured by installing a gas recovery
system. Landfill gas is typically 50 percent methane (and 50 percent carbon dioxide), and is therefore
a medium quality gas that can be: (1) recovered, purified, and used to generate electricity; (2) used as
a source of natural gas for residential, commercial, or industrial heating needs; or combusted in a
flare.  In addition, there are several emerging utilization technologies that may be commercially
available in the  near term, including using landfill gas as a vehicle fuel and/or in fuel cell applications.
Gas recovery essentially involves 'mining* the trapped methane.  This process consists of drilling wells
into the landfill,  withdrawing the gas under negative pressure, and gathering the recovered gas at a
central processing center. Unlike strategies concentrated on reducing the amount of degradable
waste landfilled (which curb future methane emissions), methane gas recovery reduces current
methane emissions.  Recovering methane has other environmental and safety benefits as well, such
as reducing the risk of explosions, reducing odor, and reducing emissions of air toxics and non-
methane volatile organic compounds.

       Methane gas recovery and utilization technologies are widely available, and projects have
costs similar to  other relatively small renewable energy technologies.19 The profitability of landfill
gas energy recovery projects depends on a range of factors, including the volume of recovered
methane, the price obtained for electricity (or gas) sales, and the availability of tax incentives.
Currently, there are more than 120 fully operational landfill gas recovery and utilization projects in the
United States, recovering about 1.2 teragrams, or 64 billion cubic feet, of methane gas per year.
Nearly 80 additional gas recovery projects are underway around the country.  EPA estimates that
there may be an additional 600 profitable landfill gas energy recovery projects that could be
developed in the U.S., but are constrained by informational,  regulatory, and other barriers. Methane
can also be flared, which almost  completely eliminates the methane contained in the gas, but wastes
the energy value of the gas.  Flaring is estimated to reduce methane emissions by 0.3 teragrams per
year.

       Before recovered landfill gas can  be used as a fuel source, it must be processed to remove
water, particulates, and corrosive compounds.  Processed landfill gas can  be  used to power an
electric generator, such as a gas turbine or an internal combustion engine. Thermal energy from
combustion can also be used to  drive a steam turbine to increase electricity production. Alternatively,
landfill gas can either be used directly for industrial, commercial or domestic energy purposes,  or
upgraded to a high-Btu fuel suitable for supplying a natural gas pipeline.  However, upgrading landfill
gas to pipeline  quality gas is not economical at present because of low gas prices and the high cost
of removing the carbon dioxide contained in  the gas.

CONSIDERATIONS

       Implementation of landfill gas recovery and utilization projects should focus on large landfills,
which will most likely have a high enough gas flow to support a profitable project. While landfill gas
recovery will be particularly relevant for states with large urban centers, and their associated  large
    19 Costs for methane recovery range from $5,000 to $10,000 per acre for installation. Combustors for flaring
range from $15,000 to $90,000.  To purify the gas for use in internal combustion engines costs from $50,000 to
$300,000 for purification (IPCC, 1992b).


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municipal solid waste landfills, all states will have several landfills at which landfill gas recovery may be
a viable option.

       Landfill gas projects can provide many important environmental and economic benefits. They
improve the global environment by reducing methane emissions, and the local environment by
reducing emissions of volatile organic compounds (VOC), while simultaneously displacing emissions
associated with fossil fuel use. They also provide a secure, low-cost energy supply that can reduce
dependence on non-local energy.  They also reduce the waste of valuable natural gas,  by preventing
it from being emitted to the atmosphere. In addition, these projects can provide economic benefits,
such as creating jobs and generating revenues.

       Traditionally, landfill methane has been viewed as a safety hazard and a general nuisance.
However, there is an increasing awareness on the part of state and local governments, landfill owners
and operators, utilities, and industry, of the environmental, energy, and economic benefits that can
result from recovering, rather then emitting or flaring, this gas. For example, utilities are a major
market for electricity generated at landfills and can play  an important role in encouraging economically
attractive projects. The benefits of these projects to utilities include: promoting a diversified fuel mix;
obtaining additional Acid Rain Credits; and fulfilling Climate Challenge commitments.20  Landfill
owners and operators can benefit by reducing regulatory costs and improving landfill safety.  EPA's
New Source Performance Standards and Emission Guidelines, to be finalized in  1995, will require many
landfill owners and operators to collect and, at the very least, flare their landfill gas.  Many states are
already requiring collection and flaring of landfill  gas.  Utilizing the collected gas for an energy
recovery project may offer owners and operators an opportunity to offset regulatory costs or even
generate a profit.  Local industries can also benefit from encouraging or participating in  landfill gas
energy recovery projects by obtaining an inexpensive source of medium quality fuel (or steam, if the
project is generating electricity).

POLICY OPTIONS

  •    Provide Information.  States can provide  landfill owners, project developers, and other
       interested parties with information on landfills that are candidates for methane recovery
       projects, on potential electricity purchasers (i.e., utilities and industrial end-users), and on
       relevant regulatory policy and permitting issues within their state. EPA's Landfill Methane
       Outreach Program is working cooperatively with state allies to encourage landfill gas energy
       recovery projects by developing and  disseminating these  types of information.

  •    Address Institutional Barriers.  Electricity  pricing  and transmission line access and capacity
       may confound the development of landfill gas recovery projects.  States with limited pipeline
       capacity may wish to encourage or expedite new pipeline construction or grant
       environmentally beneficial producers  preferential access to existing  electric power lines.
       States could consider adopting provisions to encourage power production from landfills and
       evaluate the need for actions to ensure that utilities do not inappropriately discourage power
       generation for on-site use or for sale to the utilities (see also Sections 5.1 and 5.2).

       State regulatory policy and  permitting procedures can also present  barriers to landfill gas
       projects.  For example, the siting of the electricity generation equipment associated with a
       project can be extremely difficult in some regions, even though these projects have positive
       impacts on local  air quality. In general, the permitting process for small unconventional power
   20 Climate Challenge, sponsored by DOE, is a CCAP initiative targeted at electric utilities. This action
encourages electric utilities and other eligible firms to submit voluntary greenhouse gas reduction portfolios to DOE
for inclusion in the Energy Information Administration's database. Through Climate Challenge, DOE is also
attempting to stimulate the development and application of clean, sustainable energy technologies, strengthen the
U.S. position in the global environmental technology marketplace, and contribute to overall environmental quality.


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       projects can hinder the implementation of these projects.  In some cases, regulations
       concerning the placement and operation of collection wells, developed for gas migration
       control, can interfere with optimal well placement for gas recovery and utilization. States can
       review their policies and procedures in order to reduce unnecessary barriers to these types of
       projects.  EPA's Landfill Methane Outreach Program is working cooperatively with state allies
       to conduct inter-agency reviews  of state regulations and permitting procedures.

  •    Provide Financial Incentives.  Methane recovery projects can be encouraged through tax
       credits, loans or grants for capital investment in methane collection equipment, and state and
       private investment in research and development of landfill gas recovery technology. States
       can provide production tax credits to landfill operators that initiate methane recovery for power
       production or offer consumption tax credits to utilities that purchase methane from  landfill
       projects.  States may also subsidize electric transmission line upgrades, pipeline upgrades,
       and offer other incentives to extend gathering lines to allow for transport of additional capacity.
       Additionally, states could impose an emissions tax on methane released to the atmosphere or
       diversion credits for emissions avoided through methane recovery.

  •    Promulgate Regulations. The capital costs of installing and maintaining methane collection
       equipment may exceed a landfill owner/operator's willingness to pay.  Currently, EPA requires
       that facilities that generate significant quantities of landfill gas have collection systems or
       perimeter vent systems in place. Facilities that are required to install collection equipment
       may choose to produce power from landfill gas in order to recover some of the associated
       costs. States may consider promulgating standards that are more stringent than existing or
       anticipated federal standards (e.g., the proposed New Source Performance Standards  and
       Emission Guidelines).

       5.6.2   Reduction of Organic Municipal Solid Waste

DESCRIPTION

       There are several approaches to reduce the amount of organic MSW landfilled, thereby
reducing landfill gas emissions.  These include reducing degradable wastes, recycling of wastepaper
products, and diverting waste to incineration facilities.

  •    Source reduction is the diversion of waste  before it enters into the municipal waste stream.
       Source reduction programs generally focus on encouraging (i) producers to reduce product
       packaging, (ii) consumers to purchase items in bulk, and (iii) residents and businesses to
       compost yard waste.  By reducing total MSW generated, source reduction can decrease future
       landfill methane emissions.

  •    Recycling organic wastes, such  as paper and paperboard, wood waste, and food waste, can
       significantly reduce the amount of waste that requires landfilling. Organic wastes act as a
       substrate for methane-producing bacteria in a landfill. Recycling glass, plastic, and metal will
       have no effect on landfill methane emissions because methane is not a breakdown product of
       these materials (although recycling of these materials may address other state policy goals).
       Programs that increase recycling of paper products beyond current levels will help reduce
       methane emissions by reducing  the percent of MSW that is landfilled. Recycled waste paper
       can also replace virgin fiber sources and consequently reduce timber harvesting levels and
       greenhouse gas  emissions from this activity (see also Section 5.11).

  •    Diverting solid waste to incineration facilities also reduces the amount of MSW landfilled.
       Unprocessed MSW can be diverted to a mass burn facility where the thermal energy from the
       combustion is used to produce steam, which can  be sold directly to an institutional or
       industrial customer, or used to generate electrical power in a turbine.  Alternatively, MSW may
       be mechanically  processed to a more homogeneous refuse-derived fuel mixture. This fuel
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       mixture can be sold or burned on-site to generate steam or electricity (OTA, 1989).  Although
       carbon dioxide is produced upon waste combustion, incineration saves between 0.5 and 0.6
       tons of CO2- equivalent per ton of refuse diverted relative to landfill gas emissions (Row,
       1989).21 There are currently about 170 incinerators operating in the U.S. with a total
       capacity of approximately 100,000 tons per day.

CONSIDERATIONS

       EPA's Office of Solid Waste and many state governments list source reduction and product
reuse as the first in  a hierarchy of solid waste management strategies, followed by recycling,
incineration, and landfilling (U.S. EPA,  1992s).22 Source reduction education campaigns that target
local producers and consumers to use less packaging can be administered and implemented at a
relatively low cost The effectiveness of these reduction programs  in avoiding waste and consequently
avoiding methane emissions, however,  is  fairly difficult to measure. This is because most communities
do not measure waste generated and because a significant lag may exist between the actual source
reduction and the time its effects are realized. In contrast, yard waste collection and composting
programs are more  costly to implement, but their effectiveness is considerably easier to measure.
EPA projects that the percentage of MSW composted will increase from 2.1 percent in 1990 to 5.3
percent in 1995 and 7.1 percent in the year 2000, significantly reducing landfill methane production
(U.S. EPA, 1992a).

       Recycling is also quite effective in reducing the quantity of waste sent to landfills.  In 1991,
approximately 14 percent of  U.S. solid waste was recycled  and 76  percent landfilled, compared to less
than 9 percent recycled and 83 percent landfilled in 1989 (Biocycle, 1992). Recycling programs can
be designed and implemented in a relatively  short time period, usually less than one year. These
programs vary considerably  in cost,  but in all cases, costs are somewhat offset by the savings from
avoided disposal. There are several obstacles, however, to increasing current paper recycling rates,
including:  a lack of available de-inking capacity in the short term; higher prices for some  paper
containing recycled fiber; and technical barriers that prevent some large mills from using significant
amounts of recycled pulp.

       In contrast to the preceding  options,  and despite the availability of incineration technology and
its potential for reducing methane emissions, future use of incineration is subject to considerable
uncertainty.  Strong public opposition, high costs,  challenges to  MSW flow control legislation, and
potential changes in federal regulations regarding  the sale  of power from small power producers are
among the sources of uncertainty that affect  the both the financing and long-term feasibility of these
projects. Furthermore, many environmentalists argue that waste-to-energy plants  discourage recycling
because they  create a constant demand for waste. Waste to energy incineration  has been banned in
some jurisdictions for this reason. However,  although a constant supply of MSW may be  difficult or
undesirable to forecast, the market for electricity generated from most waste combustion facilities is
guaranteed by State Utility Commissions, acting under authority of the Public Utilities Regulatory Policy
Act23
   21 The California Energy Commission estimated the emissions from landfills over a 23 year time horizon
assuming that only half of the organic matter will decompose in that period.

   22 EPA set a national goal of 25 percent source reduction and recycling of MSW by 1992.

   23 Under PURPA, electric utilities are required to purchase power produced by qualifying facilities at the utility's
avoided cost of production. Qualifying facilities include small power producers  and cogenerators that produce
electric energy from biomass, waste, renewable resources or a combination thereof, and generate no more than 80
MW of power.


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POLICY OPTIONS

       States may use a number of policy options to encourage the development of waste reduction
programs by targeting supply and demand in several markets.  For example, states can target
markets for recyclable materials (e.g., wastepaper); markets for recycled materials (e.g., paper); and
markets for products containing recycled materials (e.g., newspapers, magazines, books). Options
include direct measures, such as procurement programs for recycled products, and indirect
measures, such as changes in the tax code that would 'level the playing field* between virgin and
recycled materials or encourage the composting of organic waste.

  •    Provide Information and Technical Assistance.  States can prepare and disseminate
       information for communities on successful source reduction and recycling programs, or  .
       provide guidelines for program development For example, states can compile and
       disseminate information on drop-off sites and private  recycling services within the state. Also,
       states can target retail consumers by developing literature on 'green packaging* and
       distributing these materials at department stores, malls, or through the post.  States may
       provide technical  assistance to businesses and communities for waste generation studies and
       waste audits that  target specific materials for reduction and may assist businesses and
       communities in tracking the effectiveness of source reduction programs.  States may also
       assist secondary materials processors by providing information on marketing options, such as
       local scrap-based manufacturers or waste-exchanges.  Finally, states can provide guidance on
       the availability, reliability, and costs of incinerator technology, alternative financing
       mechanisms, and potential liabilities associated with incinerator projects, tailored to the
       specific needs of  localities within its jurisdiction.24

  •    Provide Financial Incentives. States may assist localities in implementing volume-based refuse
       fees, and may offer financial assistance or tax incentives to businesses that set materials use
       reduction targets  or compost their organic waste.  Incentives may also be used to encourage
       the use of recycled paper products, including taxing virgin fiber and eliminating tax benefits for
       timber production and harvesting. States can also  provide financial incentives for the recovery
       of waste  paper. Office paper and mixed waste paper recovery from the commercial sector
       can be encouraged by a tipping fee surcharge at refuse disposal sites, lower tipping fees at
       materials processing  centers and drop-off sites, start-up funds for office paper recycling
       programs, and rebates to haulers that  recycle commercial waste paper. Through investment
       tax credits, start-up grants, and low-interest loans,  states can encourage collectors and
       processors of waste paper to purchase recycling equipment and can encourage
       manufacturers that use waste paper as a feedstock to strategically site new recycling plants.
       States can also participate in revenue sharing and sharing losses with recyclers if revenues
       from waste paper fall below a given threshold. Alternatively, states may provide a market of
       last resort by guaranteeing a minimum price for the purchase of waste paper or compost.

  •    Promulgate Regulations. States can set source reduction targets, implement labeling
       programs to identify and promote products that are reusable or  made from secondary
       materials, implement  state-wide product or packaging controls, or set minimum content
       standards (i.e., specify the recycled content of newspapers). Similarly, states can set
       recycling goals or require the collection of materials from certain sectors of the economy.
       New Jersey has set a goal to recover 60 percent of its MSW by  1995.  Oregon requires
       haulers to collect recyclable materials from businesses, and requires that collection service be
       provided at a cost that does not exceed refuse collection costs.  Mandatory recycling of
       materials and material disposal bans can be implemented at the state level. In addition, states
       can implement planning and reporting requirements,  requiring solid waste management
   24 One source of information on developing and implementing an incinerator project was published by the
National League of Cities in 1988.


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       districts and businesses to write and submit recycling plans and annual progress reports.
       Finally, states can regulate procurement practices, requiring businesses to purchase recycled
       products, and can develop and implement recycled content procurement guidelines for
       government agencies (ILSR, 1992).

  •    Conduct Comprehensive Planning.  States may assess the long range demand for waste
       incineration through comprehensive municipal solid waste management planning.  States may
       also participate in regional solid waste management planning to develop new solid waste
       management facilities, facilitate interstate transportation of wastes, and set waste disposal
       fees. These programs may all help reduce the amounts of organic waste that is put in landfills
       and/or encourage recovery of methane gas.


5.7    METHANE EMISSIONS FROM DOMESTICATED UVESTOCK

       Methane is produced as part of the normal digestive processes of animals; this process is
referred to as "enteric fermentation.'  Of domesticated animals, ruminant animals - including cattle,
buffalo, sheep, goats, and camels - are the major source of methane emissions. Ruminant animals
are characterized by a large lore-stomach* or rumen.  Microbial fermentation in the rumen enables
these animals to digest coarse plant material that monogastric animals, including humans, cannot
digest Methane is a byproduct of this microbial fermentation.

       In the U.S., cattle account for nearly all methane emissions from enteric fermentation.  Factors
affecting methane  production from individual animals include:  the physical and chemical
characteristics of the feed, the feeding level and schedule, the activity and health of the animal, and
possibly genetic traits (U.S. EPA, 1993a).  Of these factors, the feed characteristics and feed level
most influence the amount of methane produced.

       In general, methane production by livestock  represents an inefficiency because the feed
energy converted to methane is not used by the animal for maintenance,  growth, production, or
reproduction. While efforts to improve efficiency by  reducing methane formation in the rumen directly
have been of limited success, it is recognized that improvements in overall production efficiency will
reduce methane emissions per unit of product produced. A wide variety of techniques and
management practices are currently implemented to various degrees among the U.S. livestock
producers which improve production efficiency and reduce methane emissions per unit of product
produced.  More widespread  use of these techniques, as well as the implementation of new
techniques will enable methane emissions from livestock to be reduced.

       No existing federal or state regulations specifically focus on reducing methane emissions from
domesticated livestock.  However, government and industry efforts designed to promote animal
production efficiency will also indirectly reduce methane emissions.  Several techniques including
genetic improvements and the use of productivity-enhancing agents as well as changes to the
marketing system for milk and meat  products,  including the milk pricing system and the beef grading
system could potentially reduce methane emissions  from livestock (EPA, 1993b).

       5.7.1   improve Production Efficiency Per  Animal

DESCRIPTION AND CONSIDERATIONS

       Improving  livestock production efficiency so that less methane is emitted per unit of product is
the most promising and cost effective technique for  reducing emissions in the U.S.  While U.S. live-
stock production is among the most productive in the world, opportunities for improvement exist for all
sectors of the cattle industry that can reduce methane emissions substantially.  In many cases these
options can be profitable because they reduce costs per unit of product produced.
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       Specific strategies for reducing methane emissions per unit product have been identified and
evaluated for each sector of the beef and dairy cattle industry. Throughout the industry, proper
veterinary care, sanitation, ventilation (for enclosed animals), nutrition, and animal comfort provide the
foundation for improving livestock production efficiency.  For many producers, focusing on these
basics provides the best opportunity for improving production efficiency.  Within this context, a variety
of techniques can help improve animal productivity and reduce methane emissions per unit of
product

  •    Dairy Industry. Significant improvements in milk production per cow are anticipated in the
       dairy industry as the result of continued improvements in management and genetics.
       Additionally, production-enhancing technologies, such as bST, are being deployed that
       accelerate the rate of productivity improvement  By increasing milk production per cow,
       methane emissions per unit of milk produced declines (EPA,  1993b).

  •    Beef Industry.  Improving productivity within the cow-calf sector of the beef industry requires
       additional education and training. The importance and value of better nutritional management
       and supplementation must be communicated. Energy, protein, and mineral supplementation
       programs tailored for specific regions and conditions need to be developed to improve the
       implementation of these techniques.  The special needs of small producers must also be
       identified and addressed (EPA, 1993b).

       In addition to these near term reduction strategies, several very long term options may
become available as the result  of ongoing research,  including: the transfer of desirable genetic traits
among species (transgenic manipulation), the production of healthy twins from cattle (twinning); and
the bioengineering of rumen microbes that can  utilize feed more efficiently.

POLICY OPTIONS

       Though significant efforts by the dairy and beef industries and the U.S. Department of
Agriculture are already underway to research and/or promote adoption of practices that will improve
animal efficiency and reduce methane emissions per unit product,  states  can also implement policies
designed to reduce  methane emissions from ruminant livestock.

  •    Provide Information.  Through the USDA Cooperative Extension Service, states may be able to
       develop information campaigns to encourage the use of techniques that improve production
       efficiency and reduce methane emissions per unit product. States could develop and make
       information available on the best management practices for different regions of the state,
       provide feed analysis services to determine actual protein and dry matter content of feeds,
       and provide information about and access to feed balancing  computer programs.

  •    Support Research and Development. States could promote further research  on genetic
       improvement in beef cattle, on  identifying critical nutritional deficiencies that could be
       corrected through mineral or protein supplementation, and on determining the nutrient content
       of feeds.  States may be able to work with industry on these  efforts.

  •    Provide Incentives.  Generally, the most profitable livestock management practices do not yield
       maximum biological productivity from the animals (e.g., maximum milk per cow or maximum
       weaned calf weight per cow).  Targeted financial incentives (fees  and  rebates) tied to verifiable
       productivity  measures could be used to encourage producers to improve productivity, which
       would then reduce emissions per unit product produced.  Significant research remains to
       design such an incentive system, including:  choosing appropriate and verifiable measures of
       productivity;  developing funding and fee collection mechanisms;  and selecting appropriate
       levels for the incentives.
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       5.7.2  Improve Overall Production Efficiency of Animal Products by Matching Animal
              Products to Customer Preferences

DESCRIPTION AND CONSIDERATIONS

       The existing systems for marketing milk and meat products in the U.S. have important
influences on production efficiency, and hence methane emissions.  Refinements to the existing
marketing systems hold the promise of improving the link between consumer preferences and
production decisions, thereby reducing waste and improving efficiency. Proposed approaches include
the following:

  •    Dairy Industry. Dairy industry emissions can also be reduced by refinements in the milk
       pricing system. By eliminating reliance on fat as the method of pricing milk, and moving
       toward a more balanced pricing system that includes the protein or other non-fat solids
       components of milk, methane emissions can be reduced as the result of changes in dairy cow
       rations and genetics. There is already a trend to reduce reliance on fat in the pricing of milk
       (EPA, 1993b). To realize methane emissions reductions from this trend, the effectiveness of
       alternative ration formulations on protein synthesis must be better characterized.

  •    Beef Industry.  Refinements to the beef marketing system are needed to promote efficiency
       and shift production toward less methane emissions intensive methods. To be successful, the
       refinements to the marketing system require that the information flow within the beef industry
       be improved substantially.  Techniques are required to relate beef quality to objective carcass
       characteristics. Additionally, the carcass data must be collected and used as a basis for pur-
       chasing cattle so that proper price incentives are given  to improve cattle quality and reduce
       unnecessary fat accretion.

       The beef industry has several programs under way to achieve these objectives. Carcass data
       collection programs have been initiated that provide detailed data on carcass quality to partici-
       pating producers. Also, a major initiative is ongoing to educate retailers regarding the cost-
       effectiveness of purchasing more closely trimmed beef (less trimmable fat).  As these
       programs become more widely adopted, the information needed to provide the necessary
       price incentives to producers will become available.

POLICY OPTIONS

       The beef and milk marketing systems are principally regulated through existing federal
programs. States have few opportunities to influence these systems through regulatory mechanisms.
However, as significant purchasers of milk and meat products, States and related State-influenced
institutions (such as schools and hospitals)  have an opportunity to purchase milk and meat products
in a manner that provides the price signals  that lead to improved production efficiency. Significant
research remains to be done to fashion an  appropriate State-level policy in this regard, but there is
substantial potential to influence production practices through the use of specifications in purchase
contracts. Alternatives for specifying product characteristics should be  explored and opportunities for
leveraging purchasing decisions need to be identified.


5.8    METHANE FROM MANURE MANAGEMENT

       When livestock manure is handled under anaerobic conditions (in an oxygen free
environment), microbial fermentation of the  waste produces methane. Liquid and slurry waste
management systems are especially conducive to anaerobic fermentation and to methane production.
Because confined livestock operations such as dairy and hog farms rely on liquid and/or slurry
systems to manage a large  portion of their manure, they  account for a majority of all animal manure
methane emissions in the U.S.  Emissions depend on farm characteristics (including number and type
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of animals, manure management practices, and animal diet) and climatic conditions (including
temperature and relative humidity).

       In addition to methane emissions, livestock manure can cause surface and ground water
pollution, air pollution (e.g., ammonia and strong odors), and human health risks.  State and federal
regulations require proper manure management practices to avoid these potentially adverse
environmental problems.  In particular, under Section 319 of the Federal Clean Water Act (CWA),
confined livestock operations are regulated as potential point sources of water pollution and are
required to control rainfall run-off and to apply manure prudently.  This section of the CWA is enforced
by individual states through a permit process designed under the National Pollution Discharge
Elimination System (NPDES) program.

       In order to comply with these federal and state regulations, many confined livestock
operations (i.e., non-grazing operations) are utilizing anaerobic lagoons or pits to contain runoff and to
manage their manure. These systems are simple, cost-effective, and relatively safe. However,
because anaerobic systems produce more methane than aerobic systems, their increased use could
significantly increase methane emissions from livestock manure.

       5.8.1  Methane Recovery and Use

DESCRIPTION

       Feasible and cost-effective technologies exist to recover methane produced from the liquid
manure management systems used at dairy and swine operations.  Methane can be captured,  for
example, by placing a cover over an anaerobic  lagoon. A collection device is placed under the cover
and methane is removed by a vacuum.  Alternatively, methane can be recovered from mixed tank or
plug flow digesters that produce methane.  These and other technologies can be used on individual
farms or at centrally located facilities.

       Because methane is a fuel, methane gas recovered by any of the available methods provides
a renewable energy source. The methane can be used in a variety of equipment:

  •    Internal Combustion (1C) Engines. 1C engines are reliable, available in a variety of sizes, and
       can be operated easily.  Electricity generated can be used to replace energy purchased from
       a local utility or can be sold to the local electricity supply system. Additionally, waste heat
       from these engines can  provide heating or warm water for farm use or for recycling into the
       recovery system.

  •    Boilers and Space Heaters. Boilers and space heaters fired with methane can produce  heat for
       use in livestock operations. Although this is an efficient use of the gas, it is generally not as
       versatile as electricity  generation and most farms do not require the amount of heating  that
       can be generated.

  •    Chillers.  Gas-fired chillers are commercially available and can be used for  milk refrigeration on
       dairy operations.  Because dairy farms use considerable amounts of energy for refrigerating
       milk, chillers may provide a profitable opportunity for on-farm methane utilization.

  •    Pipeline Sales.  Available methane can be sold to pipelines for distribution through the  existing
       natural gas pipeline network. However, gas produced from livestock manure is typically
       composed of about 40 to 50 percent carbon dioxide (CO2) and trace quantities of other gases
       such as hydrogen sutfide (H2S), which need to be removed before the gas can be injected
       into a pipeline.  The cost of upgrading the gas to pipeline quality makes this option
       uneconomical at the current time.
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       Methane must be processed before it can be used in most equipment. The amount of
processing necessary depends on the specifications of the equipment and the characteristics of the
gas.

       Depending on the number of large dairy and swine operations in a state, utilization of livestock
methane can significantly reduce methane emissions.  These systems can reduce emissions at
individual farms by up to 80 percent (U.S. EPA, 1993b).  Furthermore, developing methane recovery
and utilization projects will have an immediate impact on reducing emissions since these systems can
be installed within one year.

       It should be noted that policies regarding methane recovery systems may be compatible with
policies encouraging the use of manure instead of commercial fertilizer. Methane recovery systems
could be employed during the storage period before application to fields.
                                               Exhibit 5-11:  Methane Recovery In North Carolina
CONSIDERATIONS

       Recent trends in manure management,
such as using anaerobic lagoons to meet
requirements of the Clean Water Act, have
prompted interest in developing and installing on-
farm methane recovery systems. Many of the
operational problems initially experienced with
methane recovery systems in the early 1970s
have been overcome during the past two
decades through advances in the methane
recovery industry.  Currently, over 20 methane
recovery systems are operating at livestock
operations in the U.S. (U.S. EPA,. 1993b). A
majority of these farms use the recovered
methane for on-site electricity generation.

       Implementation of recovery systems
usually focuses on large dairy or hog farms  (for
example, farms with over 500 milking cows or
over 1,500 hogs) that use liquid or slurry manure
management systems which are especially
conducive to methane production.  The current
trend in livestock production is away from the
small family farm (less than 200 cows)  with
limited manure storage capabilities toward large production farms (over 500 cows) that use manure
storage systems as a matter of routine. This trend may mean that an increasing number of farms will
find it economic  to capture methane.  Additionally, methane recovery and use may be more
economical for farms located in a relatively warm climate.

POLICY OPTIONS

       Policy options described here focus on programs that could either best be developed at the
state level or that could augment federal programs planned or already in progress.

   •    Provide Information.  One of the most significant barriers to the development of methane
       recovery projects is lack of information.  Current recovery systems must be demonstrated to
       show that the problems that plagued the earlier systems have been resolved. States can
       potentially disseminate information on successful methane recovery projects and provide
       training in the design, construction,  and operation of methane recovery systems.
                                                         The Southeast Regional Biomass Energy
                                                  Program (SERBEP) recently supported a
                                                  successful demonstration project on methane
                                                  recovery at a dairy farm near Raleigh, North
                                                  Carolina Methane captured from animal waste ts
                                                  a biomass fuel that can be used as a substitute
                                                  for natural gas or propane. The demonstration
                                                  project used a methane recovery technique called
                                                  lagoon digestion, which involves the construction
                                                  of a deep earthen lagoon in which animal waste Is
                                                  coflected.  A sealed cover is placed over the
                                                  lagoon to allow for the collection of methane from
                                                  the normal digestion of the waste by bacteria
                                                  The benefit of the digestion approach is that it
                                                  does not require elevated temperatures.
                                                  Furthermore, this technology displayed low
                                                  operating costs. On average, the project
                                                  produced 5000 cubic feet of gas per day, with a
                                                  methane content of 69 percent, which was used to
                                                  fuel a boiler that provides hot water for the farm's
                                                  milking parlor.
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  •     Support Research and Development.  As recovery technology improves, more farms may find it
       cost-effective to recover and utilize methane produced from livestock manure.  States may
       further the advancement of these technologies by supporting research and development
       projects.

  •     Address Institutional Barriers. Several economic barriers that limit the adoption of methane
       recovery systems are common to other small power producers, cogenerators, or other
       independent power producers.  One problem is low utility 'buy back" rates, which limit the
       value of the energy produced. In the case of methane recovery from livestock manure, low
       buy back rates may be less significant because usually the energy produced can be used to
       displace the energy purchased by the farmer from the utility.  However, if utilities were to lower
       their electricity rates in order to compete with these recovery projects, the profitability of these
       projects would be reduced; profitability is extremely sensitive to electricity rates.  States could
       evaluate the need for actions to ensure that utilities do not inappropriately discourage power
       generation for on-site use.

  •     Evaluate Existing Regulations. Some existing regulations may hinder the development of
       recovery systems. In some states, equipment used at livestock operations located  near large
       metropolitan areas must meet air emissions standards that reduce the profitability of the
       projects.  These air emission standards may not consider that these systems are being used
       to mitigate other harmful emissions. Further, adding a methane recovery system to an existing
       manure management system may require permit  modifications. The cost of applying for and
       obtaining changes in operating permits reduces the profitability of developing a recovery
       system. States could evaluate the need for modifying existing regulations that may constrain
       the wider development of recovery projects.

  •     Provide Financial Incentives.  Though methane recovery and use may be immediately
       profitable for some farms, other farms could find projects to be economically feasible  if given
       appropriate financial incentives.  For example, inadequate capital financing may limit the ability
       of farmers to purchase a recovery and utilization system; this barrier could be addressed
       through the provision of low interest loans.  A state-issued production tax credit (i.e. cents/kwh
       of electricity produced) would improve the economics of recovery projects and could
       encourage more farmers to develop projects.25

  •     Require Methane Recovery and Use.  States could require confined  livestock operations to
       recover and use methane.  However, numerous factors - such  as climate, farm layout, current
       electricity rates - may impact whether projects will be economical.  When conditions are not
       conducive to the profitable recovery and use of methane, a recovery requirement could
       impose a substantial economic burden on some farms, particularly those with the lowest
       emissions.

       5.8.2  Increase Aerobic Treatment of Livestock Manure

DESCRIPTION AND CONSIDERATIONS

       A second technical approach for reducing methane emissions from livestock manure is to
encourage aerobic treatment of livestock manure at confined livestock operations.  Normally, the
manure produced from these operations is eventually spread on land which is part of the livestock
operation. Land application rates must be matched to the carrying capacity of the soil, which is
influenced, for example, by crop needs and the seasonal schedule of the producer. Although manure
   25 The Energy Policy Act of 1992 includes a renewable energy production incentive.  Qualified renewable
energy facilities, which would include facilities producing electricity from livestock manure, will be eligible to receive
a subsidy of 1.5 cents per Kwh of electricity produced.


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is produced throughout the year, in most cases it cannot be applied to land at all times of the year,
such as when the land is wet or frozen or during the crop growing season. During these times, the
manure must be stored until it can be applied to land, which results in anaerobic conditions and
methane formation.  Alternatively, livestock manure can be composted before it is applied or sold as
an organic fertilizer.  In most cases, however, the amount of compost that can be produced greatly
exceeds the current demand.

       Increasing aerobic treatment (e.g., composting) of livestock manure, therefore, could be
achieved either by: 1) encouraging aerobic treatment of manure while it is  being stored; 2) finding
alternative uses for the manure when local application is not possible; or 3) expanding the market for
composted manure as a fertilizer.  The first option - encouraging aerobic treatment of the waste -
may not be viable in many areas because it would be in conflict with regulations that encourage
confined livestock operations to treat manure anaerobically in order to prevent air, surface and ground
water pollution. For some states, the second and third options may be worth consideration if a
sufficiently large market for the manure can be identified.

POLICY OPTIONS

  •    Provide Information. Through the Cooperative Extension Service, states may be able to
       develop information campaigns to encourage the use of aerobic manure treatment. In
       addition, states could provide manure nutrient analysis services to farmers to determine the
       nitrogen, phosphorous, and potassium content of the manure produced on an individual farm
       and, therefore, maximize manure fertilizer use.,

  •    Support Research and Development. States could investigate the potential for alternatives to
       livestock manure storage and the most efficient methods of composting manure.  Further
       information on the nutrient content of composted manure could assist in evaluating its
       potential as a complete replacement to inorganic nitrogen fertilizers and encourage its use by
       non-livestock producers. This could expand the market for composted manure and decrease
       the amount stored anaerobically.

  •    Provide Financial Incentives.  Aerobic treatment of manure  and  the transport of manure to
       other areas may not be economical for small farms that currently spread manure on a daily
       basis.  Financial incentives may be necessary to encourage the use of aerobic treatment  and
       to assist in expanding the market for composted manure fertilizer.


5.9    METHANE FROM RICE CULTIVATION

DESCRIPTION

       Methane is produced in flooded rice fields during the bacterial decomposition of organic
material. Non-flooded rice fields and deepwater floating rice fields (i.e., greater than 1  meter
floodwater depth) are not believed to produce significant quantities of methane.  Rice paddy methane
production depends on several factors in addition to water depth, including the concentration  of
nutrients and bacteria, soil temperature and pH, and the oxidation  reduction potential.26  These
factors are strongly influenced by agricultural management practices, such as the application of
organic matter which can alter the nutrient content of the soil and increase the soil temperature during
its decomposition.  Once produced, methane can escape by plant-mediated transport or diffusion or
bubbling through the water column.  In general, rice cultivation is not as large a contributor to
   26 Oxidation reduction potential in this instance refers to the ability of the oxygen in the water to react with
nutrients in the soil or water, decreasing the availability of oxygen for aerobic bacteria and increasing anaerobic
bacteria populations.


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methane emissions in the United States as in other parts of the world, due to differences in climate
and farming practices.

CONSIDERATIONS

       No federal standards exist to limit emissions of methane from rice cultivation. The Department
of Agriculture, however, recommends certain agricultural management strategies that affect rice
cultivation practices, including (under certain circumstances and particular production areas),
shortened rice field flooding periods, which can reduce methane production.  Of the six U.S. states
that produce significant quantities of rice, including Arkansas, California, Louisiana, Mississippi,
Missouri, and Texas,  none have implemented direct regulations to reduce methane emissions from
rice fields.  However, some state regulations restrict water use in agriculture, which may  in turn reduce
methane production and emissions. These regulations also serve to protect surface water and ground
water from pollution.

       Scientific uncertainty surrounds the potential to reduce methane emissions from  rice
production.  Several technical approaches including the selection of culth/ars (i.e., plant variety or
strain), nutrient management, and water regime management have been identified as potential
methods to decrease methane emissions from rice cultivation. However, the ability of these methods
to decrease emissions is based mainly on experimental data, which often conflict.

Cuttivar Selection

       The development of rice strains that produce fewer root exudates may help to limit methane
production, although researchers are uncertain about the magnitude of this effect In addition,
modem short-stemmed rice varieties have a grain-to-straw ratio that is about 50 percent higher than
traditional varieties, and therefore, produce less "wasted* organic material (i.e., rice straw that cannot
be harvested). These varieties may potentially reduce greenhouse gas emissions, because they
decrease the amount of organic material available to decompose in the soil.  Different cultivars,
however, may adversely affect the ecology of rice fields and may be more costly than existing strains.
Even if the cost of methane-reducing cultivars does not significantly differ from existing strains, rice
farmers may be unwilling to accept the costs of conversion or the  risks associated with cultivating a
different strain, such as potentially reduced yields or poorer quality or taste.

Nutrient Management

       Nutrient inputs to rice fields affect methane emissions by altering the methane production rate.
Application of nitrogen-based fertilizers, ammonium sutfate, and  urea generally reduce methane
emissions compared to application of non-commercial fertilizers. Conversely, application of organic
fertilizers, such as rice straw and animal wastes, has been found to increase methane emissions.

       Many rice growers in the U.S. practice multi-year cropping that involves plowing the crop
residue (i.e., rice straw) into the soil before planting a different crop.  This management practice,
which increases methane emissions, is fairly typical in Texas. The alternative - reducing organic
nutrient input to rice fields - may reduce methane emissions, but may also decrease rice yields. In
addition, rice straw or other organic matter that is not used to fertilize the rice field may either be
combusted, composted or landfilled, all of which produce greenhouse gas emissions.  Unlike organic
fertilizers, mineral fertilizers (such as nitrogen fertilizers) reduce methane  emissions to the atmosphere.
However, they contribute  nitrous oxide, a greenhouse gas, to the atmosphere and cost considerably
more than composted rice straw and other readily available organic waste. Section 5.10 specifically
addresses nitrous oxide emissions from fertilizer application.
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Water Management

       Only through continuous flooding do rice paddies remain sufficiently reduced (lacking in
oxygen) for methane production to occur.  As water is drained from rice fields, the oxidation reduction
potential increases and methane emissions decrease.  For example, rice cultivated under dry upland
conditions does not produce methane emissions; however, production levels may decrease using this
production method.  Thus, floodwater depth and the length of the flooding period are factors that
affect methane production.

       The typical practice in the U.S. is to cultivate rice on flooded fields. These fields are flooded at
depths of approximately 5 to 10 cm.  However, these fields are not flooded for the entire growing
season. Usually, seeds are placed into dry land with limited irrigation for approximately 30 days. The
land is then flooded for the remaining growing period.  This helps to reduce total seasonal methane
emissions.27 Federal and state water management regulations may limit the amount of water that
can be used for agriculture, indirectly limiting methane emissions.

POLICY OPTIONS

       Because the potential to reduce methane emissions in rice production is limited and scientific
uncertainty surrounds the data on the effectiveness of different methods in reducing  methane
emissions, more research may be needed before policy changes are implemented.

  •    Provide Information and Technical Assistance. State agricultural agencies and the Cooperative
       Extension Service may be able to provide information to rice growers on the  benefits of
       different cultivars, provide on-site technical assistance, develop  demonstration programs on
       cultivar use and optimal nutrient applications, and on water management regimes.

  •    Support Research and Development.  States can support research at universities, non-profit
       organizations, or directly with farmers to conduct studies that better define the impacts of
       different cultivars, nutrient, and water management practices on methane emissions.

  •    Provide Financial Incentives.  Although states do not typically get involved in  rice programs, as
       this falls under federal commodity support programs, states encourage the use of short-
       stemmed rice varieties and management practices that contribute most to reducing methane
       emissions through tax credits, direct payments, grants or loans.  Increased production  of rice
       in dryland conditions can be promoted directly through subsidies.

  •    Regulate Water Use. States can restrict the amount of water allowed to be used in rice
       production, thus decreasing the amount of methane produced.  However, requiring the use of
       dry upland methods or  limiting water use may decrease rice yields. This policy option  may be
       compatible with current state regulations that serve to protect surface water and ground water.


5.10   NITROUS OXIDE AND  OTHER GREENHOUSE GASES FROM FERTILIZER  USE

       Fertilizers, whether industrially synthesized or organic (like animal manure and leguminous
plant residue), add nitrogen to soils.  Any nitrogen not fully utilized by agricultural crops grown in
these soils undergoes natural chemical and biological transformations that can produce nitrous oxide
(N2O), a greenhouse gas.
   27 Methane emissions increase with increased water levels over the range of flooding levels typically used in
rice cultivation in the U.S.
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       Scientific knowledge regarding the precise nature and extent of nitrous oxide production and
emissions from soils is limited. Significant uncertainties exist regarding the agricultural practices, soil
properties, climatic conditions, and biogenic processes that determine how much nitrogen various
crops absorb, how much remains in soils after fertilizer application, and in what ways that remaining
nitrogen evolves into nitrous oxide emissions.  Amidst these uncertainties, the policy challenge for
reducing greenhouse gases is to determine how to manipulate the nitrogen fertilizers and the time and
manner in which these fertilizers are applied in order to minimize nitrous oxide emissions.

       In addition to helping mitigate climate change, the policies that promote reduction of nitrous
oxide emissions frequently support other state environmental and public health priorities.  For
example, in many cropping systems between 5% and 30% of the nitrogen applied can escape soils
through leaching and water runoff, in addition to producing nitrous oxide. This fugitive nitrogen often
pollutes ground water and surface water supplies.  In this context, climate change mitigation policies
aimed at reducing nitrogen losses to water coincide with many existing and proposed state initiatives
to use fertilizers more efficiently and to reduce fertilizer use in order to protect water quality.  The Iowa
Agricultural Energy Management Initiative (described in Chapter 7), which was developed from the
Iowa Consortium on Agriculture and Water Quality, is an example of a program that addresses
improvements in nitrogen fertilizer use to enhance groundwater quality and save money in the
agricultural sector, and that also decreases nitrous oxide emissions.

       Technical approaches for reducing nitrous oxide emissions from fertilizers include improving
nitrogen-use efficiency in fertilizer applications.  Improvements mean reducing excess fertilizer
application by applying only the amount crops will use, and replacing  industrially-fixed nitrogen
fertilizers with renewable nitrogen source fertilizers.

       5.10.1 Improve Nitrogen-Use Efficiency in  Fertilizer Applications

DESCRIPTION

       At many sites, more fertilizer is applied than can be effectively  used by crops.  Further, poor
fertilization timing or placement often leads to additional nitrogen loss or unavailability to the plant.
One major reason for the application of excess nitrogen in the fields is the lack of simple field testing
for nitrogen.  Also, many farmers believe that some 'excess* may be necessary to ensure peak
production.  This is because precise crop needs are not always known, and weather and climatic
conditions that affect crop growth and nitrogen requirements are unpredictable. For these reasons,
many farmers apply additional fertilizer to ensure crops have the nutrients they need.

       Matching fertilizer formulation and application more precisely to the uptake  needs and
capacity of crops can improve nitrogen-use efficiency. Thus, matching can reduce nitrous oxide
emissions by decreasing overall fertilizer consumption and by minimizing the quantity of nitrogen left
in soils or sacrificed to water leaching and runoff. While the direct relationship between fertilizer
application rates and nitrous oxide emissions is not well understood, current estimates suggest that
better fertilization practices could  reduce nitrogen fertilizer use by as much as 20 percent with low risk
of yield penalty and with possible input-cost savings  to farmers.  However, these estimates assume an
ability to project field-by-field and  crop-by-crop nitrogen needs that probably exceeds existing
extension, testing, and management capabilities.  This highlights the primary need for further research
and institutional development in this area.

CONSIDERATIONS

       Seven fertilization management approaches and three specific fertilizer technologies offer
opportunities for enhancing  nitrogen-use efficiency. Several may be integrated into alternative
agricultural systems that incorporate lower fertilizer usage and also achieve energy savings by
reducing the need for plowing and other energy intensive practices.
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Management approaches

  •    Improve fertilizer application rate.  Matching fertilizer application with specific crop
       requirements would reduce excess fertilization, thus producing immediate greenhouse gas
       reduction benefits. Typical fertilizer application rates vary depending upon crop type, soil
       conditions, fertilizer pricing, and environmental policies.  Better record-keeping to assess
       actual yields on a field by field basis can help to fine-tune fertilizer rates that are both
       economically and environmentally sound.  Soil testing, visual inspection, or plant tissue testing
       could allow farmers to apply nutrients more closely following crop requirements, rather than
       following broad guidelines that often recommend excessive fertilization. However, efforts to
       provide adequate nutrition to crops may be hindered by inadequate understanding and
       forecasting of factors that influence nutrient storage, cycling, accessibility, uptake, and use by
       crops during the growing season.

  •    Improve the frequency of soil testing.  Regular soil testing (e.g., annual testing of all fields in
       production) could decrease fertilization use.  Because this process can be expensive and time
       consuming, farmers may test soil only every two to five years. Regular soil testing to improve
       nitrogen management would  involve new types of soil and tissue testing, such as the pre-
       sidedress (late spring) soil tests being calibrated in most corn belt states. Innovative
       technologies can assist in improving this process.  For example, in Kentucky an experimental
       soil testing and fertilization  applicator called the 'Soil Doctor tests soil nitrogen needs and
       automatically adjusts the fertilizer application rate accordingly. While the initial capital output
       for a machine like this could be high, it has been shown to decrease application rates by as
       much as 41 pounds  per acre, a potentially significant savings to farmers.

  •    Improve timing of fertilizer application. Limited studies suggest that timing of application
       affects nitrous oxide  emissions. For example, on a broad scale, emissions from fertilizer
       applied in the fall exceed those from fertilizer applied in the spring. With better understanding
       of these processes and their  implications for crop production, fertilizer timing could be
       adjusted to reduce greenhouse gas emissions.

  •    Improve placement of fertilizer. Some surface placement and broadcasting of fertilizers results
       in excess or overlapping fertilizer application.  Deep rather than surficial placement of fertilizers
       can  curb nitrogen loss, though this may not be compatible with no-till production practices. In
       these practices, irrigation after fertilization could incorporate the fertilizer more deeply into the
       soil.

  •    Switch to fertilizer compounds with lower nitrogen content. Although nitrous oxide production
       rates of different fertilizers in relation to their benefits for various crops are highly uncertain,
       switching from fertilizers with  high nitrogen content, especially anhydrous ammonia, to
       fertilizers with  lower nitrogen content can reduce emissions, unless farmers increase fertilizer
       application to maintain the previous nitrogen levels. Preliminary data on nitrogen content and
       nitrous oxide emissions for various fertilizers are presented in the appendices to EPA's Phase I
       document, States Workbook:  Methodologies for Estimating Greenhouse Gas Emissions.

  •    Improve crop management for more complete nitrogen uptake.  Crop management techniques
       can supplement the  improved fertilizer application techniques described above.  For example,
       com is susceptible to high rates of soil erosion because it is a row crop.   After the harvest  of
       com, substantial amounts of  nitrogen generally remain in the soil. The surplus nitrogen can
       be captured by inter-cropping with a grain crop such as rye, which could then be plowed
       back into the soil.  More information on the use of organic fertilizers is presented in section
       5.10.2 below.
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  •    Conservation tillage. Alternative land tillage systems, such as low-till, no-till, and ridge-till
       reduce soil losses and associated loss of nitrogen contained in the soil. Tillage practices also
       affect the efficiency with which the fertilizer can be applied and incorporated into the soil.

Technology approaches

  •    Use nitrification inhibitors. Nitrification and urease inhibitors are fertilizer additives that can
       increase nitrogen-use efficiency by decreasing nitrogen loss through volatilization.  Nitrification
       inhibitors can increase efficiency by around 30% in some situations.

  •    Use fertilizer coatings.  Limiting or retarding fertilizer water solubility through supergranulation
       or by coating a fertilizer pellet with sulphur can double efficiency, depending on the
       application.

  •    Reduce nitrogen release rate in fertilizers.  Techniques that limit fertilizer availability, such as
       slow-release or timed-release fertilizers, improve nitrogen-use efficiency by releasing nitrogen
       at rates that approximate crop uptake.  This reduces the amount of excess nitrogen available
       at any given time for loss from the soil system. In addition, slow-release fertilizer can potentially
       decrease the number of applications, resulting in an energy and cost savings.

POLICY OPTIONS

       Farmers may pursue proven and familiar fertilization practices without understanding the
negative environmental impact of excess nitrogen application or potential benefits of reducing
commercial nitrogen use.  Concurrently, scientific and technological uncertainty inhibits program
development in this field.  In this sector, policy options are generally oriented around these two
barriers to nitrous oxide emission reduction.

       The types of policy options listed  below can be combined and integrated in a variety of ways
to control nitrous oxide emissions.  For example, educational and agricultural support programs for
farmers in combination with financial or regulatory incentives applied to specific fertilizers may be an
effective comprehensive mechanism for encouraging better nitrogen-use efficiency.

   •    Provide Information. Through educational programs or farming and technology demonstration
       projects, states can communicate to farmers critical information on fertilizer use and farm
       management practices.  Farmers' lack of basic information on nitrogen processes in soils is
       frequently cited as a major barrier to nitrous oxide reductions.  Education programs can target
       efficient fertilizer use, with particular attention to appropriate application rates based on
       realistic yield expectation, monitoring of nitrogen levels, and effective application techniques.
       These programs help address barriers posed by the 'insurance value* to farmers of high
       fertilizer use levels, as well as by farmer habit and tradition. However, states should be
       cautious about advocating farming techniques and fertilization practices that are surrounded
       by high levels of scientific uncertainty.

   •    Provide Institutional Support.  The Extension Service is an additional means of providing
       adequate and accessible technical capability for determining precise fertilizer needs by crop
       type, soil characteristics, moisture, weather, and  Other variables. For example, states could
       encourage the use of the soil testing services provided through land grant colleges and
       extension services by decreasing fees, increasing farmer awareness  of the programs, or
       increasing farmer  awareness of fertilization cost savings associated with annual soil testing.
       Again, however, certainty regarding farming practices to reduce greenhouse gas emissions
       and maintain crop productivity is limited at the current time.

   •    Support Research and Development. Little field research is being conducted on nitrous oxide
        emissions from fertilizers in the United States.  Many of the technological approaches
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       presented above have not been tested extensively. Research in this area is generally
       expensive because it is labor- and/or equipment-intensive.

  •    Provide Financial Incentives. Low prices for fertilizers, especially in states where fertilizer
       subsidies exist, cause excess consumption and nitrogen application.  States may be able to
       revise fertilizer and crop subsidy structures to curb the use of nitrogen intensive fertilizers or
       the growth of nitrogen intensive crops.  Similarly, state programs may levy taxes or other price
       increases to encourage farmers to better monitor and reduce nitrogen application. A few
       states have also imposed fees on fertilizers to support research and education programs,
       although these fees are not intended to be nor are they considered large enough to directly
       affect fertilizer demand.  This type of policy may conflict with some state policy goals (such as
       support of the agricultural sector), while complementing others (like surface and ground water
       protection).

  •    Regulate Fertilizer Use and Production.  Regulating fertilizer application rates and practices is
       difficult due to the lack of substantial evidence regarding the greenhouse gas benefits and to
       side effects on crop production. These uncertainties could increase political sensitivities
       surrounding this issue. In addition, difficulties surround widespread enforcement of the
       regulation at farm sites.  However, regulating nitrogen content in synthetic fertilizers may aid
       reduction of nitrogen consumption, particularly if accompanied by  education and information
       programs for farmers.

       5.10.2  Replace Industrially-Fixed Nitrogen Based Fertilizers with Renewable Nitrogen
               Source Fertilizers

DESCRIPTION

       Animal manures, as discussed in Section 5.12, and leguminous crops are potential organic
nitrogen fertilizers.  Traditional crop rotation, dual-cropping or inter-cropping, for example, involves
rotating lands under cultivation with legumes (such as alfalfa and soybeans) in order to store nitrogen
in soils, as an alternative to synthetic fertilizer use. Current data suggest that direct nitrous  oxide
emissions from  organic process uses may be as high or higher than from  synthetic fertilizers. In an
overall greenhouse gas context, however, replacing industrially-fixed nitrogen based fertilizers with
renewable nitrogen source fertilizers may still help reduce comprehensive  greenhouse gas emissions
in two ways:

  1)    Organic fertilizers can be used to replace synthetic nitrogen fertilizers where both are currently
       applied.  In current agricultural systems, farmers frequently do not consider the nitrogen
       content of the organic fertilizers they apply. In these situations, they add additional synthetic
       fertilizers, resulting in excess levels of nitrogen in soils.  Nitrous oxide reductions would occur
       if farmers took full advantage of organic fertilizers and only used synthetic fertilizers when
       needed as a supplement. To adhere to this process, farmers must know and understand the
       nitrogen value of the organic fertilizers. Benefits from this approach would accrue immediately
       upon reduction of excessive nitrogen application in soils.

  2)    Using organic fertilizers can conserve significant amounts of energy that would have gone into
       synthetic fertilizer production.  Aside from direct nitrous oxide emissions,  energy savings from
       reducing production of high-energy industrially-fixed nitrogen based fertilizers will  result  in
       decreased greenhouse gas emissions.  The 1991  report of the Missouri Commission on Global
       Climate Change & Ozone Depletion suggested that it would be 'prudent to use livestock
       wastes as fertilizer rather than incurring the costs of waste treatment and using additional
       energy to produce chemical fertilizers and causing greenhouse gas emissions.' Quantification
       of nitrous oxide emissions from organic fertilizers per unit of nitrogen supplied to the soil is
       required to make this determination, as current estimates of nitrous oxide emissions from
       these sources cover a wide range. The emission reduction  benefits from this type of program
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may be difficult to quantify, and would not accrue until currently active synthetic fertilizer plants
ceased production.
                                         Exhibit 5-12: Energy Recovery from a Dairy Operation
                                         in Missouri
CONSIDERATIONS

       The most likely renewable fertilizer for
replacing synthetic fertilizer is manure. This may
cause shortages of manure in areas where
manures are productively applied to other uses,
while it may help alleviate manure and waste
management problems in other locations.
Economical ways or incentives are needed to
distribute manure to areas where it can be
beneficially used.  Such programs have
sometimes been discussed as  manure brokering,
arranging exchanges among farms to transport
the excess manure to a farm that can
advantageously and economically utilize it as a
nutrient source. Similarly, in  programs where
farmers may come to rely on organic fertilizer
use, it would be necessary to guarantee a
constant and dependable fertilizer supply from
the renewable sources.

       The scientific uncertainty regarding
nitrogen uptake from renewable fertilizer sources
also makes it difficult to develop renewable
fertilizer programs. Programs that both help
farmers accurately assess the needs of their
crops and provide reliable information on the
nitrogen replacement value of renewable
fertilizers seem most promising.

        Broad guidelines, based on the solids
content and source of manure, have been
designed in Wisconsin and Michigan to
determine the nitrogen, phosphorous,  and
potassium levels of manure.  Using these
guidelines in experiments in Minnesota, manure
has been shown to be a sufficient fertilizer for
alfalfa.  Likewise,  some dairy farmers in Georgia
have used manure for several years to produce
both com and wheat.  In addition, experiments in
Minnesota have demonstrated that the use of
either manure or leguminous crops, in rotation
and plowed under, can increase the dry matter content of the crops grown. This could be
advantageous to dairy and cattle farmers, because increases in dry matter content can increase feed
efficiency.

POLICY OPTIONS

        Potential  policy mechanisms for promoting the use of renewable fertilizers are similar to those
presented in Section 5.10.1  above. The same policy approaches, especially research programs and
farmer education and extension services, could be crafted to encourage a switch from industrially
based fertilizers to organic ones.  For example, improved methods for determining the fertilization
                                                   The Barry County Extension Service
                                            recently completed a demonstration project that
                                            addressed energy recovery from a dairy manure
                                            containment system, with the aid of a matching
                                            grant from the Missouri Department of Natural
                                            Resources1 Division of Energy. The project
                                            demonstrated that the nutrient fertilizer content
                                            from animal waste could be recycled by water
                                            hyacinths. In addition to cleaning the waste of
                                            bacterial organisms and potentially toxic
                                            concentrations of nitrates and phosphates, the
                                            program provides a valuable forage crop for cattle
                                            that can be used in the dairy operation.
                                            Furthermore, by using the waste for fertilizer, a
                                            reduction in greenhouse gas emissions
                                            associated with the production of commercial
                                            fertilizer was achieved

                                                   The hyacinths were grown in two
                                            constructed basins that were filled with the
                                            manure from an animal waste lagoon built to
                                            handle a 120-cow dairy herd. To maximize plant
                                            growth, water from the lagoon was added to
                                            maintain the water  level in the basins. A flush
                                            system was installed to clean the bam and
                                            holding areas, thereby reducing labor costs
                                            associated with hauling the manure.

                                                   The green plants were fed to growing
                                            heifers and were totally consumed. Energy
                                            savings were significant. Assuming 23.6 gallons
                                            of diesel fuel are required to produce 100 pounds
                                            of nutrient nitrogen and that diesel fuel costs $1.10
                                            per gallon, the 23,920 pounds of nitrogen
                                            produced from the basins represent a net energy
                                            savings of 5,645 gallons of diesel, for a total of
                                            $6,209 annually. Moreover, annual labor savings
                                            were an additional  $2,700.
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quality and the application of manure could be developed.  Similarly, broad subsidy or tax programs,
or regulation of fertilizer production could provide additional incentives for renewable fertilizer use.


5.11   EMISSIONS ASSOCIATED WITH FORESTED LANDS

       Trees and other vegetation remove, or sequester, carbon dioxide from the atmosphere as they
grow, storing it as carbon in trunks, limbs, roots, and soil.  Through this process, forests provide an
important terrestrial 'sink* for carbon dioxide. Furthermore, trees and wood products are relatively
long-lived structures that store carbon, which makes up about half the dry weight of wood, rather than
allowing it to be released back to the atmosphere. Forest-related land use changes can affect the
concentration of greenhouse gases in a number of ways.

  •    Mechanical Forest Clearing results in delayed  emissions of CO2 and other by-products of
       decay, such as methane.  The magnitude and timing  of these emissions depend on the fate of
       the biomass (e.g., whether it is left on-site to decay or used for longer-lived wood products).

  •    Forest Clearing by Burning results in immediate emissions of CO2 and other by-products of
       combustion, such as CO, CH4, and  N2O.  While CO2 will later be sequestered during
       regrowth, emissions of these other combustion by-products (which can  include N2O and
       methane) represent a net increase to the atmosphere.

  •    Forest Regeneration will, over time, result in uptake of CO2.  The net impact of forest clearing
       on emissions depends on whether the forest regrows to its original level of biomass density
       (i.e., the quantity of biomass per unit of land area).

  •    Conversion of Forests to Other Land Uses can result in net emissions of CO2 because land
       uses such  as crops, pastures, or suburban development sequester and store less carbon than
       do forests.

  •    Disturbance of Forest Soils can lead to CO2 emissions as organic material in soils is oxidized.
   ',    Losses of nitrogen, possibly in the form of N2O,  are also thought to occur.  Some data
       indicate that conversion of forest land to other vegetative uses diminishes the capacity of soils
       to absorb methane, thus potentially increasing atmospheric methane levels.

       Approximately 59 percent  of timberland in the U.S.  is  owned by  nonindustrial private forest
owiers, 27 percent is publicly owned, and 14 percent is owned by the forest industry (RPAA,
1990).28  Much of the publicly owned forest land is controlled federally through the U.S. Forest
Service (USFS), the National Park  Service, the Bureau of Land Management (BLM)  and the
Department of Defense. While the ability of states to affect the use of federal forest land may be
limited, states can  play a key role  in directing the use of both privately owned and state owned forests
witiin their borders. Opportunities for state action described  in this section are not mutually exclusive
and frequently offer other significant benefits, such as increased timber productivity, reduced soil
erosion, improved water quality, increased biodiversity, improved fish and wildlife habitat, and
recreational opportunities.

       This section presents five  basic technical approaches to controlling emissions of greenhouse
gases associated with forested land.  The first approach addresses maintaining the carbon storage
  ; 2ฎ Two-thirds of the Nation's forests (490 million acres) are classified as timberlands. Timberlands are defined
asforests capable of producing 20 cubic feet per acre of industrial wood annually and not reserved from timber
hawest.  An additional 36 million acres is reserved from harvesting and is managed as parks or wilderness.  Total
fovst land in the U.S. for 1992 was approximately 737 million acres, of which the USFS owned 19 percent, the BLM
5 percent, other federal agencies 18 percent, and non-federal entities 66 percent.


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capacity of existing forested lands. The second addresses opportunities for enhancing the long-term
potential to sequester carbon in existing forests through increases in productivity.  The third and
fourth suggest that climate change issues be integrated into state strategies for fire management and
pest control, respectively.  The final approach addresses policies that affect the demand for forest
products.

        5.11.1  Maintain Carbon Storage Capacity of Existing Forests

DESCRIPTION

        Americans reforested 2.9 million acres of public and private forest land in 1991 and a
comparable number of acres  were permitted to regenerate naturally (EQ, 1993). Because of forest
conversion to other uses, however, total private forest lands continue to decline by about half a million
acres per year. Conversion to uses with lower biomass densities results in a net increase of
greenhouse gas emissions, since the carbon stored in vegetation and soil is greater on forested lands
than in  most alternative land uses (such as crops, pastures, commercial and suburban development).
Therefore, maintaining existing forest and timberland can significantly contribute to controlling net
greenhouse gas emissions.

        State policy-makers may be able to maintain existing forests to minimize greenhouse gas
emissions by:

  •     Slowing or stopping the conversion of forested lands to less-biomass dense, non-forest land
        uses;

  •     Ensuring, for forest lands where timber harvests do occur, that replanting occurs to replace
        the carbon sequestration potential of the harvested forest;29 and

  •     Ensuring, for extremely carbon-dense forests (e.g., some old growth forests) where replanting
        may not offer the same level of carbon-density, that harvesting does not occur and the land is
        preserved as a set-aside.

        In addition, while there is considerable uncertainty about the net effects of logging on long-
term soil carbon emissions, logging can cause  soil erosion which may contaminate water supplies,
disrupt  wildlife habitat, and deplete aesthetic value of the forest.  Because of these concerns and the
possible climate change benefits, states may find it desirable to undertake policies to minimize  soil
erosion in existing forests.

CONSIDERATIONS

        Whether maintaining a specific forest ultimately reduces net emissions  of carbon depends on
the potential for change in its biomass density.   Halting conversion of forests to non-forest land uses
almost certainly will provide significant benefits  because alternative land uses store considerably less
carbon  than do forests.

        It is important to remember, however, that if over the long run harvested lands are replanted or
allowed to regrow with trees of similar carbon content and to a similar biomass density, net cumulative
emissions may be close to zero. Determining the  emissions reduction value of policies targeted at
timber harvesting on lands that remain dedicated to forestry therefore requires  a case-by-case
assessment.
    29  Because of the potential to offset carbon emissions from any source, opportunities to create newly forested
areas are described in Chapter 6 as a cross-cutting policy option.
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       The carbon benefits of maintaining existing forests will vary by region and species.  For
example, forests of the Pacific Coast states, comprised principally of Douglas fir, contain on average
102 tons of carbon per acre, while forests of the South Central region of the country, primarily oak-
hickory forests, contain an average of 58 tons per acre (Birdsey, 1991). In addition, state policy-
makers will need to characterize the process of reforestation (either natural or assisted) and assess
whether new growth timber will offer the same carbon sequestration capacity as the existing forest.

       Halting all timber harvests in certain forests, such as old growth forests, may yield carbon
reduction benefits because these forests tend to have greater biomass densities and therefore store
greater amounts of carbon than do the younger, secondary, forests that may replace them. The
effectiveness of halting old growth timber harvesting in lieu of converting old-growth to secondary
growth, in terms of carbon storage potential is, however, subject to some debate (Harmon, et al.,
1990). Further, the uses for harvested material may themselves provide a carbon pool, as in the case
of long-lived wood products, such as furniture or construction.

       State policy-makers should  also consider that the net change in the carbon pool over time
depends on the extent to which reduced harvests are offset by increased  harvests elsewhere.  For
example, even if net carbon dioxide emissions from U.S. forest land may be reduced by harvesting
restrictions, global carbon dioxide emissions from logging may remain the same or perhaps even
increase  if the demand for wood products does not change. Policy-makers should carefully weigh
these issues when evaluating alternative  policy options.

       As  noted above, efforts to control soil erosion may yield multiple environmental benefits.
Federal water pollution control  statutes have been a major impetus behind state efforts to control
timber harvesting activities near streams. State controls range from voluntary  compliance with
guidelines developed as 'best management practices' to mandatory legal  restrictions.  For example,
states may require that roads be constructed away from stream banks, that cross drainage be
provided for roads with significant slope, that erosion control bars be installed throughout a site, and
that roads or adjacent areas be seeded after harvesting.  In addition, since clear cutting is associated
with significantly more soil erosion than selective harvesting, some states have restricted its use.

       Reduced timber  harvesting, reforestation requirements, and forest management standards
may create unwanted economic impacts.  Without a decrease in demand for forest products,  harvest
restrictions may result in higher wood prices and lower levels of production. Given this potential
consequence,  states in which forestry is a leading industry are unlikely to  have the political support to
significantly restrict harvesting, though less costly forest management measures may find support. In
addition,  harvest restrictions may reduce revenues to state and local governments from lease
payments and taxes on timber production.

POUCY OPTIONS

  •    Support Research and Development. States may support or conduct forest carbon life cycle
       analysis to resolve the  debate on carbon benefits of forest set-asides and on the change in
       carbon sequestration capacity associated with harvesting and subsequent reforestation.  Such
       studies could be conducted on a regional basis, considering species composition, and
       physiographic and climatic features of the region, as well as economic issues, where
       appropriate.

  •    Provide Financial Incentives. States can offer private owners of forest  land incentives to keep
       their lands out of production, to employ best management practices, or to encourage prompt
       efforts at reforestation.30  In North Dakota, the Woodland Tax law provides tax relief for
       landowners who agree to prohibit clear cutting, grazing, burning, and  destructive cutting on
   30 Chapter 6 provides additional information on options for encouraging the planting of trees.
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       woodlands. Similarly, the State of Missouri provides tax relief to land owners who agree to
       maintain nrnnprtv ac fnroct rrnnlanH
maintain property as forest cropland.
  •    Control Development. Some states have issued tradeable property allowances for privately
       owned forest areas that they wish to preserve.  For example, New Jersey has been successful
       in capping development in the Pine Barrens through this type of system (Task, 1991).  In
       addition, state and local governments may be able to use their land use planning authorities
       to restrict the conversion of forested lands to other land uses.  States could also establish a
       fund for forest land purchase and subsequent set-asides.

  •    Promulgate Regulations. States may limit the amount of timber that may be removed from a
       given site, specify logging practices, or impose reforestation and best management
       requirements. States can dp so either with a permit system or as part of lease provisions for
       timber harvests on public lands.  States could also require that least cost planning that
       incorporates environmental benefits be conducted for timber harvests on state  lands.

  •    Monitor Forests.  Some states monitor private industry implementation of best management
       practices, particularly at timber stands near streams. Florida monitors these harvests by air,
       targeting counties where foresters fail to use best management practices for increased
       technical assistance.

  •    Address Institutional Barriers. States should recognize that, in areas where local economies
       are heavily dependent on timber production, state and local policy-makers often exert
       significant pressure on field managers of federal forest lands to maintain harvests, perhaps at
       unsustainable levels.  States may wish to  consider whether such pressures might undermine
       the goals of their climate change policies.

       5.11.2 Improve Productivity of Existing  Forest Lands

DESCRIPTION

       By increasing the productivity of forest species, demand for forest products could be met with
fewer trees extracted, less carbon released to the atmosphere, and potentially more carbon
sequestered.  Management approaches that can be used to improve timber stand productivity and
carbon sequestration include: thinning trees to decrease competition and stocking additional trees to
achieve optimal forest density, planting or replanting unstocked timberland,  and enhancing planting
sites by providing drainage and/or adding fertilizer. The USFS estimates that if current commercial
forests were fully stocked, their net annual growth could increase by about 65 percent.  These
techniques have been extensively researched and are readily available.

       In addition, the use of improved seed stock from cross-breeding or genetic manipulation can
enhance  productivity. The USFS credits genetic improvements in seed stock,  achieved primarily
through plant breeding and silvicultural techniques, with substantial increases  in annual tree growth in
southern conifers.

       Wood utilization technology is also being  developed by the forest industry  and the federal
government to meet the demand for wood products with low value, previously underutilized timber.
Doing so may mean that less wood residue  is left on the forest floor or discarded at the mill to decay.
The carbon benefits derived from improved wood utilization depend upon the degree to which such
utilization allows for reduced harvests of virgin timber.

CONSIDERATIONS

       Several federal and state programs encourage improved forest management. The principal
federal programs are the Cooperative Forestry Assistance Program and the Federal Incentives
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Program (PIP). The Cooperative Forestry Assistance Act, passed by Congress in 1978, authorizes
federal financial and technical assistance to state forestry agencies for nursery production and tree
improvement programs, reforestation and timber stand improvement activities on nonfederal lands,
protection and improvement of watersheds, and programs to provide technical assistance to private
landowners and others.

       PIP authorizes cost-share payments for reforestation and timber stand improvement, site
preparation for natural regeneration, and firebreak construction.  PIP is jointly administered by the U.S.
Forest Service and the Agricultural Stabilization and Conservation Service within the U.S. Department
of Agriculture.  A number of states also have cost share programs similar to PIP.  In addition, the
Cooperative Extension Service has traditionally been the primary channel for disseminating new
research findings to forestry professionals and landowners.

       While public timberiand is generally intensively managed, most nonindustrial timberland is not
Various studies identify a number of reasons why nonindustrial timberland  owners may not manage
their forests for lower productivity. First, many landowners are not aware of what can be done to
improve forest growth. Second, among those who are aware of the opportunities, many may be
unwilling to undertake projects with a long payback period or relatively modest rates of return. Third,
many lack the up-front capital needed to invest in a crop that, although profitable,  may not generate
income for 10 to 15 years.  Additionally, landowners may resist investing in improving their forested
land because of the low financial liquidity of young stands and an inability  to use future forest values
as collateral.  Last, some landowners use their timberland for other purposes, such as recreation,
which do not require high productivity.

       Not all timber stand improvement practices support the goal of reducing greenhouse gas
emissions or other environmental goals. For example, increased use of nitrogen-based fertilizer in
forests could increase direct emissions of nitrous oxide (a greenhouse gas), cause ground and
surface water contamination from its application, produce carbon dioxide emissions from its
manufacture, and lead to soil methane emissions, by  slowing the activity of methane consuming
bacteria acting at the soil surface. Intensive management disturbs forest soil which may increase soil
erosion and  thus reduce water quality. Also, methods such  as stand thinning expose the forest floor
to more light, increasing soil surface temperature and accelerating decomposition  which liberates
carbon.

       In contrast to timber stand improvement techniques, some seed stock improvement
techniques are currently unavailable for widespread use. For example, while cross-breeding is widely
used, genetic manipulation for tree improvement is still in its infancy.  Like  certain stand improvement
techniques, some uses of genetically improved seed stock may also work  against  the goal of
increasing carbon sequestration and storage. Monoculture plantings, for example, lack biodiversity
and may be more susceptible to factors, such as pestilence and disease, that reduce forest health
and long term carbon storage potential.

POLICY OPTIONS

  •     Provide Information and Technical Assistance.  States may disseminate information on the
        multiple benefits  of improved productivity in conjunction with the Cooperative Extension
       Service.  State foresters could act as the clearinghouse for new developments in timber stand
        and  tree improvement techniques or provide direct technical assistance to private landowners
        on how to manage their forests to achieve a variety of objectives.  Presently, some states  have
        initiated forest management and seed stock improvement demonstration projects.

  •     Support Research and Development.  States could support research laboratories for research
        and  development in stand improvement techniques,  tree breeding  techniques, and seed
        stock, that would be particularly appropriate for use  in the state and private forests within their
       jurisdictions.
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 •     Provide Financial Incentives.  States could also provide tax incentives to private landowners
       and forest industry to improve productivity through timber stocking or other methods. Direct
       payments, tax incentives, and loans could be used to provide encouragement to nonindustrial
       owners of private timberlands to improve forest management and breeding techniques,  or to
       encourage the testing and use of new seed stock. Some states may be able to implement
       cost-sharing programs modeled after FIP.

       5.11.3 Integrate Climate Change Concerns into Fire Management Policies

DESCRIPTION

       Carbon stored in biomass is released upon combustion during forest fire.  Soil carbon is
liberated both during and after fire disturbance.  Some of the forest carbon lost is recaptured during
the rapid regeneration of plants following wildfire.  However, the direct and post-fire soil carbon
emissions from wildfire are thought to outweigh the carbon sequestered by regrowth. Wildfire burned
more than 5 million acres of U.S. forest land in 1990, of which forty-five percent of this land was state
and privately-owned forests  (USDA, 1992).

       A state's fire management strategy is likely to address multiple concerns in addition to the
potential for carbon emissions.  Such concerns include protection of life and property, conservation of
valuable timber, preservation of species habitat, air quality issues, and maintenance of recreational
areas, as well as a countervailing concern that wildfire can serve an important ecological benefit by
clearing the land of dead and diseased vegetation and allowing opportunities for new growth.
Because of the significance  and importance of these other considerations, it is suggested here only
that the impact of forest fires on climate change be considered when developing state fire
management policies.

CONSIDERATIONS

        Two principal fire management strategies can be employed to reduce carbon emissions from
fire, including:

  •    Active fire suppression - which halts direct carbon emissions.  Some  research, however,
       suggests that fire suppression results in an accumulation of dead and dying timber on the
       forest floor and a greater fire risk. Fire management by suppression may also affect species
       composition,  particularly of fire adapted forest communities.

  •    Controlled or 'prescribed" burning - which contributes to direct carbon emissions in the short
       term, but reduces fuel accumulated on the forest floor and may prevent or lessen the extent
       and intensity of future wildfires.  Prescribed burning also fosters goals to improve wildlife
       habitat, and eradicate forest disease and pests.

       More research on fire management is required to determine which strategy or combination of
strategies is best for minimizing  carbon emissions over the long term.  Some consideration must be
given to the fact  that fires, in addition to liberating carbon, also liberate particulates, challenging
measures to improve air quality. States may want to consider the climate, physiography, forest
species composition, and air quality within their jurisdictions to assess the optimal fire management
strategy.

POLICY OPTIONS

  •    Support Research and Development. States could undertake studies of fire patterns in forests
       in their jurisdictions to assess strategies for optimizing carbon storage in coordination with
       other forest management goals.
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  •    Inter-Agency Cooperation. State policy-makers responsible for climate change issues may
       work with fire officials to ensure that climate change issues are reflected in fire management
       decisions.

       5.11.4 Integrate. Climate Change Concerns into Pest Management Policies

DESCRIPTION

       Forest insects and diseases attack tree foliage, bark, and woody biomass, eventually killing
trees. Downed trees are decomposed by microorganisms and in the process  biomass carbon is
eventually returned to the atmosphere as either carbon dioxide or methane. Because of the threat to
valuable timber and to agricultural operations, virtually all states already have some form of pest
management program.  Because minimizing the impact of pests and diseases on existing forest land
helps enhance carbon storage potential as well as reduce emissions from biomass decay, it may
prove useful to integrate climate change concerns into pest management policies.

CONSIDERATIONS

       Several methods can be used to check the development or spread of forest pests and
disease.  Prescribed fire, chemical controls, biological controls, and salvage clearing have  all been
used successfully in forest ecosystems.  Although they contribute to reducing forest losses, each of
these controls may have long term impacts on the integrity of the ecosystem.  For some infestations,
none of these control methods is successful.  More research is required to find appropriate control
methods for unmanageable forest pests and disease.

       The Forest Health Monitoring Program, jointly administered by the USFS, the Bureau of Land
Management, and EPA, provides assistance to state foresters in monitoring disease and insect
infestation in state forests.  In addition, most states routinely monitor forest health and provide
assistance to private landowners and state land managers for the control of pests, such as training on
tree health and on the effects of environmental stress on trees.

POLICY OPTIONS

       Pest management policies must be tailored to the specific species composition, climatic, and
geographic conditions of the forest in which they are implemented.  Policy options in this area include
the following:

  •     Provide Information.  Many states work jointly with the Cooperative Extension Service to
       provide information to private landowners on methods to prevent and reduce forest pestilence
       and disease. In addition, forest health demonstration projects may be sponsored by some
       states. States may also supply pest and disease resistant seed stock  to landowners.

  •     Provide Financial Incentives. States may help develop a market for timber salvaged from
       private forests and provide incentives for monitoring pest incidence and downed timber on
       forest lands.

       5.11.5 Institute Policies to Affect Demand for Forest Products

       States may be able to reduce  emissions associated with forested lands by pursuing policies
that do not directly affect forest land but that instead focus on the demand for forest products. This
section addresses three options for implementing this approach. The first addresses opportunities to
improve the efficiency of wood burning to reduce the demand for fuelwood. The second focuses on
policies to encourage the use of long lived durable wood products.  The third addresses recycling of
paper products to reduce demand for timber.
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Improve Wood Burning Efficiency

DESCRIPTION AND CONSIDERATIONS

       Wood can be used as a direct source of heat for homes and small buildings or as a source of
electric power. In addition to producing carbon dioxide, wood combustion produces patticulates,
nitrous oxides, sulfur dioxide, and carbon monoxide.  Improvements in wood combustion efficiency
can reduce fuelwood consumption and decrease carbon dioxide emissions, emissions of other
pollutants, and ash accumulation. For large scale wood combustion facilities, emissions of non-
carbon pollutants can be mitigated by a combination of improved combustion efficiency and air
pollution control devices.

POLICY OPTIONS

       States can employ several policies to encourage more efficient wood burning.  These include
the following:

  •     Provide Information and Education. States may educate residents and businesses on
       technologies available to increase wood combustion efficiency.

  •     Support Research and Development.  New technologies, such as high efficiency wood stoves
       for home heating, combust fuelwood more completely and reduce fuelwood consumption
       relative to less efficient wood stoves.  States can support the development of wood
       combustion efficiency technology for both residential and commercial users of fuelwood.

  •     Promulgate Regulations. States may establish technology-based standards for wood burning
       stoves. Alternatively, states may restrict fuel consumption or limit allowable pollutant
       emissions in order to control greenhouse gas emissions from wood burning and to encourage
       improvements in wood burning technology.  For example, for large scale wood combustion
       facilities that produce more than  1 million Btu per hour, New York State requires air permits
       that limit the allowable emissions for each pollutant, including carbon dioxide.


Encourage the Use of Durable Wood Products

DESCRIPTION

       The potential for forests and forest products to absorb and store carbon dioxide can be
expanded by increasing the use of timber products as construction materials, furniture, and other
durable wood products, which continue to store the wood carbon after harvest.  Carbon contained in
wood products may remain for several decades before returning to the atmosphere through
decomposition or burning. Some research indicates that the average life and, therefore, duration of
carbon storage for certain wood construction materials is approximately  70 years (Row and Phelps,
1991). Particularly if the timber harvest used for these products comes from afforested or reforested
lands, rather than depleting existing stands, the aggregate carbon pool may be expanded.  Switching
from non-renewable construction products - many of which are energy intensive in their production,
such  as steel - can also reduce carbon dioxide emissions by reducing energy consumption.

CONSIDERATIONS

       Timber is used for a variety  of products, including lumber, structural and non-structural panels,
pulpwood, silvichemicals, fuelwood, and other miscellaneous industrial products, such as poles and
piling, posts, and mine timber.  A large portion of the total timber harvest, about 38 percent, is used to
produce lumber,  and 27 percent is used in pulp  (including paper) products.  U.S. consumption of
timber has increased steadily over the past three decades, from about 12 billion cubic feet in the early
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1950s to 20 billion cubic feet in 1988. In recent years, however, primarily as a result of decreased
housing starts, the use of durable wood products in the residential and commercial building sectors
has actually declined (RPAA, 1990).

       Because the trees that are planted may eventually be harvested and release their stored
carbon, timber end-use can be an important component in increasing long-term sequestration. Wood
end-uses that are most relevant to long term carbon storage include new residential and commercial
building materials, materials for building repair and remodelling, and material for furniture, cabinets,
and fixtures. Increased use of these durable wood products can offset carbon emissions both by
promoting a sink for carbon and by substituting timber for energy intensive construction materials.

       The use of durable wood products can be expanded in several ways:

 •     By encouraging longer tree rotations, which yield timber that can more easily be converted
       into durable wood products;

 •     By encouraging the demand for durable wood products, through price or other incentives; and

 •     By encouraging the supply of durable wood products directly.

       Because wood cannot be substituted for non-wood products used in construction on a one-
for-one basis, feasibility constraints may reduce achievable carbon savings or limit the applicability of
substitutions.  In addition, state policy-makers need to take a broad view of the potential costs and
benefits of efforts to encourage the use of durable wood products.  Key considerations include:
regrowth of the forest's original biomass density; the energy related emissions associated with
harvesting, transporting, and using the wood product; and the emissions associated with  production
and use of the non-wood product being replaced.

POUCY OPTIONS

       Several policy options are available to encourage either the supply of or the demand for
durable wood products.

 •     Provide Information.  States can encourage the production and use of durable wood products
       by disseminating information on the carbon benefits of  their use, or by assisting local
       governments in examining alternative specifications for  building codes.

 •     Support Research and Development.  States can support research to develop wood-utilization
       technologies  or forestry methods that reduce the cost of producing timber for durable
       products. States can also study the extent to which wood can be substituted for  non-wood
       products, with an emphasis on its cost and technical feasibility and on the associated change
       in total greenhouse gas emissions.

 •     Provide Appropriate Financial Incentives. Financial incentives promote both the supply and the
       demand for durable wood products. Potential incentives include tax credits for the production
       and/or use of durable wood products,  energy or carbon taxes to raise the relative price of
       energy-intensive construction materials, and timber subsidies to encourage longer harvest
       rotation periods.

Encourage Paper Recycling and Recycled Paper Use

       By replacing  virgin fiber sources with wastepaper, recycling has the potential to reduce net
carbon emissions by reducing levels of timber harvesting. Ultimately, the amount of carbon that can
be sequestered depends critically on the effects recycling has on both planting and harvest decisions
and, thus, on timber  inventories as a whole. Because paper and paperboard products currently
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account for 32 percent of the municipal solid waste stream and contribute to methane formation,
recycling may relieve some of the pressures of solid waste disposal on landfill space (U.S. EPA,
1993a). Because of the potential effect of recycling on methane generation, policy options for
encouraging recycling are presented in full detail in Section 5.6.


5.12   GREENHOUSE GASES FROM BURNING OF AGRICULTURAL WASTES

       Large quantities of agricultural crop wastes (such as straw, stubble, leaves, husks, and vines)
are produced from farming systems.  In preparation for each cropping cycle, this waste must be
eliminated. This is most often done through open field burning, which increases the field's production
capacity by releasing nutrients  into the soil, eliminating troublesome weeds and diseases, and
removing dead material which may block sunlight or impede crop growth. The burning of agricultural
crop wastes, however, also results in significant emissions of CH4, CO, NOX, and N2O.   Emissions
reductions from this source can be achieved through the disposal of agricultural waste through
alternatives to burning.

       Previous concern over agricultural waste burning has focused primarily on emissions of
paniculate matter rather than greenhouse gases. To control paniculate emissions as regulated under
the Clean Air Act (CAA), some states have instituted smoke management programs. These programs
are generally administered by state health, environmental, or air quality agencies, or a consortium of
agencies.

       Because agricultural crop waste burning is uncommon in  many parts of the U.S., little federal
action has been taken in this area Under the CAA, biomass burning is regulated to the extent that it
affects air quality standards.  Beyond that, reducing the burning of residues has primarily been a state
concern.  Recently some areas have set limits on the burning of agricultural crop wastes, particularly
in the Pacific Northwest  For example, Oregon has passed legislation to gradually phase-down the
burning of agricultural residues until 1998, at which time the maximum number of acres which can be
burnt will be set at 40,000 (an 80 percent reduction from current levels) (Oregon, 1990).

       The viability of any burning alternative depends on several factors, including: 1) its ability to
meet the same objectives that prescribed burning accomplishes, 2) economic competitiveness with
prescribed burning,  and 3) technical  feasibility.  Options available for reducing emissions in this area
include plowing residues back into the soil, removing crop residues for other uses,  using alternative
burning techniques and replacing with alternative crops.

       5.12.1  Plow Residue Back Into Soil

DESCRIPTION

       One option for returning nutrients to the soil without burning is plowing the agricultural wastes
back into the field. For example, plowing com husks back into the field will enhance soil quality,
which is one of the primary objectives of open field burning. This method is limited, however, because
many crops are perennial. Such crops, like rye grass, will continue to live and produce over several
seasons and therefore cannot be plowed for several years. An alternative is slot-mulching, where
slots are carved throughout the field  and farmers incorporate as much residue as possible into these
slots.
   31 Burning of crop residues is not thought to be a net source of carbon dioxide (C02) because the carbon
released to the atmosphere during burning is reabsorbed during the next growing season.
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CONSIDERATIONS

       The potential for the incorporation of crop residues into the soil as a burning alternative is
limited primarily by economics, lack of adequate pest and disease control, and decomposition rate.
The relative importance of these factors varies with crop type and geographic location.  For example,
California straw is not readily degradable, whereas rice straw in the southern rice belt rapidly
decomposes.  Straw decomposition rates can vary even among soil series within individual states. In
general, high straw yields, dense clay soils, and wet environments are not conducive to straw
decomposition. Improvements in straw choppers can help overcome such adverse conditions.

       Another potential problem with  soil incorporation is pest, disease, and weed control.  Soil
incorporation of weed seeds increases  the need for weed control treatments, and can jeopardize
product quality in the marketplace.  In cases where stem rot disease is a problem, continued plowing
under often results in substantial yield reductions (U.S. EPA, 1992b).

POLICY OPTIONS

  •    Support Research and Development. Additional field research on the benefits of crop residue
       soil incorporation is needed before widespread acceptance can be expected.

  •    Provide Information. States can disseminate more information describing the soil benefits
       achieved with this practice, effective use, and optimal situations.  In doing so states may use
       resources such as  USDA's Soil Conservation Service and the Cooperative Extension  Service.

  •    Provide Financial Incentives.  States could also implement a fee structure to encourage the
       use of emissions reduction techniques and alternatives to burning.  For example, states may
       establish the use of registration fees ($/acre burned) or emissions fees ($/ton emitted).

  •    Establish Legal Limits.  States can also limit the amount of acres burned through legislation.
       For example, Oregon currently  sets the maximum  acreage that can be burned at 250,000
       acres per year (U.S. EPA, 1992b).  In addition, a state may elect to restrict the time of year
       when burning can be conducted or prohibit certain types of burning during historical seasons
       of nonattainment (with respect to paniculate emissions). Washington and Idaho are additional
       examples of states that have set restrictions on burning, specifying when residues can be
       burned as a function of meteorological conditions and other constraining factors.  Specifying
       the time when residues can be burned will reduce emissions only when such restrictions
       reduce the quantity of the residues burned. Greenhouse gas emissions occur regardless of
       the time the residues are burned.

       5.12.2  Remove Crop Residues and Develop Alternative Uses

DESCRIPTION

       Historically, it has been difficult for grass straw to  compete in existing markets as a raw
material resource. Low bulk density of the straw (which requires costly densification), high
transportation costs, uncertainty of long-term supply, and  low volume of supply in fiber markets have
usually made straw non-competitive with other raw materials, particularly wood wastes (U.S. EPA,
1992b).

       The potential usefulness of agricultural, waste includes not only composting prior to
reapplication to the soil but other uses such as alternative (biqmass) .fuels or building materials.  Such
applications require the mechanical removal of residues from the field.  While compliance with some
commodity support programs may prohibit this removal, if no conflicts or restrictions exist the crop
residues can be used and marketed in a variety of ways.
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       Composting. Composting involves gathering agricultural wastes and setting them aside to
       decompose. Residue collection methods with this application include raking, residue flail-
       chopping, and vacuuming into sacks with soil and nitrogen sources such as chicken manure,
       and crew-cutting.  After the waste has decomposed, the decayed material can either be
       marketed or returned to the soil as fertilizer.

       Supplemental Feed Market. Agricultural crop wastes such as grass straw can be collected
       and sold in a supplemental feed market. The straw must be gathered, baled, stored, and
       compressed so that it can be shipped on order. This practice is currently one of Oregon's
       primary alternatives to burning. Approximately 150,000 - 250,00 tons of straw are shipped to
       Japan each year (Britton, 1992).  Untreated straw makes for poor quality livestock feed
       because of low protein and high fiber content.  With appropriate treatment (e.g., ammoniation),
       the digestibility and payability of straw can be increased substantially, making straw a
       potential component of maintenance diets for ruminant livestock.

       Alternative Fuel Source. Agricultural residues can be used as an alternative (biomass) fuel
       source for cooking, space heating, drying of agricultural products, and the production of
       power by steam engines or Stirling motors (Strehler and Stutzle, 1987).  Specific applications
       include burning the residues in furnaces to generate heat for drying units or for space heating
       at home. There is tremendous potential for improving the end-use efficiency in such energy
       conversion  processes (Lashof and Tirpak, 1990). Biomass fuels can also be used to produce
       motive power or electricity by using a steam engine, a Stirling motor, or a gasifier.  Gasifiers
       can convert agricultural residues from solid fuel into gasified fuel.  They have been used to
       provide electricity and to power tractors and irrigation pumps.  In all of these applications it is
       important to use biomass with a relatively low moisture content; otherwise, the energy loss
       due to water vaporization will be too high.   •

       Paper and wood product substitution.  Agricultural residues can also be used for non-energy
       purposes.  For example, residues can be gathered for fiber or building materials.
       Weyerhauser, a paper and lumber company, is investigating the possibility of using
       agricultural residues as filler in particle boards.
CONSIDERATIONS

       Composting can be relatively time-consuming compared to burning. The level of effort
necessary for a productive program depends on several factors, including decomposition rates and
weather and moisture conditions. Also, the process of large-scale composting is not fully understood
or refined. The Agricultural Research Service (ARS) in Corvallis, Oregon, is researching the
effectiveness of low-input composting and ideal composting procedures. The USDA/ARS in Beltsville
has had a successful research program in large-scale composting and developed the Beltsville
Aerated Rapid Composting (BARC) method, currently in use at the WSSC Calverton Composting
Facility.

       Marketing straw in the United States may be more difficult than in foreign markets due to the
erratic and competitive nature of U.S. markets.  For example, supplemental feed markets may only be
a profitable option if a drought occurs with a significant impact on crop yields, forcing the price of feed
and other agricultural products to rise.  Furthermore, any physical and chemical treatments to
enhance the quality of the straw will increase the cost of this alternative.  Finally, because Japan  can
obtain straw from other countries such as Australia or Argentina, it may not prove to be a reliable
customer for U.S. sources.

       Combustion for heat generation may be the most appropriate means of replacing fuel oil  with
residues, because much less investment is necessary compared to replacing fuel oil in power


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generation.  Also, the total maximum efficiency of the power produced by means of a turbine or steam
engine is approximately 15 percent, even though the combustion of biomass can be accomplished
with high efficiency (Strehler and Stutzle, 1987).  The disadvantages of gasifiers include a high
paniculate and tar content of the gas.  Furthermore, current gasifier designs do not accept all types of
crop residues.32 Finally, after biomass bums, a silicate remains, creating a sludge problem that
inhibits acceptance of residues as an alternative fuel.

       Using agricultural residues to manufacture paper products is a possible alternative.
Traditionally, paper products are manufactured using wood chips, which are cheap and readily
available.  However, wood chips do not require storage from rainy weather and replacing them with
agricultural residues may require major retooling in the wood fiber industry. Despite this, however,
grass straw is  becoming a more economically attractive alternative to using hardwoods. The reason
for this is the projected shortage of hardwoods in the near future and the fact that straw fibers from
grass seeds are very similar in structure to hardwoods.

POLICY OPTIONS

       Currently, significant scientific uncertainty inhibits development of programs in this field.
Therefore, research and development projects which support alternative uses for agricultural residues
could prove extremely beneficial. States could encourage alternative uses for crop residues by
designing policies compatible with those mentioned in Section 5.12.1 and Section 5.2, which address
the advantages of using biofuels and renewable energy sources for energy production,  including co-
generation and direct combustion.

  •    Provide Information.  Information dissemination campaigns may be an effective way to
       encourage alternative uses for crop residues.  Given information on these alternatives, farmers
       may be convinced to participate in voluntary emissions reduction programs to reduce smoke
       and paniculate emissions as well as greenhouse  gases. Though information is available on
       composting, most farmers have little experience with this practice. States can disseminate
       information describing the potential soil benefits associated with this option, the manner in
       which  it can be implemented, and conditions under which it works best. The Cooperative
       Extension Service is an appropriate state vehicle  for this.

  •    Support Research and Development.  Ideal composting methods need to be identified and a
       better  understanding of large-scale composting achieved, before widespread adoption can be
       expected. In addition, states can fund projects that investigate the viability of alternative  uses
       for crop residues.  For example, states can provide funding to support research into wood
       product substitution for grass straw.  To date, a number of studies have indicated the great
       potential that biomass fuels have as an alternative fuel source.  This issue needs to be
       examined further.

       5.12.3  Use Alternative Burning Techniques

DESCRIPTION

       A number of alternatives that still involve burning  can also reduce emissions.  This can be
accomplished, for example, either by creating a hotter, more controlled bum that combusts crop
residues more thoroughly, or by reducing the frequency of burning in conjunction with mechanical
crop removal techniques.  Technologies and methodologies to achieve these objectives include:
   32 For a more complete technical discussion of agricultural residues as an alternative fuel source, see Strehler
and Stutzle, 1987).


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  •    Mobile Field Sanitizer. This is a machine designed to bum agricultural residues in place. It
       serves as a method of both straw removal and field sanitation.  While field tests have shown
       that sanitizers can reduce carbon monoxide and hydrocarbon emissions, their applicability
       appears limited.  Technical and economic evaluations of field sanitizers have found problems
       with high operating costs, durability, maneuverability, energy use, and operating speed.
       Based on these studies, many states have discontinued research and development of mobile
       field sanitizers, although there has been some success with their private development33

  •    Propane Flaming. Propane flamers consist of a propane tank and a series of nozzles.  The
       propane is released, ignited,  and directed at ground level.  Because straw residue must be
       removed first for this method to be effective, this technique is typically used with other
       disposal methods such as bale/stack burning (described below). While these practices are
       thought to bring about a slight reduction in emissions when used together, they are much
       more time consuming than open field burning.  If most of the straw residue is removed prior to
       flaming, this technique should not  result in major seed yield losses.

  •    Bale/Stack Burning.   Bale/stack burning, the collection of crop residues into bales or stacks to
       facilitate controlled burning, is a companion practice to propane flaming (which requires straw
       removal).  Some growers have turned to bale/stack burning to dispose of unmarketable crop
       residues.  As mentioned above, this practice results in slight reductions in emissions, but is
       more time consuming than open field burning.

  •    Less-Than-Annual Burning. This involves alternating open field burning with various methods
       of mechanical removal techniques. The periods may involve burning every second or third
       year.

CONSIDERATIONS

       There are a number of uncertainties that limit the applicability of some alternative burning
techniques. For example, mobile field sanitizers have not been fully developed and have proven
successful only in isolated cases.  The technical  problems associated with field sanitizers mentioned
above need to be addressed before widespread acceptance of this option can be expected.  Similarly,
improvements in techniques like propane flaming may be required to make it an attractive alternative.
For example, studies have shown that because of the temperature and duration of propane flaming,
many of the weed seeds are not destroyed, ultimately resulting in increased weed infestation (U.S.
EPA, 1992b).  These problems will need to be addressed in order to facilitate acceptance of these
alternatives.

POUCY OPTIONS

       States could encourage alternative burning techniques for crop residues by designing policies
compatible with those mentioned in Section 5.12.1. Specifically, states may wish to focus on research
and development efforts or demonstration projects to eliminate some of the problems and
uncertainties discussed above.
   33 For example, an Oregon fanner currently uses a privately-developed mobile field sanitizer.  Due to the high
value of this farmer's crop, it was economical to develop and maintain the sanitizer (U.S. EPA, 1992b). The high
costs associated with development frequently prevent other farmers from pursuing this option.


                                             5-70

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       5.12.4 Replace with Alternative Crops

DESCRIPTION

       Crops whose residues are typically burned can be replaced with crops that potentially grow
and thrive under a system of non-burning, such as meadowfoam, rapeseed, and Pyrethrum.
Switching crops in this way is highly dependent on economic, agronomic, institutional, and other
factors.  This is an area of current research and relatively high uncertainty regarding net impact on
greenhouse gas emissions.

CONSIDERATIONS

       Whether this alternative is feasible depends on its ability to compete economically and its
agronomic capabilities compared with existing crops.  Limited potential for major crop shifts exist
where crop patterns have developed in accordance with agronomic conditions and market demands.

       Research  in Oregon has shown that alternative crops with the best agronomic viability have
not been economically competitive with perennial grass seed production in the Willamette Valley. In
California, rice farmers have been reluctant to stop farming rice because the high clay soils are
unsuitable for growing other crops (U.S. EPA, 1992b).  Further research may determine whether there
are crop species that thrive without open field burning and that approach production levels of existing
crops.

POLICY OPTIONS

  •    Support Research and Development.  Research programs are necessary to determine
       economically feasible substitutes for crops whose residues are typically burned.  The
       USDA/ARS and CSRS support research into new crops. Much of the current research on the
       use of alternative crops has taken place in Oregon.  However, this type of information is often
       specific to a state and/or region.
                                            5-71

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                                        CHAPTER 6

                  CROSS-CUTTING THEMES AND PROGRAM DEVELOPMENT
       This chapter introduces potential organizing principles for policy development that span the
various greenhouse gas source categories examined in Chapter 5.  The type of approaches presented
here often serve as focal points for coordinating long-term, comprehensive emission reduction
planning.  In doing so, they offer some of the most significant opportunities for large-scale emission
reductions.

       Programs such as these that affect various source categories usually focus on either one
economic sector, one particular type of policy, or a more specific substantive goal. For example,
programs may target the energy or the agricultural sector. Alternatively, they may establish a wide
ranging energy or carbon tax that affects various sectors.  Finally, they may concentrate on a
substantive point like biomass energy development or public education.

       While the specific cross-cutting options presented here offer potential for large emission
reductions, policy-makers may want to develop other sectoral or substantive focal points that match
their local circumstances.  Programs in each region of the country should certainly respond to local
needs and make full use of local resources such as available wind, solar power, or a variety of other
alternative energy sources. Customized programs that cut across source categories are especially
promising in areas dominated by one type of economic activity such as agriculture, forestry, or coal
mining. In these areas, comprehensive programs can foster diverse policies that support each other
even though they address different greenhouse gas sources.  For example, comprehensive
agricultural programs can simultaneously  utilize methane from waste products for on-srte power
production, increase energy efficiency, and reduce transportation emissions stemming from waste
product disposal.

       This chapter discusses five specific cross-cutting topics:  (1) planning in the electricity sector,
(2) biomass based energy development, (3) carbon sequestration through tree and timber expansion,
(4) city and regional planning, and (5) agricultural sector planning.  This information is meant to
provide background for policy development across greenhouse gas source categories by introducing
these concepts and referring policy-makers to related and more specific information in Chapter 5.  In
most circumstances the information  presented here is not as detailed as in Chapter 5. For more
information on the linkage between these  two chapters, see the introduction in Part II of the document.


6.1     COMPREHENSIVE PLANNING IN THE ELECTRICITY SECTOR

       Recent energy, environmental, natural resource, and commerce regulations are transforming
the U.S. electricity sector.  Electricity production previously involved only utilities constructing and
operating power plants. However, the trend within the  last two decades is for utilities, with
government prompting, to act as coordinating units that not only build their own plants but also
purchase power from smaller producers and directly administer demand-side management (DSM) and
other energy-efficiency programs.  Integrated resource  planning (IRP) is the title frequently given to
this framework for broad-based energy planning.

       This section examines how states can promote greenhouse gas reductions within the policy
and regulatory structures that are guiding the transition towards IRP.  It  provides broad context for the
specific technical approaches and policy options that Sections 5.1 and 5.2 present when addressing
electricity consumption and production. While separated here for clarity, these three  sections
supplement each other and should be considered together during policy analysis and development.


                                             6-1

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       Integrated resource planning generally involves utilities and public utility commissions (PUCs)
seeking to meet projected electricity demands through a least-cost combination of power supply and
demand-side alternatives. When striving to meet an increase in electricity demand, for example, a
utility may: construct a new power plant that runs on conventional fuels like coal, oil, or natural gas;
construct a hydroelectric or nuclear facility; purchase power from independent power producers that
utilize conventional or alternative energy sources; or promote energy-efficiency and load management
by existing electricity consumers to reduce overall consumption so that new power supplies are not
needed (i.e., demand-side management).  Through integrated resource planning, utilities and PUCs
consider and combine  these various options to meet energy service needs.

       Thirty-five states are currently engaged in some sort of integrated resource planning or least
cost energy planning.  These approaches  and methods of implementation are defined differently in
each state. For example, all social costs of power production from different options (such as health
and environmental risks and local economic
impact) may be incorporated into the definition
of costs to be considered in least-cost planning.
Likewise, costs may include only capital and
Exhibit 6-1: Components of Integrated Resource Plan
In Georgia
operating costs of different power supply
options, disregarding economic 'externalities'
such as environmental impacts.

       Policy measures to reduce greenhouse
gas emissions through integrated resource
planning usually involve establishing IRP
systems where they are not currently utilized
and strengthening existing systems to foster a
comprehensive examination of the
environmental implications of supply and
demand options.  This can include monetizing
environmental externalities, which often lowers
the relative costs of non-carbon or low-carbon
options such as solar or wind energy, or DSM
relative to fossil fuel sources.  It may also
include direct requirements for utilities to draw
some portion of their energy supply from
alternative energy sources or to provide
infrastructure support to small power producers.
These measures are outlined in more detail at
the end of this section.

       Any state action to promote these types
of measures must be initiated with an eye
toward the  evolution of national policy with regard to the electric and gas utility industries. The
structure of the natural gas industry has been fundamentally reordered over the last decade, giving
local gas utilities much greater responsibility for their own resource planning. Similarly, the electric
utility industry is moving toward a more competitive structure with the rise of independent power
producers,  more flexible pricing for wholesale power, and increased pressure for transmission access
by both electricity producers and consumers. The federal agency presiding over these changes is
Federal Energy Regulatory Commission (FERC), a five-member independent regulatory commission
created by  the Federal Power Act of 1935 that has authority over prices, terms and conditions of
wholesale power sales and transmission, and gas transportation. FERC approves sales and mergers
          in response to an electric energy -
   planning requirement enacted by the Georgia
   General Assembly in 1991. the Georgia Power
   Company and the Savannah Electric and Power
   Company filed an IRP with the Public Service
   Commission. This plan included five DSM
   concepts in a proposed residential program, one
   of which was the Low Income Program. Toe Low
   Income Program provides in excess of $6.5
   million a year for ten years for low-income
   residential energy conservation.  Funds will be
   provided for the purchase and installation of
   compact fluorescent lights, outlet gaskets,
   weatherstripping, insulation, water heater jackets,
   and other energy-efficiency measures. The
   program witt be implemented in three phases, all
   of which will be administered by the Georgia
   Office of Energy Resources using the current
   weatherization service providers. All these
   measures will help reduce the need for new
   sources of electricity. The Atlanta Gas Light
   Company has also submitted a similar plan to the
   Public Service Commission,
                                              6-2

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of public utilities, controls the issuance of securities, and oversees regional power pools and
interconnection between utilities.1

       Two specific federal statutes affect how FERC and states can influence greenhouse gas
emissions through small and independent power producers and alternative energy sources. These
statutes require FERC and states to take certain actions and recommend that they pursue other
supplemental measures. The first of these statutes is the Public Utility Regulatory Policy Act (PURPA).
PURPA was enacted in 1978 to promote conservation of electric energy, increase efficiency in electric
power production, and achieve equitable retail rates for consumers.  Towards these ends, PURPA
authorizes FERC to establish the broad rules under which utilities deal with small power producers
and power cogenerators, requiring that utilities buy power from certain "qualifying facilities" that use
alternative or renewable energy sources.2  PURPA also exempts qualifying facilities from many of the
regulatory burdens applicable to utilities, largely authorized under PUHCA, that have traditionally kept
small power producers from entering the energy production market.  States are required to implement
various provisions of PURPA through issuing regulations,  resolving disputes between qualifying
facilities and utilities, or acting in any way to support implementation of the Act.

       The second federal action affecting greenhouse gas emissions from the utility sector is the
Energy Policy Act of 1992 (EPAct). This act requires states to consider integrated resource planning,
although it provides little substantive guidance regarding implementation. It also  removes barriers that
have inhibited independent power producers from competing in electricity markets and expanding
their access to the transmission grid.  In addition, EPAct includes a renewable energy production
incentive through which qualifying facilities are eligible to receive a subsidy of 1.5 cents for each
kilowatt hour of electricity they produce using a renewable energy source.

       The federal Clean Air Act also has broad implications for utilities and  other power producers,
although it does not specifically address greenhouse gas emissions.  This act imposes mandatory
emission limits on ozone and acid rain precursors for all electric utility units with greater than twenty-
five megawatt capacity and controls all criteria air pollutants as well.  In a greenhouse gas context, it is
also important that current technologies for reducing some of these other pollutants, such as
scrubbers that decrease sulfur dioxide and other emissions, can result in slight increases in carbon
dioxide emissions. In addition, the Clean Air Act incorporates a number of provisions designed to
promote IRP and DSM.

       An important effect of these recent changes in federal provisions is to promote the use of
small and independent power producers. This is facilitated in part by IRP, which  helps balance the
tension between the need to plan and increasing competitive pressures. Within this regulatory
context, states can initiate a variety of supply side and demand-side actions to induce greenhouse
gas emission reductions, serving to strengthen integrated resource planning  in general and foster a
transition to low-carbon  or non-carbon energy services. The remainder of this section summarizes six
approaches states might either initiate directly or utilize  for guidance in pursuing this goal.

Strengthen Institutional Processes that Promote Emission Reduction

       States can take  various measures to ensure that alternative energy sources are utilized to
meet a region's power supply needs.  Foremost, as noted above, states can  establish and promote
   1 Power pools involve utilities and public utility commissions coordinating and often sharing power supply
expansion and distribution within certain regions in order to utilize each other's resources, minimize the need for
duplicative investment and planning, and reduce certain industry supply side risks. Interconnection refers to how
utilities and other power producers link their systems in order to facilitate power transactions.
   2
     See Section 5.2 for more information on cogeneration and PURPA defined "qualifying facilities."
                                              6-3

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integrated resource planning and least-cost energy planning. One of the predominant approaches
states might use for doing so is to restructure rates and regulations so that utilities capture some of
the benefits of emission reduction measures taken under these frameworks. For example, as Section
5.1  highlights, many regional utilities currently face a disincentive to promote demand-side
management programs since they receive no benefit from reducing energy consumption and may, in
fact, lose revenue by helping their own customers purchase less electricity. State regulatory reform to
permit utilities to profit from administering these programs and from participating in other integrated
resource planning .measures may generate utility support for these frameworks.

       In addition, states may require that utilities accept competitive bids from all energy sources
and producers when deciding how to meet capacity expansion needs. In this way, utilities must
consider alternative energy sources. A primary method by which utilities now acquire new capacity in
areas using competitive bids, for example, is to solicit energy from  other sources by releasing a
Request for Proposal (RFP).  Private producers respond to the RFP by submitting bids for the contract
to supply the needed electricity. Pending approval by the state PUC, the utility selects from among
the bids to satisfy its  needs.  These types of bid processes provide an institutionalized mechanism
through which small and independent power producers can make their energy services available.

       The rules through which state PUCs  administer these processes may also affect the success
of producers who use alternative energy sources. States may require that a certain portion of energy
expansion needs be met through alternative  sources, for example,  by using 'set-asides' or "Green
RFPs.'  These programs are traditionally implemented either by restricting bidding on an RFP to
renewable sources or by awarding a minimum amount of the new capacity  (such as 50 percent) to
alternative sources. California and Massachusetts, among others, currently utilize these processes.
For example, the California Energy Commission recently approved  the release of Green RFPs for new
generation capacity for Pacific Gas and Electric, San Diego Gas and Electric, and Southern California
Edison.  Similarly, in December of 1991, New England Power issued a Green RFP for as much  as 23
megawatts from renewable resource technologies by 1996.

Reduce the Costs of Low-Carbon Energy Sources Relative to High-Carbon Energy Sources

       With any sort of least-cost energy planning framework in place, state efforts to reduce the cost
of alternative energy sources relative to traditional, high-carbon sources should result in greenhouse
gas emission reductions.  In a competitive bid  process, for example, reducing alternative energy costs
will make sources such as wind, solar, and geothermal power more competitive with traditional  fossil
fuel sources.  Similarly, utilities are required under PURPA and other provisions to purchase power
from small producers at a rate equal to the utility's avoided costs of incremental power production;
raising the costs associated with traditional energy sources or lowering the  costs associated  with
alternative sources will help more of the alternative sources realize  profits under this regulatory
framework.

       States may take several types of action to change the relative costs of energy sources.
Foremost, states can define 'avoided costs' to incorporate greenhouse gas considerations, effectively
internalizing the environmental externalities of energy production. States can pursue this process in
various qualitative and quantitative ways.  The New York Public Utility Commission, for example, has
developed a detailed system for incorporating environmental cost equivalents into prices of energy
supply options. On the other hand, the Public Utility Commission of Nevada has the broad discretion
to give preferential treatment to energy measures that it sees as providing the state with environmental
benefits.  Chapter 8 lists the cost values assigned to carbon dioxide and other emissions in several
states, regions, and countries.

       Another way states can lower the relative costs of non-fossil fuels is to subsidize their
development or production. This can be done through direct payments, such as the EPAct provision
to subsidize renewable energy producers for each kilowatt hour of  electricity they generate, or through


                                             6-4

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 other mechanisms such as investment or production tax credits, low interest loans, or other innovative
 programs.  For example, the Illinois Public Utility Commission requires utilities to enter into long-term
 contracts (ten years or more) with small power producers using municipal solid waste as fuel and to
 pay an electricity purchase price to those producers that is higher than the utility's avoided costs of
 producing the power itself. The state then grants the utility a tax credit in the amount of the difference
 between the amount it pays the small producer and its avoided cost. The small producer is required
 to repay this same overpayment to the state
 after it has paid off all debts incurred during the
 implementation of its power generation project
 Essentially, the overpayment serves as an
 interest free loan that induces small power
 producers to  enter the power production market
Exhibit 6-2: Direct Quantification of Environmental
Costs In New York
 while not penalizing utilities for their active
 participation.

 Ensure Infrastructure Access for Small Power
 Producers

        One factor that traditionally inhibits small
 power producers from entering the energy
 market has been the high costs associated with
 linking or 'interconnecting* to power
 transmission and distribution networks.  In
 addition to facing expensive technical barriers,
 utilities that control the transmission and
 distribution networks often have a disincentive to
 provide small power producers with access
 since the small power producers  are in effect
 taking away utility business. Although PURPA
 requires that utilities provide interconnections on
 nondiscriminatory terms and at just and
 reasonable rates, in practice, many small power
 producers have encountered substantial
 resistance from electric utilities. Beyond the
 basic interconnection issue, small power
 producers historically have not fared well in
 persuading electric utilities to wheel power to
 other buyers.

        State options to address these issues
 include increased scrutiny of utility
 interconnection and back-up pricing practices to
 ensure that they are nondiscriminatory to small
 power producers, as well  as policies to
 encourage electric utilities to provide
.transmission services for small power producers.
 However, national policy with respect to
 electricity transmission and wheeling, and the      ^^^^^^^^^^^^^^^^^^^^^^^^
 role and authority of the states remains  murky.      """'^"™""""""™"™""""^"^

 Establish or Support Carbon Offset Programs

        States could require,  or provide financial incentives to encourage, utilities and other
 greenhouse gas producers to reduce emissions or sequester carbon in proportion to the emissions
          The New York Public Utility Commission
   has developed a system for Incorporating
   environmental effects of power production into
   prices, through expanding the use of
   environmental "cost equivalents.*  This system is
   used, for example, when utilities seek new
   capacity. Often utilities acquire new capacity by
   releasing a RFP. Private power producers
   respond to the RFP by submitting bids, expressed
   in ซ/kWh, to supply the additional power. When
   comparing bids, the utility adds in the cost of
   some contract features (e.g., availability of fuel
   supply, price schedule, reliability) by using pre-
   determined price equivalents of these factors.
   New York utilities now add environmental cost
   equivalents into a comparison price before
   deciding between bids.

          For example, if the avoided cost of power
   to the utility is 5.6 
-------
that new activities, such as a new power plant, will create. One option is to allow these emissions
reductions to take the form of 'offsets', i.e., a utility that wants to construct a new coal-fired power
plant, for example, could be required to sponsor a carbon sequestration forestry project or a program
to reduce emissions in some other sector, such as transportation.  Combining the emissions offset
project and the new power plant project would aim to ensure that there is no net increase in the
amount of greenhouse gases emitted to the atmosphere.

       In addition to directly mitigating the impacts of emissions from new sources, these types of
'offset1 programs provide an incentive for utilities to select non-carbon energy sources when feasible.
This is because requiring carbon offsets will raise the costs of high-carbon options, making alternative
energy sources relatively more desirable.

       With these factors  in mind, some states and utilities are beginning to pursue offset programs
as one of the most promising options for mitigating the impact of energy related emissions. Applied
Energy Services, for example, pioneered a forestry project in Guatemala to offset the emissions from a
100 megawatt coal-fired power plant in Connecticut and the New England  Electric System is
sponsoring similar projects in  Russia and Malaysia

       Several issues complicate offset program design and administration.  Many are related to the
fact that large scale offset  programs are a relatively new and undeveloped technique that will
presumably be refined.  Another constraint is the difficulty associated with measuring the  greenhouse
gases emitted and sequestered through various activities, especially long-term forestry projects where
success depends on many climatic and other uncontrollable factors.  Issues of predictability and
dependability become more significant if offset programs permit investment in forestry projects in other
parts  of the world, where the projects usually cost less.  Further, states pursuing offset options will
also have to evaluate how  to treat emissions linked to electricity received from or sent to other states
or offset projects located in other states.

Support Emission  Trading Programs

       Emissions trading  programs allow private entities to buy and sell pollution reductions that are
achieved.  These market-based systems present opportunities for reducing  aggregate pollution levels
at a lower cost to society.  Forms of tradeable permit systems,  for example, are  currently utilized in the
U.S. to control non-greenhouse pollutants including sulphur dioxide and lead. These programs
provide broad incentives to all polluters to reduce emissions and improve their production processes
and could conceivably be  applied to carbon dioxide emissions as well, either domestically or
internationally.  Tradeable  permit programs may not be feasible or desirable at the state level,
however, because of complications arising from complex cross-boundary, administrative, and
enforcement issues.  They are noted here as background on national or regional initiatives that states
might support in order to help reduce their own emissions.

       In one form of tradeable permit system, the government sets an aggregate level of permissible
emissions for society as a  whole and then allocates permits that allow their holders to emit a certain
quantity of pollutants.  Private entities that want to increase their levels of pollutants (presumably to
increase production of their products, such as electricity) must buy permits from others who hold
permits in excess of their current needs. In this way, the government achieves its target level of
aggregate emissions at a minimum social cost and simultaneously provides an incentive for individual
private sector actors to reduce emissions so they can gain profits by selling excess permits.

       Complications in designing these programs include setting a target level of emissions,
distributing initial permits, addressing equity concerns in initial  permit distribution between different
polluters, designing the system for facilitating permit sales and purchases,  dealing with cross-
boundary  issues,  and determining the optimal allowable aggregate emission levels.
                                              6-6

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Support or Implement Energy or Carbon Taxes

       Taxes or fees that raise the cost of emission related activities, such as fossil fuel consumption
or electricity use, may reduce greenhouse gas emissions by discouraging people from pursuing
harmful activities and by encouraging energy efficiency or fuel-switching to low-carbon energy
sources. Taxes can be designed to target energy use in different ways, ranging from Btu taxes, which
target the energy content of different fuels, to carbon taxes, which differentially tax fossil fuels in
relation to the carbon dioxide that is emitted.  Revenues raised through these programs are ancillary
benefits, and can contribute to state budgets for funding climate change related or other energy-
efficiency programs.

       Like emission trading programs, unilateral use of these measures to address climate change
issues may not be entirely appropriate at the state level. Although related measures, such as
externality-adders or gasoline taxes, have been employed at the state level, broad-based energy taxes
may result in complications because of overlap with changing federal initiatives, difficulty in
determining appropriate tax rates, and variations between states. Unavoidable variations in tax rates
and industry structures and mix across states could provide undesirable incentives for industry and
other energy consumers to locate or move to different regions. In addition, because there are
distributional or equity considerations in designing and implementing these taxes, such considerations
may affect the levels of tax chosen or of other programs that are used in conjunction with a tax.
                     Cross-cutting policies in the energy sector may affect all of the emission
             source categories in Chapter 5. For example, energy taxes will affect ail methane
             and transportation issues in addition to traditional electricity production and
             consumption.  As stated at the beginning of this section, ft Is particularly
             important that the information presented here be considered in the context of
             technical approaches and poDcy options in Sections 5.1 and 5.2.
6.2    BIOMASS ENERGY DEVELOPMENT

       Biomass resources, including wood and agricultural wastes, timber, and grain crops
accounted for about 3.3 percent of U.S. energy consumption in 1990. Because plants that produce
these resources sequester carbon while growing, using biomass as a renewable energy source to
displace fossil fuels helps mitigate carbon dioxide buildup in the atmosphere. Additional information
on how trees and plants sequester carbon is presented in Section 5.11, Emissions Associated with
Forested Lands, and Section 6.3, Tree and Timber Expansion Programs.

       Biomass can be converted to gaseous, liquid, or solid fuels that may substitute for common
transportation, power generation, industrial, and heating fuels now used.  Gaseous fuels from biomass
can be used just like natural gas.  Liquid fuels, mostly ethanol and similar alcohol products, can
directly substitute for liquid  petroleum fuels such as gasoline. Solid fuels, usually meaning the
biomass itself after being dried, can be burned to produce thermal energy for uses like heating
buildings or can be used in direct combustion processes at power plants in the same way as coal.

       Wood wastes and agricultural crop residues are often considered to be the most cost-effective
biomass resources since they result from other productive economic activities and are readily
available.  Wastes and residues are currently used extensively for energy production in some sectors
such as the paper industry. In addition to replacing fossil fuels that produce greenhouse gas
emissions, increasing the use of these resources may help alleviate other problems such as costs and
methane production associated with waste disposal and landfills.  Wood and crop residues can be


                                              6-7

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gasified, liquified (into ethanol), burned directly for use in on-site power generation, or burned to heat
commercial buildings and homes.

       Short rotation woody crops, mostly trees, can be burned to heat buildings or to fire
conventional power plants in a process similar to coal combustion. For example, in 1990 New York
state generated around 3 megawatts of electricity using wood power and in 1991 Vermont generated
approximately 1.7 percent of its electricity from biomass at a woodchip burning plant.  Wood can also
be transformed into liquid fuels such as ethanol through enzymatic processes, although these
processes are expensive to use at the current time.  Several short-rotation woody crops have been
identified as 'model* energy crop species based on their rapid biomass yield potential. These  crops
include silver  maple, sweetgum, sycamore, black locust, eucalyptus species or hybrids, and poplar
species or hybrids. The highest yielding crop appropriate for a given region may be among these
model crops or may be different, depending on soil and other characteristics within a geographical
region (Sampson and Hair, 1992).

       Grain crops, especially those high in sugar content such as sugar cane and com, can  be
converted to ethanol through fermentation and distillation processes.  This procedure is being
pursued aggressively in some areas, especially throughout the corn-belt states where various
programs promote ethanol to enhance energy self-sufficiency and support the local economy.
Residues from these crops can also be used for direct combustion or gasification, as described
above.

       The challenge for biomass in the future is to ensure a sustainable harvest, possibly from
plantations, to develop efficient and non-polluting systems for fuel conversion and use, and to lower
production costs so these fuels can compete with traditional sources. The total costs of biomass fuel
development will vary depending on crop productivity and biomass handling and transportation costs.
Other questions surrounding biomass fuel development include the net effect of sequestering carbon
(including impact on carbon content in soils), the effect on other greenhouse gas emissions like
nitrous oxide from fertilizer applications, the vulnerability of large plantations to pests and diseases,
the competition for woody biomass to make pulp for paper manufacturing, and competition for land
with traditional agricultural crops (NAS,  1991).

       A variety of policy options may help resolve these uncertainties and  promote greenhouse gas
reductions through substitution of biomass fuels for fossil fuels.  Policies in this area might include:

  •    Research, pilot programs and financial incentives to encourage the development of high-
       quality, low-cost, and continuously available bioenergy crops. Tax or other credits for biomass
       production or reducing tax incentives for fossil fuels may help in this way.

  •    Research and demonstration projects to encourage the development and application of more
       efficient technologies that may be more competitive with other sources of energy.

  •    Testing or construction of commercial facilities and  infrastructure for using and distributing
       biomass-based fuels in order to support their widespread use in the long-term.

       The 1991 Vermont Comprehensive Energy Plan illustrates  how states might promote biomass
fuel development, emphasizing how wood products can offset the state's use of nonrenewable fuels
like coal or oil for electricity generation as well as direct heating. Similarly, the 1992 Iowa
Comprehensive Energy Plan emphasizes  increasing that state's energy self-sufficiency  by developing
renewable resources including ethanol and other biomass products.
                                             6-8

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              For more information on btomass issues see:

              5.2     Greenhouse Oases from Energy Production: Supply Side Measures
              5.3     Greenhouse Gases from the Transportation Sector
              5.6     Methane from Landfills
              5.10    Nitrous Oxide from Fertilizer Use  .
              5.11    Emissions Associated with Forested Lands
6.3    TREE AND TIMBER EXPANSION PROGRAMS

       Trees provide an important terrestrial 'sink* for carbon dioxide by removing or sequestering
this greenhouse gas from the atmosphere as they grow, and storing it in wood, foliage, and soils.
Permanently increasing the acreage devoted to forests and timberland can therefore contribute to
reducing net carbon emissions. Policies to pursue this aim can be valuable in 'offsetting1 or counter-
balancing emissions from other sources such as power plant operations. This section focuses
specifically on increasing carbon sequestration through expansion of forested lands; Section 5.11,
Emissions Associated with Forested Lands, provides more details on emissions issues related to
conversion of existing forest land and consumption  of wood products.

       Carbon sequestration benefits may accrue through projects designed specifically for this
purpose or they may accompany broader policy objectives such as enhancement of natural
resources, reduced  soil erosion, or improved wildlife habitat. Several federal level forestry programs
and planting initiatives and some private sector efforts support tree planting objectives. The federal
programs are administered primarily by the U.S. Forest Service and other agencies within the U.S.
Department of Agriculture and by the Department of the Interior.

       One of the most significant federal efforts dedicated to expanding forested area in the  U.S.
was the U.S. Tree Planting Initiative. As part of the 1990 Farm Bill, this initiative focussed on planting
and maintaining one billion trees per year in urban and rural areas.  Linked with this initiative are
existing federal  programs,  including the Stewardship Program, the Stewardship Incentive Program,
and the Urban and Community Program, that work towards the goal of tree maintenance and planting.
All 50 states have formed State Forest Stewardship  Coordinating Committees to assist state foresters
with these programs.

       Federal programs designed to meet other policy objectives may  also help increase carbon
sequestration through tree and timber expansion. For example, the Conservation Reserve Program,
aimed at protecting  highly erodible croplands, converted about 2.4 million acres into permanent tree
cover since its inception (Callaway and Ragland, 1994). Carefully tailored support for this sort of
initiative illustrates the types  of multiple-benefit or 'no regrets' actions that states may be able to
pursue to help mitigate the threats of climate change.

       Additional tree-planting initiatives have been undertaken by electric utilities, often with the
assistance of state governments and some non-governmental organizations, in an effort to 'offset1
carbon emissions from other sources, including power plant operations.  For example, PacifiCorp is
implementing carbon dioxide offset projects in Oregon that assist non-industrial landowners in planting
rural lands. This project includes cost-sharing and a requirement that trees not be harvested for at
least 65 years.  American Forests' Global ReLeaf for Energy Conservation Program is also focusing  on
                                              6-9

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encouraging utility companies to plant trees for energy conservation.3 Further, New England Electric
Systems is sponsoring forestry programs in Malaysia and Russia to offset emissions from their U.S.
based generating stations.  Section 6.1 discusses utility offset programs in more detail.

       Tree and timber expansion programs in general may include reforestation (replanting former
forests)  and afforestation (converting other land uses to trees). Either way, the net amount of carbon
dioxide that is sequestered  annually by new tree growth varies with the quality of the land, the age of
the tree and its species, climate, and other factors. For example, southern pines planted on cropland
may sequester about 22 percent more carbon per acre than pines planted on pasture land in the
southeast (Birdsey, 1992).  At the same time, however, slower growing tree species that offer longer
crop rotation periods or wood that can be used in longer-lived products, such as furniture, may
supersede the apparent carbon benefits of faster growing species planted in the same regions.

       Policy options to support tree planting include: planting programs on public lands, direct
payments or tax subsidies for private sector tree planting, partnerships or educational seminars
targeted at timber and other forest interests, technical support for non-profit or other private groups,
and forestry based carbon offset programs. The real range of opportunities in this area  depends on
local circumstances including perspectives shared by different interests involved in the forestry sector.

       Because of this diversity of policy options and the technical complexities and uncertainties
involved in forestry expansion programs, the design of large-scale tree planting programs is critical to
their success in sequestering carbon over time.  Programs that do not adequately consider certain
important interests in the tree and timber industry may even neutralize the carbon sequestration
benefits they are trying to achieve.  For example, private forest owners not enrolled in new
government forestation programs may reduce their own tree planting because they anticipate lower
timber prices when surplus  government timber is harvested.  This may result in less net carbon
sequestered by the government program.  As another example, because much of the carbon stored in
the soil and in the woody biomass of the tree is released when the tree is harvested,  carbon benefits
are reduced if the land planted under the program does not remain permanently forested. Assuring
that the planted trees  remain in the ground may require long-term commitments by landowners.

       It is also important to note that most subsidies for tree planting do not preclude harvesting.
Net effects on carbon sequestration may, therefore, be unclear, especially if energy consumption
associated with harvesting activities is considered.  Further, tax incentives and other subsidies must
be carefully crafted to encourage incremental behavior - i.e., to avoid rewarding individuals for
activities that were already planned. At the same time, care must be taken to avoid penalizing the
forest industry and other individuals already engaged in the desirable activity of planting trees -
making these actors ineligible for benefits under a tree planting program may be counter-productive.

       Federal tree planting programs have employed a number of different methods to induce
individuals to participate and to ensure long-term success. For example, the Conservation Reserve
Program employs cost-share arrangements that cover a variety of land management and treatment
costs, such as site preparation, planting, and thinning. Technical assistance has been a component
of the Stewardship Incentive Program.  In addition, these programs typically specify land and
landowner eligibility requirements in order to prevent perverse results, such as clearcutting and
replanting in order to receive subsidies.

       One example of a state level forestation program is the Missouri Department of Natural
Resources' Operation  TREE (Trees Renew Energy and the Environment).  This program's goals are to
reduce demand for heating  and cooling with strategic landscaping, to remove carbon dioxide from the
atmosphere, to arrest  soil erosion,  and to enhance natural water filtration. The Division of
     American Forests is a non-profit organization in Washington, D.C.
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Environmental Quality also incorporated a land reclamation program for mine sites into Operation
TREE. Because mine sites are typically steep and the soil is of poor quality, they are often more
amenable to trees than to other types of cover.

       In addition, Minnesota recently completed a major report assessing that state's carbon dioxide
budget and making recommendations for reducing emissions with forestry. They conclude that, while
land availability is a constraint on carbon sequestration forestry projects, tree planting could be an
important component of an overall program to reduce net carbon dioxide emissions.
              For more information on policies relating to carbon sequestration and forestry
              5.2     Greenhouse Gases from Energy Production: Supply Side Measures
              5.11    Emissions Associated with Forested Lands
6.4    CITY AND REGIONAL PLANNING

       Coordinated urban and suburban planning of energy issues can lead to substantial
greenhouse gas reductions.  These reductions will stem largely from improvements in the
transportation sector and from increases in efficiency during electricity consumption and production.
They may also incorporate better use of urban and regional resources such as recyclable products,
district heat, and methane from landfills.

       The greatest opportunity for reducing emissions through city and regional planning stems not
simply from achieving  direct reductions in these areas, but rather from exploiting the interactions
between different greenhouse gas producing activities.  For example, the combination of a high
density of dark buildings in urban areas and high levels of energy consumption that generates heat,
such as vehicle traffic  and commercial building energy use, tends to trap heat, creating an "urban heat
island* effect This can lead to demand for more air conditioning,  refrigeration, and other energy
draining activities.  Similarly, a commercial building's energy requirements depend not only upon the
building's construction and source  of energy but also its external environment, including the density
and  distribution of surrounding buildings and the local climate. Additionally, the proximity of peoples'
jobs to where they live is a key determinant of how much energy or fuel is consumed for
transportation purposes.  By addressing these issues through land use planning and community
design, coordinated city and regional planning offers tremendous  opportunity for reducing aggregate
emissions of greenhouse gases.

       State and local governments have the predominant jurisdiction to enact policies that will
promote these types of reductions.  City and regional planners determine where and how residential,
commercial and industrial development takes place, states frequently set energy-efficiency standards
and  localities enact building codes, and both these levels of government plan and support
transportation system  development. In this context, local control over land use and zoning offers one
of the greatest opportunities for promoting greenhouse gas emission reductions. It is important to
realize that zoning ordinances affect these emissions whether they intend to or not, and therefore, that
city and regional planners should become aware of the climate change implications of their actions.
Zoning that permits extensive parking in urban areas, for example, often discourages the use of
energy efficient public transportation.  Similarly, zoning that excludes businesses from residential
areas creates a higher need for mobility as people must travel farther to work, causing higher levels of
emissions.
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Exhibit 6-3: The Land Use, Transportation, Air Quality (LUTRAQ)
Project
        Planning agencies are also
optimally situated to identify areas
where excess heat or other
resources in one sector, like
industrial production, might be used
to meet the energy needs in another
sector, like commercial heating.
This is a function that only local and
state governments can perform.

        The International Council for
Local Environmental Initiatives
(ICLEI), an international association
of local authorities dedicated to
helping localities mitigate
environmental threats and enhance
the natural and built environments at
the local level, works with local
governments to  identify these types
of opportunities  for reducing
emissions of greenhouse gases and
other pollutants. Through their
Urban CO2 Project, ICLEI works with
the cities of Denver, Minneapolis,
Miami, San Jos6, Portland, and
others on greenhouse gas emission
reduction  programs.

        Specific  measures to induce
greenhouse gas emission reductions
through city and regional planning
should focus on coordinating the
proximity and  mix of residential,
commercial and industrial sites in order to help mitigate the urban heat island effect, reduce or
facilitate transportation needs, and use potential energy-saving or emission-reducing resources that
are currently being wasted, such as heat from industrial sites or methane from landfills.   For example,
In 1994,16 San  Bemadino jurisdictions prepared a 'Land Use, Transportation, and Air Quality' manual
in response to a mandate from California's South Coast Air Quality Management District. The focus of
the document is to improve air quality through land use measures such as transforming auto-oriented
subdivisions into pedestrian neighborhoods.  Other specific planning ideas are presented below.

  •     Establish self-sufficient, mixed-use communities by ensuring that employment, shopping,
        entertainment, medical care, and similar services are located near residential areas in order to
        minimize transportation needs. Florida has developed several model communities with these
        purposes in mind, as reflected in Dade County's traditional neighborhood development
        ordinance.'

  •     Support central district heating and cooling, which involves capturing and channeling waste
        heat (usually from industrial facilities)  or heat from a central boiler to meet heating needs in
        commercial or residential buildings. This may involve developing infrastructure to transfer the
        heat (as steam or hot water) between locations and planning industrial, manufacturing,
        commercial, and residential centers in relative proximity to each  other. Almost half of the
        homes in Sweden are heated this way.
          1000 Friends of Oregon, a nonprofit membership
   organization dedicated to the wise and responsible use of land,
   has initiated a research demonstration project to identify and  .
   analyze alternative development patterns to automobile-
   dependent suburban sprawl. By emphasizing the connections
   among land use, transportation, and air qualify planning, the
   project participants hope to demonstrate how changes to focal
   land use policies and development designs can Increase the
   economic feasibility of alternatives to automotive travel, thereby
   reducing energy consumption; reduce the demand for
   automobile-oriented facilities; increase mobility for all segments
   of society; provide for sustainable population and economic
   growth; minimize negative environmental impacts, such as
   climate change effects from increasing  greenhouse gas
   emissions; and enhance community character and awareness.

          The LUTRAQ project will study a proposed $200
   million bypass freeway and a surrounding 115 square mite area
   in the Portland, Oregon metropolitan region.  Using well-known
   transportation and air pollution models  (EMME/2 and
   MOBILE4), the project will identify  replicable methods for
   altering land use development  patterns to promote pedestrian,
   bicycle, and mass transit travel. These new methods will
   provide important tools for policy makers, planners, and
   citizens calculating the feasibility of alternative modes of
   transportation. The project research will be conducted by a
   team of internationally recognized experts in the fields of land
   use planning, urban design, and computer modeling,
         6-12

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       Plan the density, distribution, color, and facades (may include glass-types) of buildings so
       heat can escape the city to help mitigate the urban heat island effect.  Develop urban tree
       programs to provide summer shade and to act as shelter belts against cold winds in the
       winter that draw the heat from buildings.4

       Establish and enforce building codes and energy-efficiency standards that help minimize
       residential, commercial, and industrial energy consumption.

       Design  and build 'green space', i.e.,  parks, urban green wards, etc., These green spaces can
       help reduce urban heat island effects, while also sequestering carbon dioxide.

       Facilitate and  promote public transportation systems in coordination with all the other planning
       measures listed above,  reducing direct carbon dioxide emissions from automobiles and
       decreasing transportation systems contributions to the urban heat island.

       Support innovative work and transportation alternatives such as telecommuting in order to
       reduce  overall commuting needs, again reducing direct carbon dioxide emissions and urban
       heat trapping.
              For more information on measures, particularly relevant to city and regional
              planning see:

              5.1     Greenhouse Gases from Energy Consumption; Demand Side Measures
              52.     Greenhouse Gases from Energy Production: Supply Side Measures
              5.3     Greenhouse Gases from the Transportation Sector
              5*4     Methane from Natural Gas and Oil Systems
              5.6     Methane from Landfills
6.5    AGRICULTURAL SECTOR PLANNING

       Concentrating on one sector of the economy can provide a useful focal point for
comprehensive and well-coordinated policy development.  As an example, the agricultural sector
contributes to greenhouse gas emissions in a variety of ways.  For example:

  •    Greenhouse gases are emitted through energy consumption during field operations and agro-
       chemical production, including fertilizers, pesticides, and herbicides;

  •    Greenhouse gases are emitted when agricultural crop wastes are burned;

  •    Methane is emitted from livestock and poultry manure, through enteric fermentation in
       domesticated animals, and from flooded rice fields;

  •    Nitrous oxide is emitted as a result of nitrogenous fertilizer use;
      Cool Communities is a voluntary program sponsored by DOE.  The function of Cool Communities is to
encourage the strategic planting of trees to provide shade and windbreaks to residential and commercial buildings,
thereby, improving energy efficiency and reducing the urban heat island effect. These trees also serve as a carbon
sink, contributing to the overall carbon reservoir both above and below ground. (Cool Communities is Action #11
of the  CCAP).
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  •     Agricultural production decisions alter land use, which in turn affect greenhouse gas
        emissions; and

  •     Agriculture offers biomass fuel potential.

By focusing on the agricultural sector, therefore, policy-makers can integrate several greenhouse gas
reduction measures into a single, comprehensive program.

        The greatest opportunities for reducing greenhouse gas emissions in the agricultural sector
may involve not only direct actions to address each of these sources, as Chapter 5 discusses, but
also innovative approaches that combine policies so that emission reductions from one source
support reductions from others.  For example, methane can realistically be captured from some
manure systems and used as an energy source in production processes or for heating buildings.
This decreases direct methane emissions and reduces the need for energy from traditional fossil fuel
sources (see Exhibit 6-4).  Additionally, composting crop residues and using them as fertilizer or
growing leguminous crops where residues can be plowed into fields as a nitrogen source will reduce
carbon dioxide emissions from crop burning and may help decrease nitrous oxide and other
emissions associated with fertilizer applications.  Similarly, processing crop residues into biofuels has
multiple benefits.
Exhibit 6-4:  Broiler Litter Program in Alabama
          The Broiler Utter Program is co-sponsored by the Science. Technology and Energy Division of the
   Alabama Department of Economic and Community Affairs and the U.S. Department of Agriculture's
   Tennessee Valley Resource Conservation and Development Council. This innovative program addresses
   improvements in energy efficiency, solid waste reduction, and agricultural productivity. In the pilot program,
   newspaper is shredded and blown over a poultry house floor. Baby chicks are then brought in and, within a
   couple of days, the shredded paper becomes matted and slick from the droppings and moisture.  A few
   days later, the matted paper begins to break up.  In six weeks, the broilers are taken to market, at which
   time either a new layer of paper is added to the floor or the floor is cleaned up and the process repeated.
   When the titter is collected from the poultry house floor, it is spread on crops as fertilizer or is mixed with
   feed and fed to livestock for its nutritional value.

          Because farmers can reduce their purchases of commercial fertilizers, greenhouse gas emissions
   associated with the production and use of the fertilizer are reduced. In addition to the benefits to the farmer
   in feed and fertilizer savings, the Broiler Litter Program can enhance recycling efforts by creating demand for
   Old newspapers and by decreasing the flow of wastes to the limited amount of available landfill space.
   Furthermore, the use of shredded newspaper for bedding also eliminates the need to truck in wood chips
   from as far away as 250 miles, thereby saving on fuel and transportation costs. Finally, farmers have also
   noticed decreases in their energy bills, primarily due to the insulating effects of the shredded newspaper.
   This reduction in fuel consumption results in lower CO2 and other energy-related emissions. With more than
   2,000 chicken producers in the four Alabama counties where project demonstrations are held, more savings
   are expected as the program gains popularity.
        States can usually promote these or other innovative mechanisms for reducing emissions from
multiple sources through individual projects or by developing broader programs under which a range
of specific actions can be undertaken.  Projects might include, for example, improving the
understanding and increasing the implementation of integrated pest management (IPM) activities. IPM
has the potential to not only reduce the need for and use of harmful pesticides, but it can also
increase efficiency and productivity, thereby, reducing emissions from energy-related activities.


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Another potential project could include improving the efficiency of nitrogen fertilizer use. This has the
potential to not only result in lower emissions of N2O from microbial activity occurring in the soil, but
also lower emissions of CO2 from electricity and natural gas consumption during the manufacture of
fertilizer. Also, both projects offer benefits to the farmer in addition to environmental, including
decreased health risks (from a reduction in pesticide use), increased productivity, and decreased
energy costs.5

        Public recognition or other rewards for farmers who reduce emissions from more than one
source simultaneously may also enhance farmer interest in these activities.  Support for demonstration
projects in multiple-source emission reductions can also generate farmer interest, especially if
coordinated with well-known and successful existing farms. Another successful approach may be to
make sure that farmers  receive a uniform and consistent message about the needs, benefits, and
related opportunities for multiple-source emission reductions from all government programs with which
they commonly interact.  For example, a common message about the imperatives and benefits of
emission reductions from state agricultural agencies, environmental agencies, extension agents, and
even in trade journals and other publications can consistently reinforce the fact that farms can
simultaneously reduce emissions and save money.

        States may gain additional benefits by developing broader programs to coordinate all these
types of projects.  For example, Chapter 7 describes the Iowa Agricultural Energy Environmental
Initiative, a wide-ranging program that serves as a base for a variety of  efforts to  reduce energy
consumption and pollution in Iowa's agricultural sector. Under this program, a diverse range of
projects are tied to a common theme, garnering publicity and political support as well as resources
from a variety of external sources.  Without the  central program in place, several  diverse projects
could not be linked to a common initiative and would not receive the same level of popular or political
support.
              For more information on agricultural sector planning see:

              5.1     Greenhouse Gases from Energy Consumption: Demand Side Measures
              5,2     Greenhouse Gases from Energy Production: Supply Side Measures
              5.3     Greenhouse Gases from the Transportation Sector
              5.7     Methane Emissions from Domesticated Livestock
              5.8     Methane from Animal Manure
              5.9     Methane from Rice Cultivation
              5.10    Nitrous Oxide from Fertilizer Use
              5.11    Emissions Associated with Forested Lands
              5.12    Greenhouse Gases from Burning of Agricultural Wastes
      The CCAP provides detailed descriptions and analyses of voluntary programs designed to reduce pesticide
use and increase the efficiency of nitrogen fertilizer applications (Actions #17 and #18, respectively).
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                                          PART III

             PROGRAM DEVELOPMENT AND STATE ACTION PLAN PREPARATION
       The two preceding chapters provide a menu of policy options that states might include in a
State Action Plan. This part of the document explains how states can choose from among those
options and meld them into comprehensive climate change mitigation programs. It also provides a
framework for the actual State Action Plan.

  •    Chapter 7, Climate Change Program Development, is provided help states anticipate
       institutional, political, and other organizational issues that may complicate their program
       design efforts.

  •    Chapter 8, Analyzing Policy Options, clarifies the different processes and tools states might
       use for analyzing and comparing policy options, highlighting the many complexities involved in
       this process.

  •    Chapter 9, Preparing the State Action Plan, gives examples of the types and content of State
       Action Plans that EPA feels would support national efforts in this arena and would provide a
       consistent base for the federal government in allocating additional resources and technical
       assistance to states.

       This information should help state policy-makers anticipate many of the complications that
may arise as they structure actual climate change mitigation programs.
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                                        CHAPTER 7

                        CLIMATE CHANGE PROGRAM DEVELOPMENT
       This chapter addresses the process of planning, implementing, and administering climate
change mitigation programs.  It summarizes complexities that states may encounter during the
development of greenhouse gas emission reduction policies and describes how several states have
structured their programs to deal with these issues. Ideally, the information presented here will help
elucidate some of the criteria that may be important when designing programs, including time frame
considerations and political and administrative feasibility, as discussed in Chapter 4.

       Specific topics addressed in this chapter include the important actors who affect climate
change program design, political considerations relating to climate change program development,
treatment of time perspectives, interaction between various agencies within and external to state
governments, general program administration, and program financing.


7.1     TIME PERSPECTIVES IN CLIMATE CHANGE PROGRAM DESIGN

       As highlighted throughout this document, states should anticipate that climate change policy
formulation will be a dynamic, evolving process. For this reason, program design frequently depends
upon a state's approach for looking at  near-, mid-, and long-range issues.  Time frame issues are
relevant in the  political, organizational and administrative aspects of program planning. For example:

- •    Greenhouse gas emissions today will affect climate change and its impacts at the local level
       for many decades.

  •    The capacity to reduce greenhouse gas emissions, especially through log-range mitigation
       options, depends on anticipated changes in science and technology.

  •    One reason current emission forecasts are important is that they provide a baseline for
       analyzing potential emission  reduction impacts from various policy options ranging across time
       frames.

  •    Dynamic programs with goals and criteria that vary across time frames may be more effective
       than programs adhering to one static set of objectives.  Programs benefit from qualitative and
       quantitative short-, mid-, and long-range emission reduction targets and goals.

  •    Policy evaluation, entailing predictions and measurements of probable program impacts,
       depends heavily on time frame considerations.  Key time frame assumptions are critical for
       conducting emissions analysis  and economic impact analysis.  These same time frame
       assumptions play a significant role in driving any formal emissions or climate change modeling
       efforts a state may decide to pursue.

       7.1.1   Structuring Time Frame Considerations in Program Design

       Throughout this document time frame considerations are split into near-, mid-, and long-range
classifications.  This section defines and examines these classifications in more detail, introducing the
advantages, constraints, and opportunities surrounding policy planning and implementation within
each one.
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Near-Range

       Near range actions can be initiated immediately. Among other benefits, these policies offer
the opportunity to implement immediate emission reductions, set precedents for state actions on
climate change, demonstrate new technical approaches for addressing various emission sources,
develop an analytic base for future actions, and generate immediate and future political support by
incorporating various important actors in high visibility and popular projects. Within this time frame
many 'no-regrets* policies can  often be implemented at relatively low cost.1

       The primary constraints associated with near-range actions are typically related to the
technical, organizational, political,  or financial feasibility of alternative options. These constraints stem
from the scientific, economic, and technological uncertainty surrounding climate change mitigation
measures and from the frequent need to gamer support from diverse sectors of society and to
coordinate actions between government agencies. (Other sections in this chapter discuss these
political and organizational issues in more detail.)

       Additionally, without comprehensive and longer-range program design, actions focused on the
near-term can  come to dominate state programs and drain financial, analytical, institutional, and
political resources from initiatives that can have more significant impacts but that will take longer to
develop and implement. Also,  states that pursue only 'no-regrets' actions often find that they do not
innovate or develop new policy ideas  for addressing greenhouse gas emissions.  For these reasons,
near-range actions should  generally be envisioned as part of larger and more comprehensive
programs and should be communicated to the public and other important stakeholders in this way.

Mid-Range

       Mid-range policies  are  often considered in a ten- to twenty-year time frame, hinging on issues
such as technology  development and implementation feasibility, as well as on  emissions and
economic forecasts.  Policies in this range often involve significantly more analysis, planning, and
investment than near-term  measures.  They also offer significantly greater opportunity for larger
emissions impacts.

       Mid-range measures can often be designed to integrate with other state policy objectives such
as increasing energy efficiency and decreasing air and water pollution.  Careful planning can thus
yield multiple benefits to the state and enhance political support for these policies.  Furthermore,
establishing mid- to  long-range climate change mitigation objectives  can also encourage technical and
political innovation.  Plans to reduce utility or transportation sector emissions to a certain level within
fifteen or twenty years, for example, may prompt policy-makers to develop innovative approaches to
greenhouse gas reductions.  Policies  planned in this time frame should be careful to maintain flexibility
so that they can adapt to changing circumstances, such as technical advances or economic
downturns.

Long-flange

       Long-range actions to address climate change can incorporate specific policy objectives that
may take twenty or more years to enact.  Successfully encouraging the complete  transition in
industrial and commercial energy use away from carbon-intensive fossil fuels, for example, may take
many years. Similarly, it may take several decades to spread and institutionalize comprehensive
public awareness at all age levels about climate change issues. These measures may represent
fundamental changes in how our society deals with these and other topics.
     'No-regrets' policies are defined in Chapter 4.


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       These long-range actions are perhaps best viewed as visionary objectives that states can
support through a variety of near- and mid-term policies.  They are sometimes more difficult to
establish outside of a general state plan (in transportation or education, for example) because future
economic developments, evolution in our understanding of climate change, and impacts from the
interaction between various policies are difficult or impossible to forecast.

       Even amidst these constraints, however, these approaches are critically important. They often
offer the most hope for permanent stabilization of greenhouse gas emissions.  Comprehensive state
programs established now can set the groundwork and the context for addressing these fundamental,
long-range objectives while maximizing near- and mid-range emission reductions the most effectively.

       7.1.2   Models for Including Time Frame Considerations in Program Development

       States should integrate time frame considerations into program planning to match local
institutional and political circumstances. Policy planning may vary, for  example, between states where
legislatures work full-time and states where legislatures meet for only part of the year. Ideal programs
will probably combine and implement policies that consistently address near-, mid-, and tong-range
objectives. Specific policies may conceivably address all these time ranges while others will
concentrate their impact within only one time frame.

       A variety of organizational structures for program design can support policy development
amidst these complications. Three possibilities are discussed below in detail, and examples are
provided.

Mid-and Long-Range Program Targets Coupled With Near-term Policy Plans

       The State of Oregon developed a program  structure that incorporates a mid-range emission
reduction objective with repeated two-year emission reduction plans (Oregon, 1990).  According to
policy-makers in that  state, one of the foremost benefits of this approach is that it  provides a formal
program target in the mid-term that prevents the state from delaying action on this issue, while at the
same time utilizing a  structure that incorporates opportunities for program development, evaluation,
and revision every two years as necessary. This flexibility offers the opportunity for policy-makers to
respond to scientific,  economic, and political changes, and to make program adjustments based on
organizational and administrative issues as well.

       One apparent detriment of Oregon's set mid-term target is that it seems to have impeded
consideration of potentially important policy options with longer-term orientations.  For example,
transportation and land-use changes that would take more than twenty years to implement or to
produce emission benefits are largely excluded from a system that establishes a mid-term goal with
no incentives for longer-term policy development.

Immediate Action to Initiate the Climate Change Policy Formulation Process

       Some states  have taken immediate-term action on this issue before conducting more
comprehensive program planning efforts. For  example, Missouri, Vermont, and other states have
authorized and conducted climate change studies.  Long-term benefits from these efforts seem mixed.
In some areas these  types of studies have helped set the climate change policy formulation process in
motion, generating interest among actors and  setting the stage for future action. However, in other
areas these studies have provided little momentum, and either further action has not  been taken, or it
has been delayed.

       Iowa's experiences illustrate this point. The Iowa Department of Natural Resources conducted
an initial inventory but has taken little coordinated action since then to address  climate change
specifically, although  it has pursued other initiatives, such as energy-efficiency and water pollution
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reduction programs, that simultaneously help reduce greenhouse gas emissions.  Their initial action
on climate change has yet to lead to a more structured program for dealing with this issue.

       California's initial work on climate change, on the other hand, helped generate significant
public and political interest in this issue. As part of their actions towards producing a complete policy
report on climate change and greenhouse gas issues, which was mandated by its legislature,
California developed an  initial interim study that seems to have encouraged many different private and
public interests to become involved. The interim study made it clear that the state would be taking
further action in this field. Without the mandate for the later policy report, some policy-makers in
California are uncertain as to whether the initial report would have generated so much public interest.

Feasibility and 'Afo-rteorete' Standards to Structure Policy Choices

       Another approach to initial policy development necessitates that policies be based on factors
such as technological feasibility and cost-effectiveness. This conservative approach may span all time
frames; in California it is based on the state's intent to initiate select measures which have greenhouse
gas reduction benefits, while also completing more policy research that may lead to expansion and
refinement of the emission reduction program. 'No-regrets' policy guidelines frequently offer similar
advantages.  These types of guidelines  initiate policies that are completely  beneficial to the state and
may help build political consensus for further action.  Both the feasibility-based and no-regrets
approaches may help reduce political resistance to new programs while demonstrating some action to
address climate change.

       These approaches can also suffer from the same constraints as those discussed in the above
section (Immediate Action to Initiate the Climate Change Policy Formulation Process). Without
implementing some direct mechanism or incentive to initiate actual policy development, like a
quantitative or qualitative mid-range target or a specific mandate to action,  these feasibility-based and
no-regrets actions do not always propel states towards further action. The highest utility from no-
regrets and feasibility-based  actions seems to come when they are combined with other incentives
within the context of larger or more structured programs, perhaps  as part of a longer-term no-regrets
plan.


7.2    IMPORTANT ACTORS IN CLIMATE CHANGE PROGRAM DESIGN

       Interactions between several distinct types of actors set the context for climate change
programs. These actors maintain resources and knowledge that contribute to policy development,
determine program structure or policy content, or influence program design in other ways.

       Specific organizations and individuals will vary in each state depending on how programs
address sectors, including transportation, energy supply, energy use, forestry, industry, and
agriculture.  Some will participate during the initial phases of program design, while others will be
more  active during policy implementation or long-term program administration. Six broad categories
of actors are presented below:

  •    Private sector interests, who often maintain significant data and analytic capabilities relevant to
       emissions planning, and who may be affected by new emission reduction policies;

  •    Citizen and advocacy groups, including those in the environmental,  commercial, health and
       safety, and scientific  fields;

  •    State agencies, which maintain government data and analytic capacity, as well as policy and
       implementation jurisdiction in the sectors that may be expected to reduce greenhouse gas
       emissions;
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  •    State governmental executives, including those concerned directly with climate change, those
       involved in managing the state economy, and those who may be prompted to comply with
       federal initiatives regarding climate change or other policy issues that affect the above-
       mentioned sectors;

  •    Legislators, whose interests and concerns may vary with regards to the impact of climate
       change mitigation policies on their constituents, including state citizens and other .
       representatives from the various economic sectors that produce emissions;

  •    Federal agencies, especially those whose field programs in states may be affected, as well as
       those that provide grant monies, other funding, or technical assistance supporting states'
       climate change programs.


7.3    POLITICAL CONSIDERATIONS IN PROGRAM DEVELOPMENT

       Political feasibility may be one of the foremost criteria for policy selection and program
structuring.  In some circumstances political controversy has inhibited aspects of state-level program
development while, in other situations, deliberate planning around political issues seems to have
strengthened program design. States may want to think strategically about how to structure programs
in order to draw input from the various important actors while minimizing unnecessary political
confrontation.

       Political controversy in this field frequently stems from the multi-sector, long-term, and
scientifically and economically complex  nature of climate change issues.  In this context, many of the
important actors listed above may see their interests threatened and become concerned about
government action. This frequently includes individual citizens and their elected representatives who
are aware that these emission reduction policies can significantly impact peoples' lifestyles. Public
interest groups, utilities, industry, state legislators, and various state agencies may share certain
perspectives and disagree on others. These perspectives may also vary between  initial policy
planning, program implementation, and ongoing program administration.

       While interactions between the various important actors will result  in different political
dynamics in every distinct situation, recent state experiences highlight three consistent topics that
states with new or changing programs may want to  consider. States may want to investigate how
they can develop programs and processes that foster broad-based political support, how they can
use particular policies strategically within the time frames of program development, and how they can
plan and utilize legislative and executive actions strategically, when feasible.  In addition to
summarizing these issues below, discussions throughout the rest of this chapter reflect these types of
political complexities and ways states might deal with them.

       7.3.1   Developing Programs and Processes that Foster Broad-Based Political Support

       Because so many distinct types of actors have an interest in and influence over climate
change policy formulation, programs without broad-based support may have  difficulty building the
momentum necessary to initiate emission  reduction  policies. Furthermore, climate change mitigation
efforts often depend not only on fostering  enough political support to initiate programs, but also on
continuing support and action to carry out program  objectives.  For example, states may need direct
action by private sector actors to assist in actual emissions reductions; support from citizens groups
to communicate with different sectors of the general public; and data and skills from various agencies
to complete complex analyses. For these reasons, any program  planning that excludes or offends
important actors can potentially lead these actors to inhibit program development,  either through
direct political confrontation or by withholding analytic, enforcement, and other institutional resources.
                                             7-5

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       At the same time, states may encounter organizational and administrative problems if they
incorporate too many tangentially connected actors into planning and implementation processes.
Some states have indicated that, because of the broad nature of this issue, groups with diverse
interests marginally related to climate change have sought to become involved in state planning
processes. While their political support may be valuable, states should carefully weigh this against
additional burdens that might arise from incorporating distinct actors with agendas beyond the
purview of the state's vision of climate change policy formulation.

       7.3.2   Using Policies Strategically Within the Time  Frames of Program Development

       Near-, mid-, or long-range  policy criteria may include requirements that some policies help
bolster a program's political strength in  addition to directly affecting greenhouse gas emissions.  For
example, policies can  be designed to demonstrate success and win broad based support
immediately.  Alternatively, they can foster the support of specific actors through other mechanisms in
the immediate or longer terms.

       Examples of policies that may strengthen overall program support immediately include
projects with highly visible results that readily demonstrate net benefits to the state while reducing
greenhouse gas emissions.  For example, aggressive programs that quickly demonstrate the benefits
of residential and commercial energy-efficiency efforts or methane processing at landfill sites can
encourage citizen groups, politicians, and industries to support state climate change mitigation efforts.
These projects emphasize quick success in order to build constituencies and consensus.

       States may also find it valuable  politically to develop projects advocated by specific citizen or
industry groups. Inclusion of such projects may help win the support of these groups for the entire
climate change program, while the magnitude of their immediate and direct effects on emissions may
vary. Urban tree planting programs, advocated by citizen groups, for example, may have a minimal
impact on emissions, but they serve to include these important groups in the policy planning process
immediately.  This can help generate public awareness of climate change issues, and set a precedent
for state or local action to address this topic. However, it is important that states avoid diffusing the
momentum behind broader climate change program development by casting these projects as initial
steps towards addressing this critical issue, not as near- or long-range solutions in and of themselves.

       Other policies  or projects may not generate immediate political support but can be designed
to do so as they evolve over the longer  term. For example, states may design public relations
programs that publicize annual or  bi-annual achievements towards reaching some preset emissions
reduction goal and highlight the economic sectors or specific outstanding actors that have
contributed.  Alternatively, state policy-makers may write provisions into their initial State Action Plan to
help ensure that new projects designed around political criteria, among other factors, are implemented
every year or two.

       7.3.3   Utilizing Legislative and Executive Action Strategically when Feasible

       The type of political authorization programs receive can significantly influence how these
programs develop. For example, legislative mandates can help circumvent some potentially
destructive controversies over policy formulation, while executive directives in  many situations permit
quicker and more independent performance by agencies.  With careful planning, states may accrue
additional benefits and avoid particular detriments related to differences between these two modes of
program authorization. States should recognize these among other motives for determining how to
approach potentially controversial issues.

       Oregon and California's experience in setting quantitative programs goals highlights this point;
Oregon has produced a quantitative goal while California has not.  Oregon's quantitative greenhouse
gas emission target was set by the legislature (Oregon, 1990).  This fact seems to have helped
minimize the political controversy and amount of state resources needed  to assist in goal setting.  On


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the other hand, the California Energy Commission has addressed goal setting in a public forum and
has experienced high levels of controversy on this unresolved issue (CEC, 1991). While California has
achieved other extremely important objectives through the public forum process, the impasse in this
case illustrates how political controversy may affect the results of dealing with certain issues through a
particular approach.


7.4    COORDINATING CLIMATE CHANGE PROGRAMS: INTERACTION BETWEEN AGENCIES

       Climate change mitigation policies across all time frames are likely to require coordination
among various state agencies, as well as between states and federal and local governments. In the
initial phases of program development, high levels of interaction will help states address the multi-
sector nature of this issue by strengthening program comprehensiveness across sectors, garnering
broad-based political support, and tapping all available resources for analyzing and addressing
greenhouse gas emissions. In addition to facilitating and promoting the initial phases of program
design, ongoing coordination between agencies will help facilitate program evolution and dynamic
responses to changing climate change and policy circumstances in the future.

       Many current and recent state actions to address climate change illustrate the value of
interagency coordination from the outset and provide potential models for structuring such interaction.
For example, Missouri, California, South Carolina and others have taken deliberate executive or
legislative action to coordinate programs between agencies in this field. The sections below provide
additional information  and ideas on state partnerships, federal and local partnerships, and procedures
for coordinating interagency action.  It also highlights potential benefits and drawbacks learned
through various experiences.

       7.4.1  Partnerships Between State Agencies

       To be effective, program design, evaluation, and implementation must incorporate the various
government agencies  that retain policy jurisdiction and analytic capacity regarding these numerous
sectors. Initial program design may also benefit from involving state tax and legal agencies.
Integration of various state agencies into the climate change policy planning process may:

  •    Enhance program planning and analytic efficiency.   Drawing on each agency's expertise  and
       analytic strengths, integrated climate change programs can use the state's current resources
       efficiently and  heighten the program impact. This may include relying on staff in certain
       agencies to analyze topics within their jurisdiction, like transportation or agriculture, and it may
       also involve employing the analytic capacities of various agencies to heighten program
       efficiency, like utilizing an energy office's forecasting skills.  In these ways, pooling the
       substantive and analytic knowledge of climate change program planners efficiently draws on
       current state resources and helps ensure  comprehensive climate change mitigation programs.

  •    Avoid program duplication between agencies working on similar or related issues.  With careful
       coordination, agencies may complement rather than duplicate or damage each other's efforts.

  •    Foster a strong political base.  As noted in the previous section, voluntary consensus on
       policies among the  important actors, including state agencies with jurisdiction in the various
       sectors, strengthens climate change programs significantly.

  •    Support strong liaison with industry and citizen groups in each sector. Where appropriate, new
       climate change programs can utilize and perhaps strengthen the ties that state agencies in
       diverse sectors already have with their constituents, instead of duplicating efforts by building
       the same liaisons and working relationships from the beginning.
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  •    Improve each agency's existing programs and administrative capacity. Tying climate change
       issues to existing programs may enhance the analytic or political legitimacy of climate change-
       related programs.  For example,  strategies aimed at reducing emissions of N2O through the
       reduction of nitrogen fertilizer use may consider tying this objective to existing and planned
       groundwater protection programs that stress the need to reduce fertilizer use. Similarly, the
       threat of climate change may provide additional reasons for establishing or enhancing
       reforestation programs and improving and expanding energy-efficiency or mass transit.  This is
       the core of the 'no-regrets' approach introduced in Chapter 4.

  •    Help prepare agencies for future  policy developments.  Individual agencies that are involved in
       program planning may better anticipate how climate change issues will affect them in the
       longer term. For example, state  agencies participating in climate change program planning
       may gain a broader understanding of how international  and national actions, as well as
       eventual climatic changes, are likely to affect their areas of jurisdiction.

       Exhibit 7-1 provides one example of coordination between state agencies that supports
greenhouse gas emission reductions.

       7.4.2  Interaction With Federal and Local Agencies

       Close liaison with other levels of  government can also enhance state climate change mitigation
efforts. Deliberate linking with federal and with local  initiatives can strengthen a program's
effectiveness in many ways,  For example, in addition to broadening the program's political  base,
interaction may provide access to additional skills and other resources that programs can draw upon
and may help facilitate productive program interaction in areas where jurisdictions overlap, such as
the transportation, buildings, and land use sectors.

       In addition to the potential direct benefits from interacting with federal and local agencies,
states possess a unique opportunity to encourage the other levels of government to act on the climate
change issue.  For example, state action and pressure may set precedents for national policy-making,
and innovative state programs can provide incentives for cities and localities to design their standard
policies to help reduce greenhouse gas  emissions.

       Liaison with the federal government may be particularly helpful in terms of accessing grant
monies and other forms of program financing, enlisting technical support, facilitating areas of
overlapping jurisdiction, and mitigating or setting the context for potential future federal regulatory  or
other action on this issue.  This type of coordination  is especially relevant, for example, in areas such
as transportation policy design, energy efficiency regulation on appliances, and electric utility
regulation.  In these areas the federal government has taken certain actions that in part preempt what
states can do and in part require or empower states  to perform other functions.

       7.4.3  Structuring Partnerships/Program Coordination and Administration

       It is often valuable for one agency, or some other officially designated government body, to
maintain responsibility for program coordination.  As  illustrated below,  this may be an existing agency,
a specially designated task force, or some other central organizing unit.  By providing a central focai
point for the various important actors, as well as a central record-keeping and administrative unit, this
type of structure may help circumvent coordination and  authority problems. Some states report that
lack of a formally designated, centrally responsible agency  undermines any agencies who do try to act
in this area, even if they are instructed to do so by executive or legislative action.

       States involved in climate change policy formulation have dealt with this issue in several ways.
For example, South Carolina incorporates two interagency feedback loops into their program
structure.  First, they involve agency heads in program planning and development. Second, they
solicit input from program managers and others who are responsible for actually implementing and


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:             Exhibit 7-1:  The Iowa Agricultural Energy Environmental Initiative


Summary;  The Iowa Agricultural Energy Environmental initiative is a consortium of federal, state,
and local agencies and institutions organized to implement an array of projects focused on
pollution prevention in agriculture.  The Initiative is predicated on the belief that integrated and
Innovative policy models are required to deal with broad-reaching environmental issues. It insists
that agencies cannot work at cross purposes, and that shared resources and expertise can provide
better results than individual efforts. The  consortium's goal of  'accelerating  the adoption of
improved farm management practices that reduce the environmental impacts of Iowa agriculture,
reduce consumption of non-renewable energy resources, and enhance the efficiency  and
probabaity of farm management* is implemented through demonstration, education, and research
programs.   Major  parts of this program include the Big Spring Basin Demonstration Project
(reducing the use of nitrogen fertilizer), the Integrated Farm Management Demonstration Project
{nitrogen management and crop  consulting), and the  Model  Farms Demonstration  Project
{management of farm resources).  While not its explicit purpose, this program reduces greenhouse
gas emissions  by promoting energy efficiency on farms and by reducing  nitrogen fertilizer
consumption, which directly lowers nitrous oxide emissions and indirectly lowers carbon dioxide
emissions at the energy-intensive plants that produce the fertilizers.

Organization;  The Agricultural Energy Environmental Initiative  developed through an  earlier
coalition Of groups which  convened in  the early 1980s to tackle groundwater problems.  The
initiative operates on three fundamental principles; (1) Interagency coordination consumes time and
energy, and therefore depends on a nucleus of dedicated, willing participants; (2) Consensus on
all issues is an impossible  goaf, but a basic consensus on program directions is necessary; and
(3) Agency goals or personal egos must at times be sacrificed for group success:  The Initiative
began by Identifying potential participants in the coalition and the  problems, needs, and relevant
authorities  involved in this issue.  With each participant's agenda and potential contributions
defined, key individuals help apportion human and monetary resources towards projects that are
valued by the entire coalition. The primary responsibilities of the Initiative have traditionally rested
with the Iowa Department of Natural Resources, although there is no official lead agency. Similarly,
the coalition has no explicit structure, although  there are formal working agreements for each
project Projects, after being designed, are fit into various agencies'  existing programs in order to
achieve •maximum  Implementation efficiency and maximum integration into mainstream agency
programming. Member groups include.* Iowa Department of Agriculture and Land Stewardship,
Iowa Department of Natural Resources, USDA - Soil Conservation Service, Agricultural Stabilization
and Conservation Service, Agricultural Research Service, US EPA Region VII, Iowa State University,
the Leopold Center for  Sustainable Agriculture, the University of Iowa,  Iowa Soil and  Water
Conservation Districts, the  Practical Farmers of Iowa, and other private interest groups.

Programs; The Initiative creates pilot programs that local authorities or private farms can adopt as
public sector enterprises or private businesses.  Prior to project implementation, sociological and
form management  surveys are conducted in order to ascertain current practices, problems,  and
wilBngness and ability of impacted individuals to contribute. Additionally, the program calls for a
structured feedback loop  from the local level. This loop  allows for continual adjustments  and
corrections based  on what is happening where the project is being  implemented, and helps
generate grassroots support and commitment A final requirement is long-term feasibility, based
on project transferability criteria Some demonstration projects integrate and support agribusiness
in order to enhance long term process and technology adoption.  Once a project is formatted,
aggressive marketing generates widespread visibility, and an information delivery plan  promotes
expansion of impacts beyond those directly involved.
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           Exhibit 7-2: Examples of State Approaches to Program Coordination


South Carolina:   South Carolina  issued an  executive order that authorizes the State Water
Resources Board to administer a climate  change task forca  This task force ts tied to the
governor's office and state legislative committees, and makes recommendations on climate change
issues to both branches of government its membership is drawn from public and private sector
groups, Including utilities and citizen organizations. It is structured around working groups that
focus on the various economic sectors impacted by dimate change.  The State Water Resources
Board, as the administrative agency,  helps ensure  broad  based participation and maintains
centralized contact and coordination with all participants.

Missouri;   Missouri  has established  two separate bodies charged  with researching  and
recommending state action on energy futures Issues.  The first Is the Energy Futures Coalition, a
broad based, governor appointed body that examines the Impact of energy issues on topics such
as economic development and state employment.  The second is the Energy Futures Steering
Committee, an interagency task force formed by the state Division of Energy to examine energy
efficiency issues.

Oregon:  In 1990, the Oregon legislature directed the state's Department of Energy (ODOE) to chair
a 12-agency task force to analyze the  potential impact of global warming in Oregon and make
recommendations on how state agencies should respond to the threat.  In 1991, the legislature
further directed ODOE to prepare a strategy to reduce greenhouse gas  emissions to a level 20
percent below 1988 levels by 2005. This target level  of emission reductions did not represent a
formal state goal, but it did provide afocal point around which state agencies could analyze climate
change issues.  The strategy resulting from this work was presented as a study, not as an actual
implementation plan, in 1992, the Oregon Progress Board,  a public-private steering committee
chaired by the Governor, adopted a format benchmark to stabilize carbon dioxide emissions at
1990 levels by 1995. Finally, Oregon's Fifth Biennial Energy Plan, produced in May of 1993, directs
ODOE to develop a plan to keep Oregon's carbon dioxide emissions at the 1990 levels. The plan
wilt .be a specific strategy to achieve the carbon dioxide benchmark.  Stabilizing carbon dioxide
emissions will then be one of the guiding elements of the Sixth Biennial Energy Plan, which is due
In 1995.  in  conjunction  with these efforts, ODOE coordinates working group sessions  with
participation from  throughout the public and private sectors; these  working groups study
substantive issues such as utility impact, petroleum fuels, CFCs, and other important topics.

California: Legislation established the California Energy Commission (CEC) as the lead agency in
a mufti-agency study examining climate change issues and required the CEC to produce a climate
change policy report. The initial phases of California action in this area are focused on research
and information gathering and dissemination.  California has yet to produce ah actual strategic
policy plan, however. The legislation directing CEC to act on this issue established specific topics
and economic sectors to be analyzed and mandated that other specific state agencies be involved,
CEC expanded the agency list and adopted a pubPc climate change forum for analyzing all aspects
Of this issue.  The state governor also  issued  an additional  directive, without timelines or other
guidance, for CEC to examine potential CO2 emission reduction goals.
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administering policies.  Exhibit 7-2 presents examples of how various states have approached
program coordination with regards to climate change.

       State policy-makers have also suggested that it is valuable to develop a mechanism for
monitoring recent changes in the understanding of climate change mitigation from scientific,
economic, and policy perspectives. This may involve recruiting scientists or university staff who are
knowledgeable about greenhouse gases and related issues within a particular state for program
planning efforts.  Monitoring may also involve efforts to keep abreast of current literature and attend
professional and academic conferences on this topic.


7.5    CLIMATE CHANGE PROGRAM FINANCING

       While this document does not provide comprehensive guidance in program financing, this
topic may influence program structure in various ways.  For example, sources of available financing
can sometimes dictate the direction that new programs adopt. With this consideration in mind,
financing mechanisms should closely correlate with pre-determined program objectives and
capabilities during the phases of initial program development, program implementation, and ongoing
program administration. Similarly, financing mechanisms may change in the transition between near-,
mid-, and long-range emission reduction measures.  In general, it may be helpful to separate financing
mechanisms into three  categories:

  •    Financing through Existing Revenue Sources.  This may involve direct budget allocations for
       climate change mitigation activities or inclusion of climate change mitigation programs under
       the jurisdiction and purview of an existing agency.  The latter approach may be appropriate in
       the many situations where greenhouse gas emission reduction and other policy goals overlap,
       such as in transportation and energy planning, ground water protection, and wildlife or habitat
       preservation.

  •    Developing New or Dedicated Revenue Sources. This often entails innovative financing
       schemes, including those that raise money through fees or taxes that help discourage
       greenhouse gas emissions. Approaches in this area may include 'green fees' and other
       charge systems, dedicated utility taxes or charges, original private sector capital development
       programs, or other innovative financing. Examples of this general type of financing scheme
       include carbon  and energy taxes that discourage fuel consumption, landfill fees that indirectly
       help mitigate  methane emissions, and permit fees required for timber harvest.

  •    Revenue from External Sources.  This includes federal technical support and money from
       federal grant  programs.  Similar to intra-state policy overlap with existing programs, as
       described above, greenhouse gas emission reduction policies may fall under the domain of
       existing federal  programs.  For example, sources with potential climate change applications
       include U.S. Department of Energy funds allocated to improving energy efficiency, U.S.
       Department of Agriculture funds allocated to improving fertilizer application and management,
       and U.S. Environmental Protection Agency funds allocated to enforcing the Clean Air Act.
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                                         CHAPTERS

                                ANALYZING POUCY OPTIONS
       Climate change analysis requires choosing strategies that effectively balance trade-offs
between potentially competing goals in a politically charged environment that is also fraught with
technical, scientific, and economic uncertainties. Central to devising an effective climate change
strategy, therefore, is a need for researchers to present clear, concise, and relevant information to
policy makers.  Policy-makers, then, require a framework that allows them to choose among alternative
policies, and to compile a coordinated strategy for achieving greenhouse gas (GHG) emissions
reductions. The resulting strategy should not only meet overall goals, but should also combine policy
options, that are themselves acceptable.
      \
       Consistent with this perspective on climate change policy analysis, this chapter is intended to
lend some initial structure to the extremely difficult task of analyzing policies in this field, by illustrating
some of the concepts and ideas that may help states develop their programs.  The information in this
chapter provides only the starting point for a climate change analysis.  The first section establishes a
basic framework that considers each policy option in light of the issues that are most important to
each individual state.  This section is followed  by three sections that discuss how states can analyze
and consider the benefits, costs, and other impacts of policy options. Section 8.5 highlights analytical
complexities and fundamental social assumptions that state policy-makers will  need to address.
Finally, the last two sections introduce some of the methodologies or decision  tools states might
consider using to conduct analyses, presenting both theoretical approaches and specific models and
tools that have been developed to address climate change issues.


8.1    ESTABUSHING A CONSISTENT FRAMEWORK FOR POLICY ANALYSIS

       A policy analysis framework can provide a consistent lens through which policy-makers can
examine all policies.  Without such a framework, it can be difficult to compare and assess potential
climate change mitigation policies that affect diverse and unrelated sectors of society over broad time
frames.  This section describes a basic structure policy-makers can use for comprehensive and
consistent policy analysis.  States may choose to proceed in a less formal manner than this framework
suggests; the information presented here is meant to highlight the most important considerations in
climate change policy analysis and to offer some tools that can be  used to help structure this issue.

       8.1.1    Structure of the Policy Analysis Framework

       Any framework for evaluating climate change mitigation policies should help decision makers
link those policies to a state's goals and priorities. One  established approach  for structuring this
framework is to consider each policy option in relation to a set of explicit evaluation criteria  If those
criteria are rooted in the state's fundamental goals and priorities, this structure will provide a link to the
state's most important objectives.  Chapter 4, Establishing Emission Reduction Program Goals and
Evaluative Criteria, examines the process of setting goals and criteria in detail.  By fostering
comparison of policies on a uniform basis, this approach also helps policy-makers assess the relative
strengths and weaknesses of the alternatives in a consistent manner, and can highlight areas where
further research or analysis is needed.

       One analytical mechanism policy-makers can use is a matrix that lists the set of criteria along
the top and policy options down the side. The matrix can then be  used to indicate how each policy
option ranks under each criterion.  Exhibit 8-1  presents a sample matrix in this format.
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Exhibit 8-1: Sample Policy-Criteria Matrix
The sample criteria, policies, and other data presorted in this box illustrate how a policy-criteria matrix can
be constructed to help frame the climate change issue and clarify tradeoffs between policy options. Entries
in each cell typically provide a brief summary of the performance of a single option with respect to the
indicated criterion. Entries may represent the result of sophisticated engineering or economic research or
may result from more informal and subjective judgement The sample data presented here do not represent
thfr results of actual policy analyses.



: Criteria
. Policies
Methane
Recovery
Technology
Demonstration
Methane
Emissions Tax
ASemative Fuel
Tax Subsidy
Emission
Reductions
(Tons of carbon-
equivalent
emissions
annually)
58.4
123.0
456.9
t
t
i .
Private Sector
Costs
(Normalized to
base year using
7% discount rate)
$0
$985,000
$43,000

Social Equity
Ranking
(1=How,5=high)
4
(medium-high)
3
(medium)
1
(low)

Existing
Institutional
Capacity
(X=yesr
blank=no)
X

X
•





        The type and level of information used to relate each policy option to each criterion, indicated
in the cells or boxes in the matrix, facilitates not only assessing of the policy in light of state goals and
priorities, but also examining the tradeoffs between different policy options.  For this reason, it is
critical to use the same unit of measurement to evaluate one criterion as it relates to all policies.  For
example, emission reductions from all the various greenhouse gas sources (for example, methane
from landfills, nitrous oxides from fertilizer use, carbon dioxide from electricity generation) can be
converted to a common scale, such as million kilograms of CO2-equivalent, using the global warming
potential concept;1 such conversions will facilitate cross-policy assessments of emission reduction
potential.

        The units of measurement may vary significantly among the different criteria and may be
quantitative or qualitative.  If precise quantitative  data are unavailable or inappropriate, policy analysts
may be able to create a relative scale for ranking policies against criteria; this may involve simply
classifying policies on a criterion as high, medium, or low, or it may mean developing a ranking
system that utilizes some numerical scale.  In other situations,  simply acknowledging that a policy
meets a certain criteria may prove valuable; in the policy matrix, it means entering an 'X* in various
cells.
    1  Global Warming Potential is discussed in more detail in Chapter 2. It is important to note that this scale is
not precise and that it is the current subject of some controversy because of debates over approaches to
integrating the life-cycle effects of carbon dioxide.
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       8.1.2  Application of the Policy Analysis Framework

       The framework presented here provides a starting point for analyzing policy options.
Depending on circumstances, policy-makers may need to modify the framework during the analysis
process.  Three particular issues may require restructuring the framework. These include:  1) the
need to develop groupings of policies that are evaluated together in order to maximize benefits or
avoid conflicts from interaction between options; 2) to iterate or incorporate new data during the
evaluation process; and 3) to consider time frame issues within the framework. Each of these issues
is discussed below.

Policy Packages or Multi-Option Strategies

       The basic policy analytic framework can be used not only to evaluate individual policy options,
but also combinations of options.  The matrix structure easily facilitates this analysis, with policy
packages or strategies listed down the side rather than single policy options.  States may wish to
consider various policy 'packages,' which combine options that together reflect a particular strategy.
In this way, policy-makers can evaluate the pros and cons of various potential strategies  or broad
approaches in relation to a constant set of evaluative criteria

       This type of packaging could be relevant when climate change programs are expected to be
comprehensive across multiple sectors of society or when a wide array of policy options  are being
considered for other reasons. States may wish to evaluate a variety of policy combinations, for
example, that are designed to encourage both demand side and supply side emission reductions in
the energy sector and to promote alternative fuel use at the same time. Packaging can also facilitate
comparisons of overall strategies that target different sectors or strategies that  start with the goal of
complementarity with other state objectives and programs.

Iteration During Program Development

       The optimal combination of policies or the best approach for analyzing options may not be
apparent at the outset of climate change program planning. Not only  may new scientific or economic
information develop, but the process of evaluating alternative policies may itself generate new or
additional information that should be folded back into the policy analysis.  For example, if in the
process of evaluating a state's initial list of potential greenhouse gas reduction policies, policy-makers
discover unanticipated conflicts between various options, or if political  transitions shift the importance
of some criteria relative to others, then policy-makers may want to reformulate their approach, develop
new options, and conduct the evaluation again.

Time Frame Considerations in the Policy Analytic Framework

       Policies can achieve benefits or incur costs in the near-, mid-,  or long-term. The  timing of
policy outcomes (i.e., benefits, costs, and other impacts) should be clear  during policy evaluation so
that policy-makers can consider how policies and their impacts may overlap in the future, either in
terms of achieving direct emission reductions, generating political support, or fostering other  inter-
temporal results.  One option is to conduct separate analyses for each time frame.  Chapter 7
discusses time frame issues in more detail and highlights how some policies may in fact be designed
in one time frame specifically to foster benefits in another.

       Within the  matrix format, considering time frame issues  may mean sub-dividing relevant criteria
into near-, mid-, and long-term columns so that the relative impact of each policy within each time
frame can be evaluated and illustrated. This reflects one aspect of climate change that may
complicate the analysis but also significantly enhance the information  presented. This is especially
true with respect to policy  goals or objectives that cross time frames, as mentioned above, and may
aid in generating high levels of political support in the near term to build consensus for future program
expansion.


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8.2    ESTIMATING BENEFITS

       Whether implicitly or explicitly,  policy-makers often try to gauge the social benefits and costs
of alternative policies and then pursue those options that offer the highest net benefits. In the case of
climate change, quantitative benefit analysis is extremely difficult, because so few of the physical
impacts have been quantified at the state level, and even fewer have been monetized. For example,
most analysts would agree that quantifying and monetizing all the impacts of sea level rise and
climatic influences on agricultural systems, water resources, or biodiversity is beyond current technical
and analytic capacity.2  Accordingly, it is impossible to measure in standard economic terms the
value or benefits of preventative policies. Exhibit 8-2 summarizes some of the complications
surrounding analysis of the benefits of climate change mitigation policies.

       This does not mean,  of course, that it is not worth taking extensive action to mitigate these
potential threats.  In fact, many policy-makers believe that the foremost public benefit of greenhouse
gas emissions reduction policies is to guard against the possibility of devastating impacts to the earth.
In this sense, emissions reduction policies become an important insurance mechanism for the states,
the nation, and the world, and they are a measure of our society's willingness to pay  to prevent or
ameliorate the impacts of climate change.

       There are three primary  categories of benefits are somewhat more tangible and measurable,
and thus more practical to use in policy planning and analysis.  The remainder of this section
discusses these categories, while Sections  8.5 and 8.6 provide  more information on comparing costs
and benefits of various  options.  The three categories outlined below include use of greenhouse gas
emissions reductions as a proxy for the benefits of mitigating climate change, considering ancillary
benefits of emissions reduction policies, and considering political and organizational benefits of
addressing climate change.

       8.2.1    Using Greenhouse Gas Emissions Reductions as a  Proxy for the Benefits of
               Mitigating Climate Change

       Estimating how policies  affect greenhouse gas emissions is the most direct way to judge their
role in mitigating the threats of climate change. Essentially, greater benefits come with larger
emissions reductions. While even estimating a policy's actual level of emissions reductions is not a
simple process, it provides a basic structure for comparing the  climate change mitigation potential of
various policies.

       The basic process for estimating a policy's probable effect on greenhouse gas emissions
anticipates how implementing the  policy will change the equations used to calculate emissions from
each greenhouse gas source. These can be changes in the magnitude of the independent variables
that drive those calculations or changes in the fundamental structure of the actual equations.  Chapter
3, Measuring and Forecasting Greenhouse Gas Emissions, examines these issues in detail and
provides examples of their application.

       To compare emission reductions achieved by different policies, the effect on warming of
different greenhouse gases is evaluated on a common scale. For example, equal reductions in
carbon dioxide and methane will have significantly different impacts on global warming.  As Chapter 2
discusses, the International Panel  on Climate Change has established a common measure, called
Global Warming Potential (GWP), for comparing the relative impact of the various greenhouse gases.
Although there exists some controversy as to the accuracy of GWP  estimates at the current time, this
scale is widely used by climate change analysts to measure the relative benefits of different emission
reduction policy options.  In the policy analytic framework, numbers representing emissions reductions
for diverse policy  options can then be presented and compared.
   2  EPA is conducting extensive research on the benefits of climate change mitigation and on alternative
frameworks for dealing with the uncertainties surrounding this issue.
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   Exhibit 8-2:  Complications in Estimating Benefits
     Uncertainty surrounds many aspects of climate change, including:

     :ซ The magnitude of global average change in temperature, precipitation, and sea level rise;

    . • Regional projections of temperature change, precipitation, and soil moisture;

     • The timing of changes In climate and related variables, such as sea level rise;

     • The potential of commercially managed systems, such as agriculture and forestry, to adapt;

     • The response of unmanaged ecosystems, including terrestrial and marine vegetation and animal
       spades, to climate change;

     * Impacts of climate change on other sectors, such as water resources, coastal wetlands, human health,
       and energy supply and demand; and

     • The value to the public of mitigating these potential impacts.
       8.2.2   Considering the Ancillary Environmental and Social Benefits of Emissions
               Reduction Policies

       In addition to helping mitigate global climate change, reducing greenhouse gas emissions can
provide other benefits.  Policies to reduce greenhouse gas emissions from automobiles and electric
utilities, for example, can improve air and water quality, with positive consequences for human health
and natural systems. Similarly, policies to improve residential, commercial, and industrial energy
efficiency can reduce costs and stimulate economic growth and competitiveness. Policies to recycle
or reuse  waste products can reduce greenhouse gas emissions and simultaneously reduce the need
for costly municipal solid waste disposal.

       In some cases, these benefits can outweigh the costs of policies designed to reduce
greenhouse gas emissions. These approaches are often the most attractive options in the early
phases of climate change program design, when program financing and political support may be low
or tentative. It is important, however, that states not rely solely on these types of policies since most
data indicate the total emissions reductions they can achieve, if implemented throughout the country,
would not be enough to reach most climate change mitigation goals.  Chapter 7 discusses the
favorable and unfavorable political and organizational aspects of these types of approaches in more
detail.

      . Measuring and comparing diverse types of benefits across policy options can be difficult. One
approach is to assess these benefits in terms of how they will reduce current and future costs for
society.  This may mean estimating cost savings directly for factors such as improved energy
efficiency or reduced fertilizer consumption.  Alternatively, it may mean estimating avoided costs of
remediation or replacement. The benefits of enacting policies to prevent pollution of a water system,
for example, can be measured as the avoided cost of future clean up of that water system and the
surrounding environment. Similarly, the benefits of reducing wastes can be measured  as the avoided
cost of depositing those wastes in landfills.

       In other cases, however, society would not have chosen to remediate all damages or replace
all lost services. Some benefits, for example, such as reduced emissions of air pollutants covered by
the Clean Air Act, might not have occurred otherwise.  In this case, the benefits are the improvements
in human health, visibility, aesthetics, and ecosystem health that result.  There are a wide array of
analytic and economic techniques that policy-makers can draw from to conduct these benefit
calculations.  Extensive information on these topics is available in natural resource and environmental

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economics literature and other current literature. Topical literature assigns monetary or other
quantitative values to potential benefits and costs.  However, monetizing certain kinds of benefits of
climate change measures, such as ecosystem damage,  is subject to considerable analytical
uncertainty and often political controversy.

       8.2.3  Considering the Political and Institutional Benefits of Addressing Climate Change

       Some states have indicated that there can be substantial political and institutional benefits to
initiating climate change mitigation programs and pursuing emissions reduction policies.  Exhibit 2-3 in
Chapter 2 reflects the positive attitudes of many states toward this issue.  These benefits may include:

  •    public visibility as a proactive government on this issue, which may enhance the national and
       international image of the state, set precedents for national action, and inspire other state and
       national governments to act;

  •    receiving special assistance, such as receiving program support from EPA for developing
       climate change mitigation  programs or receiving targeted aid or technical assistance for
       particular programs from other national and international organizations;

  •    helping the United States meet national goals and fulfill international obligations, which can be
       accomplished only if states take strong action; and

  •    preparing for the future by developing the foundation for programs that are likely to grow in
       importance over time.

       As always, these and other potential benefits are only relevant relative to a state's particular
goals and priorities.  Each state must determine which factors are important to pursue.

8.3    ESTIMATING COSTS

       Most policies encompass a range of associated  costs.  These  include, for example, the
government's costs for designing, implementing, and enforcing new policies, private sector costs
linked to changes in production practices or compliance with new regulations, and costs to citizens in
the form of higher prices for consumer goods or more time spent on activities such as recycling
wastes. This section provides an  introductory outline of how states might account for these costs
during climate change policy analysis.

       It is important first to distinguish the total cost of a policy option from its incremental cost.
Most economists would agree that incremental costs are the appropriate focus of a cost-benefit
analysis, although total costs can  be important from an institutional or political perspective.
Incremental costs are defined as costs that are the direct result of adopting the particular policy under
consideration.  Incremental  costs can be determined by conceiving of a 'baseline* scenario that
reflects events likely to occur in the absence of a policy  change and comparing it to a 'policy
scenario' that incorporates the likely outcome of the policy option.  The difference in costs under
these two scenarios reflects the incremental cost.

       The  incremental costs associated with climate change mitigation policies are those
expenditures by individuals or organizations that would not occurred if the policy had not been
implemented.  For example, public or private sector recordkeeping activities that would have been
undertaken with existing resources should not be included in economic cost  calculations. However, if
the time and effort dedicated to new activities does prevent workers from carrying out tasks they used
to conduct, then there is a social cost involved.

       The  purchase of new emissions-control equipment by industry, for example,  often represents
expenditures that would not have  occurred without government regulation, and is  an incremental cost
of that regulation. Similarly, the amount of  money the government spends designing, implementing,

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Exhibit 8-3: Determining the Value of Manure
          When choosing between alternative policies, it may be Important to quantify the benefits of a particular
   mitigation option before a decision can be reached.  For example, using the manure from livestock, a farm can
   reduce its fertilizer consumption and associated greenhouse gas emissions. However, those benefits can be
   difficult to use to compare policy options unless they are quantified into a common unit of measurement

          Along these lines, .the Soil and Plant Analysis Lab of the University of Wisconsin and the Arlington
   Agricultural Research Service (ARS) has developed a five-step method for determining the nutrient value of
   manure.

    .1}    Determine the manure load size fvotumel:  For a level box-end spreader, multiply the box length, the
          box width, and wall height together. If the load is heaped, multiply these factors by the total manure
          height divided by the side wall  height

    2)    Determine the manure density:  Weigh a 5-gallon bucket of manure to obtain the manure density
          (weight/volume). Convert density to pounds per cubic foot

    3)    Determine load weight:  Multiply the load size {step t)  by the manure density (step 2).

    4}    Determine the pounds of nutrients per toad: Multiply the load weight by the pounds of nutrient per ton
          of manure (which varies by animal type), based on values available from ARS.

    5)    Determine the total amount of nutrients spread per field or per acre: To determine the amount per field/
          multiply the pounds of nutrient per load (step 4)  by the number of loads per field.  Divide this number
          by the number of acres per field to get the nutrients spread per acre.

          This method allows for a direct comparison between the manure and the amount of commercial
   fertilizer recommended. Thus, the estimated manure value can be used by policy makers in any calculations
   necessary for evaluating this particular option.
and enforcing that regulation is an incremental cost.  These are the costs that policy-makers must
consider when evaluating the social welfare implications of different policy options.

        Economists distinguish between social costs, (costs that result from lost output or displaced
resources) and costs that affect an individual sector, but do not necessarily represent losses to
society.  The incremental costs described above are true' social costs. Some policies, however,
induce a transfer of wealth* between members of society but do not represent a new social
expenditure. For example, taxes on fossil fuels or nitrogen based fertilizers will result in less wealth for
individuals and businesses and more for the government.  Because levels of fuel or fertilizer
consumption changes in response to higher costs to producers or prices to consumers, there is a
social cost to a tax as resources are moved to alternative uses. However, the money that is
transferred between the individuals and the government is not considered to be a social cost.
Transfers, in general, redistribute wealth but  do not result in economic costs per se.  Although, the
amount of money the government spends administering the tax is a true social cost. Non-economists
may refer to economics textbooks and other current literature for a more thorough explanation of how
to estimate costs.

        8.3.1   Process for Calculating Social Costs

        Social  costs that should be considered during economic evaluation of climate change policies
can result from expenditures in any sector of society.  For example:

   •     State and local governments may incur incremental costs associated with policy design,
        administration, monitoring, permitting, enforcement, or other activities.


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  •    Industry may incur costs to modify production plants and equipment, alter operating practices,
       institute new waste disposal practices, or change their labor mix.

  •    Consumers may incur costs in making their homes more energy efficient, or by paying higher
       prices for goods and services or spending more time and effort recycling waste products.

  •    Product quality, innovation, or general productivity may be adversely affected; if the same
       resource investments yield less benefits in any of these ways, society has realized some new
       cost

  •    Policies may displace resources such as labor or capital equipment; if resources do not find
       equivalent employment elsewhere in society, then their displacement also imposes a long-term
       cost on society.  Cost also results from unemployment, because local industries that service
       the industry where jobs are lost may also suffer. Even if resources do become employed
       elsewhere, the transition between jobs, or movement of financial capital, can be unpleasant,
       and, at the least, imposes the transitional costs, or transactions costs', on society.

Costs that fit these categories can be analyzed at a variety of levels or from a variety of perspectives.
Exhibit 8-4 discusses some of the levels of information states may want to include in their cost
analyses.

       In the policy analytic framework, aggregated social costs may be a key policy evaluation
criteria A common approach for estimating social costs related to each policy option from  all the
sources listed above involves six basic steps:

  1.   Determine who in society will be affected by the policy.  This means identifying and listing
       each type of public and private sector actor that will incur new costs. This may include
       government agencies, small and large firms, individual consumers, and others.

  2.   Separate the affected community into homogenous  groups.  This means creating groupings or
       categories of actors that are similar to each other in terms of how they conduct their business,
       both before and after the policy is enacted. The point is to group together actors who are
       likely to react in a similar manner to the new policy. Some groupings, such  as one type of
       small  industry, will be heavily affected and will need to change their operations significantly,
       while  a different type of small industry will only need to make small changes. These should be
       classified as separate groups even though each is part of the broader small-industry category.

  3.   Determine the base-line costs for each group.  This means identifying the procedures  or
       operations that will change for each group under the new policy and calculating the current
       pre-policy costs of those  procedures. For example, if production processes, waste  disposal,
       or record keeping will change, costs associated with these activities should  be calculated
       before the changes take place. These calculations should be sure to incorporate both
       operating and capital costs.

  4.   Determine new cost levels for each  group.  Given the new policy, calculate the expected
       operating and capital costs associated with the modified procedures. This means figuring out
       the costs associated with conducting business  if the new policy is in place.

  5.   Calculate the incremental cost of the policy for each group.  For each group, subtract the pre-
       policy costs (the base-line from step 3) from the post-policy costs (step 4) to determine the
       incremental costs to the group of the new policy. In some cases, incremental costs can be
   '   calculated directly, without first specifying the baseline in Step 4 (i.e., the baseline is implicitly
       zero).  For example, the cost of planting shade trees in residential neighborhoods can be
       calculated directly as the cost of labor, seedlings, etc.
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  6.   Calculate total cost. Sum the incremental costs from all the affected groups into an aggregate
       annual cost figure for the policy in all years that the policy has costs.  As Exhibit 8-5
       discusses, economists and policy-makers usually include the present value of costs that will
       be incurred throughout future years because of the new policy.

Exhibit 8-4: Dimensions of Costs
          Depending on the level of analytic complexity a state needs or wants to adopt, social costs can be
   assessed with regard to various dimensions or perspectives. These include:

     ป     breactih • the number of affected activities;

     *     depth - the level of quantitative and detailed cost estimates for these activities; and

     •     scope - the range of the effort to locate secondary effects (and costs) of these activities (e.g., does
          the effort to analyze costs and economic impacts extend beyond the primary market affected),

          Expanding an analysis along any of these dimensions can provide additional valuable information, but
   also requires more resources.  In its simplest form, cost information can be presented as an inventory of
   activities that are sources of costs. For example, sources of costs to industry might include retooling equipment
   or increasing  quality control, filling out reporting forms, interacting with technology transfer committees, and
   hiring more educated labor to use more complicated equipment.  An intermediate form of analysis involves
   seeking to quantify, using engineering cost studies and other information, each activity and source of cost
   Where significant price and output effects are  expected, the  analysis can be expanded to include a
   representation of demand and  supply conditions in the relevant  market(s).  This is frequently called partial
   equilibrium analysis. The most complex form of cost analysis uses general equilibrium models that capture
   muSl-sector interactions and  subsume a variety of markets (see Section 8.7).
        8.3.2   Complications Associated with Social Cost Calculation

        Estimates of the total costs associated with each policy option can be used for describing
policies and illustrating tradeoffs within the analytical framework.  States should be aware of several
areas for caution, however, when conducting these calculations.

        First, costs should not be double-counted.  In some situations the same cost may filter its way
through different groups of actors but should not be included in the aggregate cost calculations more
than once.  Higher costs to firms, for example, may be passed on to, and result directly in higher
prices for, consumers.  This cost should nor be calculated and incorporated for both these actors,
since it really represents only one net increase in total costs to society.

        The second area for caution involves explicitly distinguishing wealth transfers from real
resource allocation costs.  As noted above, transfers of money or resources between groups of actors
do not represent real costs to society.  A large part of the impact of tax revenues, for example, is a
transfer of wealth from  citizens or private organizations to the government.  While non-cost elements of
these types of wealth transfers are certainly relevant in program evaluation, they should not be directly
incorporated into social cost calculations. Other aspects of taxes may in fact represent true social
costs, such as market distortions or potential long-run losses in  productivity or competitiveness.
Section 8.4 discusses this issue in more detail.

        The final caution regarding social cost calculations is that apparent price impacts may actually
be rooted in factors external to the new policy.  While such changes may affect costs between the
pre- and post-policy scenarios, they are not part of the incremental cost of the policy.  For example,
an external influence may  cause refrigeration or air conditioning prices to rise regardless of new
emission reduction policies. While these price changes may induce (or reflect) real costs to society,


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they are completely unrelated to climate change mitigation policies and their effects should be
included in the baseline and not in the social cost calculations.

Exhibit 8-5: Time Frames and Cost Analysis
          Social costs generally fall into one of two classes: one-time, up-front costs (such as equipment
   purchases), and recurring annual costs (such as compliance reporting or increased equipment maintenance
   costs).  Because costs may vary over the time-period of the analysis, cost information can be presented for
   decision-makers In a variety of ways. Actual annual costs are useful, for example, because the bulk of
   .adjustments to new government policies often occur in the first few years the policy is In effect

          For comparing diverse policies, however, an aggregate measure of costs on a common scale is
   needed. Present value is one measure that transforms streams of future costs - using a discount rate - into
   a measure of comparable worth today. Section 8.5 describes alternative approaches to selecting the social
   discount rate to apply to projected future costs in order to calculate their current value. Comparisons of present
   value, however, can be complicated by questions of how to truncate the streams of costs that are compared,

          A complement to calculating present values is annualized costs. Annualizing costs converts the stream
   of actual costs into a constant cost stream.  Annualized costs provide a metric for comparing policies that have
   different Settmes over which they would naturally be analyzed.  For example, policies involving process changes
   at an electric utility would generally Include cost analysis over 30 years, the expected lifetime of the plant  in
   . contrast, forestry projects would naturally be analyzed for one or more tree rotation lengths, which vary widely
  . by tree species, Annualizing costs provides one method for comparing these two options.

          AnnuaJzed costs are also useful when comparing programs that involve non-monetized benefits, such
   as emissions  reductions.  In this case, annualized costs can be compared to average annual emissions
   reductions to  calculate the cost-effectiveness of alternative  policies.  Present value costs can be similarly
   compared to cumulative annual emissions reductions, providing similar, but not Identical, results.
8.4     ESTIMATING OTHER IMPACTS

        Greenhouse gas emission reduction policies may have a number of important impacts in
addition to those quantified in standard social benefit and cost calculations. General effects on the
economy, on specific sectors of the economy, and on different income classes within urban or rural
populations are all similar concerns in the state policy making environment. These impacts influence
the desirability of alternative policy strategies, and also affect public attitudes, the political feasibility of
climate change programs, and the financial or other resources allocated to climate change mitigation
efforts. While these political and administrative factors are difficult to separate or measure during
policy analysis, they are critically important to long-term success in combating global climate change.

        Political and organizational implications can result from financial factors, such as the wealth
transfers discussed in Section 8.3, induced by policy change.  These impacts may cause serious
economic disruption within a region or may undermine other public policy objectives but will not
appear in social cost calculations because they only represent shifts of resources among segments of
society.  Plant or mine closures in one region of the country, for example,  may yield net benefits to
society in terms of combatting damage to the environment and human health, but may undermine the
region's economy. This same policy action may result in high rates of temporary unemployment and
migration of people to other states. Obviously, state policy-makers must consider these factors.

        Within the  policy analytic framework explicit evaluative criteria can  be created for each area of
social concern. Including political feasibility or social equity criteria in  the policy  matrix,  for example,
ensures that these issues will be considered in evaluating every policy option.  Chapter 4 presents a
number of potential criteria that states  might employ; the exact criteria a state defines will reflect local
priorities and circumstances. The potentially important policy impacts sometime ignored by social
benefit and cost calculations include:

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  •    Impacts on Specific Sectors of the Economy. For example, transportation and agriculture may
       be most affected by some measures, while the residential sector and industry may be hit
       harder by others.  The division of impacts between sectors may be considered favorable or
       unfavorable by state policy-makers depending on their priorities. If the state is trying to
       reduce emissions largely within one sector, for example, then a criterion that highlights how
       each policy affects that sector may be worth developing.  On the other hand, states  may wish
       to protect rather than target certain sectors; well-developed criteria can help account for this
       concern as well.

  •    Impacts on Employment.  When jobs are permanently lost so that individuals remain
       unemployed, or if new jobs are less productive or lower paying than lost jobs, there  is an
       economic cost since the output is lower.  Labor shifting between jobs, however, is not
       necessarily an economic cost.  Nonetheless, job loss is obviously an important social issue, as
       well as being politically significant. The degree to which policies induce labor shifts  is, thus,
       usually a critical consideration in policy analysis.

  •    Regressivity or Progressivity of the Policy.  Policies may extract greater payments from some
       income classes than from others. Taxes on household products, for example, are generally
       considered to impose a greater burden on low income households because these households
       spend a higher proportion of their annual income on such products than do households with
       higher incomes.

  •    Impacts on Government Finances and Revenues. Most policies will affect government finances
       in some way. Measures that require high levels of administration and enforcement by
       government agencies, for example, may demand significant dedicated budget allocations.
       Taxes to reduce consumption of greenhouse gas producing products and activities,  on the
       other hand, will raise government revenues.  Whether or not these issues are legitimately
       factored into social cost calculations, they will have certain political and administrative
       implications that may be important to consider during policy planning.

  •    Impacts on Other Government Work.  Depending on how new programs or policies are
       administered, they may disrupt current government operations. If a new program in  a state
       energy office, for example, requires staff time for administrative and other functions, current
       activities may be displaced or disrupted.  While such impacts do represent a social cost, they
       are often ignored, especially if no new resources, such as budgets or employees, are
       allocated to help cover the new activities.


8.5    GENERAL COMPLEXITIES IN ESTIMATING POLICY IMPACTS

       The above sections on benefits, costs, and other impacts highlight potentially important
evaluative criteria Impacts of climate change and of climate change policies, however, may both
extend many years into the future and be highly uncertain. The policy-maker, therefore, is charged
with selecting an analytical framework that adequately addresses the decision-making problem.  In this
context, complexities surrounding policy evaluation fall into one of two categories:   1) assumptions
that underlie how states will treat social risk and social value over time; or 2) limitations on applicable
policy evaluation procedures that are rooted in the uncertainty surrounding climate change.

       Specific issues relating to each of these types of complexities are introduced below.  These
include determining social discount rates to use in policy analysis, dealing with uncertainty regarding
policy impacts,  and dealing with uncertainty about the impacts of climate change itself.  States may
wish to consider these issues and establish standards for dealing with them before conducting full-
scale policy analysis.

Determining Social Discount Rates


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       Policy-makers must consider the future ramifications of greenhouse gas emission reduction
policies.  Because discount rates are generally used to calculate the present value of benefits and
costs that accrue in the future, alternative discount rates and alternative methods of applying them
carry significantly different implications for policy development. The information presented in this
section introduces some of the foremost considerations surrounding selection and application of
specific discount rates. Policy-makers interested in this issue may wish to review the extensive
economic literature on discounting and environmental policy.3

       The fundamental issue underlying the  choice of a specific discount rate is that higher rates will
result in lower valuation of future costs and benefits. As a result, a higher discount rate will weight
future policy impacts less in current decision making.  At a discount rate of 0%, for example, future
costs and benefits are treated exactly the same as current costs and benefits; a $100 impact
observed fifty years from now would be considered equivalent to a $100 impact felt today. At a 5%
discount  rate the same $100 future impact would be valued as $8.72.  Similarly, at a 10% rate it would
be valued at 850. Discounting is especially relevant to greenhouse gas emission reduction policy
development and selection  since climate change is such a long-term issue.

       There is a considerable body of literature discussing what the appropriate discount rate is for
public policy decision-making. Most economists would argue that the  rate should not be zero.
Rather, costs and benefits incurred in the future should be weighed less heavily than current costs
and benefits; because resources today can be invested in the future, using a positive discount  rate is
analogous to financial decisions that firms make when comparing streams of costs and  revenues.
Moreover, individuals tend to weigh current costs and benefits more than future  costs and benefits in
their own decision-making.  For example, individuals often prefer a  less expensive product to a  more
expensive product that is more reliable and will be less costly to own and operate in the long run.

       Because of ethical issues surrounding discounting, many analysts argue for the use of  low
discount  rates.  The inter-generational nature of long-range planning, for example, necessitates that
some of the parties who will experience the costs and benefits of policies do not yet exist. Many
individuals will not be bom  and organizations not formed until some time in the future.  Given this
situation, the irreversible nature of potential threat from climate change may require greater caution
(i.e., a lower discount rate).  Conversely, it has been argued that the current generation should  treat
future generations exactly as we would treat ourselves, potentially resulting in higher discount rates.
These are issues that states should consider and evaluate in more detail.

       Assuming these ethical questions are resolved, numerous practical questions remain as to the
choice of an appropriate discount rate. The economic debate about what the discount  rate  should be
examines a variety of issues, including the real resources that are displaced by the investment,
riskiness, and other factors. In general, decisions by businesses and private individuals are made
using private discount rates that are usually higher than social discount rates used by governments to
set policy.  Thus, measures that may not be implemented by individuals  or industries on their own,
may, nevertheless, be cost-beneficial from a social perspective.

Inherent Uncertainty in Valuing Impacts of Climate Change Policies

       Social benefits are typically measured by economists as the damages avoided by taking some
policy action. For example, the benefits of climate change mitigation are equal to the value to society
of avoiding any negative impacts of climate change in the future. Although available estimates
suggest that the climate changes associated with a wanner planet  may have significant implications
for the environment, the economy, and human health, estimates of the value of avoiding these
   3  For more information, see U'nd, 1982. States may also want to review the U.S. Office and Management and
Budget's (OMB) analyses of social discount rates as they apply to federal programs (OMB Circular A-94, Revised >
October 29, 1992).

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changes are incomplete and uncertain.  Estimating the impacts and associated future costs of climate
change is, thus, a primary focal point of current national and international research.

       Because of these complications, as Section 8.2 explains, the amount of emission reductions
policies achieve is most often used to measure the benefits of different policies to mitigate climate
change. Since this assumes that greater benefits result from emission reductions, there are direct
implications for the analytic methodologies states use to evaluate policies. As suggested later in this
chapter, for example, analyzing policies based on emission reductions encourages cost-effectiveness
rather than benefit-cost analyses (see Section 8.6).

       States deal with the issue of uncertainty surrounding climate change impacts through the level
of effort that they devote to climate change mitigation programs.  States that want to wait until the
uncertainties are reduced, or that do not recognize their significant potential for helping mitigate this
problem, either take no action or pursue a conservative approach. Alternatively, states that believe it
is worth acting amidst these uncertainties, on the other hand, often tend to be more aggressive in
developing mitigation policies. In either case, however, the amount of greenhouse gas emission
reductions attained through various policy options still usually serves as the proxy for the benefits of
mitigating climate change since the actual 'avoided damages' of not addressing climate change are
impossible to quantify, though they may be significant.

Uncertainty Regarding Policy Impact

       The actual impact of some policy options on greenhouse gases can also be difficult to
measure and forecast.  The uncertainty is especially relevant for policies that provide indirect
emissions control, such as financial incentives  or educational programs, for policies that span long
time frames, and for policies that may interact with other emission reduction policies or with other
state initiatives. Actually calculating emissions reductions may require a sophisticated understanding
of the policy and the sector affected.  If policy analysts do not know exactly  how price changes affect
fertilizer demand, for example, then the effect of a nitrogen-based fertilizer tax will be uncertain and
emission reductions will be difficult to quantify. Some policies to decrease fossil fuel consumption in
the residential or transportation sectors may escalate the demand for electricity, which may offset
reductions in greenhouse gas emissions, depending on what type of power plants supply the
additional electricity.  These positive  and negative interactions are most difficult to predict in the long
term when other economic or social fluctuations will affect greenhouse gases and policy success as
well.

       Similarly, education policies are critically important but are difficult to link explicitly to
components of the equations for computing emissions.  Acknowledging these issues is especially
important for ensuring that some critical programs, such as public education and long-term urban
planning, are not dismissed or ignored because they cannot be linked to direct emission reductions.

8.6    BASIC METHODOLOGIES FOR EVALUATING CLIMATE CHANGE  ISSUES

       Depending on state goals, resources, and institutional capacity, policy analysis to evaluate
greenhouse gas reduction options and to account for the complexities listed above can be conducted
with a range of methodologies or analytic tools. The policy analytic framework highlighted in this
chapter represents one way to frame the climate change issue as a whole and illustrate the tradeoffs
between different options.  A variety of alternative  or supplemental approaches may enhance climate
change policy analysis. These can range from simple computer spreadsheet approaches to complex
and comprehensive modeling efforts, either of which can be supplemented by economic or
engineering research. While the full  range of these approaches cannot be discussed here in  detail,
some of the general issues and the basic structures that states might consider are worth reviewing.

       The analytic approach for examining particular policy options can become increasingly
complex depending on the factors and levels of information a state wishes to incorporate.  A simple
approach for states to follow is to rank different options based on how well they meet each criterion.

                                            8-13

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More substantial information may be desirable, however, such as an understanding of the precise
magnitudes of various policy impacts.  In cases where benefit or cost estimation is not straightforward,
states may want to use methodologies such as risk analysis, econometric evaluation, linear
programming, and other analytic tools.  The remainder of this section reviews decision making
constructs that include benefit-cost analysis, cost-effectiveness analysis and multi-criteria decision
making.

       In the end, the particular methodologies and tools a state uses to conduct climate change
policy analyses will depend on local circumstances, including resource and institutional constraints.  It
is perhaps obvious,  but important, that there is a trade-off between obtaining solid and reliable
information and the  cost and time expended in accumulating that information.  For many states, this
may suggest using simpler decision guidelines unless they can work with other governments or
regional coalitions on more comprehensive projects.

       The types of policy analysis and decision making methodologies  summarized below, as well
as others not listed here, are not necessarily exclusive, but may overlap and complement each other
in various ways. In addition, the risk, time frame, and discounting issues  discussed above are
common and fundamental to all these approaches. Extensive and more complete literature is
available on all these topics; the information presented here is intended only to provide examples to
state policymakers for ways to analyze policy options.

Benefit-Cost Analysis

       Benefit-cost  analysis offers a framework for choosing among alternative policy options that
involves monetarily valuing the impacts of the  policies under consideration and selecting the policies
with the highest net benefits.  This approach attempts to account for all benefits and costs, including
difficult-to-monetize effects such as ecosystem damage  or effects on human health.4  This process
may have limited usefulness in the current context, because of the cost and problems involved in
comprehensively quantifying the value of climate change impacts at the state level. Further, many
state and federal agencies, including EPA and OTA, as well as private researchers, have investigated
and quantified at least a portion of these impacts,  for some regions or nationally (Cline, 1992;
Fankhauser, 1994; IPCC, 1992a; Nordhaus,  1994;  OTA,  1993; and U.S.EPA, 1989). Extensive
economic literature is available on benefit-cost procedures and different means of valuing non-
quantitative factors.

Cost-Effectiveness Analysis

       Cost-effectiveness analysis simplifies policy analysis by allowing one policy impact, such as
the benefits of climate change mitigation, to be measured in non-monetary terms.  If emissions of
different greenhouse gases are represented on a common scale, such as 100-year estimated global
warming potential (GWP), cost-effectiveness promotes calculation of a dollar-per-unit-GWP-reduced
figure.  This same analysis can be conducted  with any other common scale, such as tons-of-carbon-
equivalent emissions reduced. While cost effectiveness analysis lets policy-makers rank options on a
common cost-per-unit scale, policy-makers must still determine which or how many of those policies to
enact  Exhibit 8-6 illustrates these points.


       Given these constraints, cost-effectiveness analysis often serves as a basis for selecting a
least-cost combination of policies to achieve some preset goal, such as a 20% overall emission
   4 Typically, benefit-cost analysis involves the following steps:  (1) measuring, in monetary terms, all of the
costs and benefits of each policy over time; (2) for costs and benefits that occur in the future, calculating their
present value by application of an appropriate discount rate; (3) calculating the net benefit of each policy by
subtracting the present value of the costs from the present value of the benefits; and (4) choosing the policy option
that offer the highest net benefits.

                                             8-14

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Exhibit 8-6: Sample Results of Cost-Effectiveness Analysis
  This table illustrates the results of cost-effectiveness analyses. While in an ideal situation data are available
  .lo generate these types of numbers with precision, in reality the cost and emissions-reduction figures are
  often subject to high levels of uncertainty. The data below do not represent the results of actual analyses:

  Sample PoScy Option       Hypothetical Associated Cost-per-ton of         Total Potential Emission
                            Carbon Equivalent Emissions Reduced          Reductions (tons)

  1) Methane Recovery Technology         $54.00                                58,4
     Demonstration and Support

  2) Methane Emissions Tax               $31.00                               123.0

  3) Alternative Fuels Subsidy              $45.00                               456.9
reduction by some target year, or as a basis for selecting the combination of policies that will bring
the highest level of emission reduction benefits given a certain financial or other resource constraint.
For example, states can use this type of analysis to calculate the highest level of emission reductions
possible given a preset budget.


Multiple Attribute Decision Analysis

       A variety of analytic methodologies facilitate the structured consideration of multiple and
diverse social objectives during policy evaluation, such as considering emission reductions costs,
political feasibility, and social equity at the same time. By weighing evaluative criteria assigning
probabilities to certain policy outcomes,  and developing utility functions to represent the value of these
outcomes, these methodologies allow decision makers to consider policy impacts on diverse criteria
that cannot be expressed in common units.  The end product of this type of decision analysis is
usually a probability-based prescription for what policy or combination of policies offers greatest
expected social benefit.  This analysis hinges on a well-defined set of data inputs and constraints.

        Extensive literature is available on the types and different policy applications of decision
analysis methodologies. The most straightforward of these methodologies allocates probabilities and
payoffs to all the potential benefits and costs associated with alternative policy choices. This process,
best serving  decision makers and analysts who face uncertain outcomes from a set of given actions,
is often incorporated into various stages of cost-effectiveness and benefit-cost analysis. It is generally
used to determine the expected value of options or policy impacts by combining the probabilities of
different potential outcomes with weights assigned to the social value or utility of those outcomes.
Exhibit 8-7 illustrates some of the components of multi-attribute decision analysis.

       A more complex but similar technique is called the Analytic Hierarchy Process (AHP).5  This
is a procedure that specifically attempts to provide structure to multi-criteria decisions involving
problems of choice and prioritization between criteria, as climate change policy formulation does.
Using  AHP, policy-makers develop  a decision hierarchy that identifies and compares alternatives. The
broad  approach is to structure the  complex decision first and then to focus attention on individual
components of that decision, using subjective judgements (as supported by the process itself) on
aspects  of the problem for which no quantitative scale exists. Certain computer software tools are
designed specifically to support this type of analysis.  The fundamental benefits of this approach is
that it  structures complex decisions, provides a reliable mechanism for ranking non-quantitative issues,
   5  For more information on the Analytic Hierarchy Process, see Dyer, 1992.

                                               8-15

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and focuses on objectives that policy-makers are trying to achieve rather than on the explicit
alternatives.  While there do not appear to be applications of AHP in the climate change field, it has
been used for some renewable energy and sustainable resource analysis.6 States may want to
investigate these techniques further.


8.7    MORE COMPLEX TECHNICAL TOOLS FOR ASSESSING GREENHOUSE GAS  POLICIES

       Some regional, national, and international analysts are using technical tools beyond the
methods described in this chapter to deal with the complexities surrounding climate change. This
section illustrates a limited set of the tools that have been applied to address the following tasks:

  •    Demonstration of technical issues in global change;

  •    Policy exercises involving stabilizing of emissions, atmospheric composition, or climate;

  •    Risk assessment pertaining to climate change; and
  •    Risk management pertaining to climate change.

       The information in this section is derived largely from national  and international sources, and
may not apply at regional and state levels, especially given local goals and agendas. If states choose
to investigate complex modeling, cooperative arrangements with relevant research and federal
institutions and with other states may facilitate the application of more complex methodologies to the
development or implementation of state policies on greenhouse gas emissions.  The tools listed here
require significant investment of financial and other resources to develop.

       There is currently no single tool that simultaneously addresses all of the above tasks.  Some
of the methodologies that are applicable to greenhouse gas policy analysis are summarized in Exhibit
8-8. An example of one of the more comprehensive methodologies is the Integrated Model to Assess
the Greenhouse Effect (IMAGE),  developed by the National Institute of Public Health and
Environmental Protection (RIVM) of the Netherlands.  Exhibit 8-9 provides a diagram of IMAGE'S
modular structure.  Note in particular the following assessment tiers in the overall methodology,
illustrated in that diagram:

  •    Energy/economics and land use models;
  •    Atmospheric composition models;

  •    Global and regional climate impact models; and

  •    Socio-economic impact models.

       The regional assessment capability of IMAGE is limited to impacts specific to the Netherlands.
A similar comprehensive methodology, the MAGIC and ESCAPE models of the Climate Research Unit
(CRU) of the University of East Anglia, can be used to examine regional impacts in Europe.  Ongoing
development efforts by the U.S. Environmental Protection Agency's Office of Policy, Planning and
Evaluation and at Batelle Pacific  Northwest Laboratory are expected to yield comprehensive policy
models that are applicable to the United States at the national and regional levels.

       Policy-makers interested solely in stabilizing emissions or atmospheric concentrations of
greenhouse gases, rather than in policies that address climate stabilization or the full range of socio-
economic impacts, may not necessarily need to resort to a comprehensive assessment model.  The
Dynamic Integrated Climate-Economy (DICE) model of Nordhaus  (1992), which utilizes a global, inter-
temporal general-equilibrium model of economic growth and climate change, provides simpler
   6 For example, the Analytic Hierarchy Process contributed to biomass energy assessments by the
Southeastern Regional Biomass Energy Program.

                                            8-16

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Exhibit 8-7:  Sample Multi-Attribute Decision Analysis
   Dud to its complexity, mufti-attribute decision analysis can not be thoroughly illustrated here. This box
   shows the types of information that might factor into two stages of this kind of analysis.  The information
   here is only, s simplistic representation of this type of analysis and does not reflect many of the details and
   complexities involved.

   Stage 1: Assign Probabilities and Values to Possible Policy Outcomes

           Regarding a specific policy option, such as an alternative fuels subsidy, policy makers might
   decide that there are three possible outcomes within a five-year time frame, each carrying a certain value.
   The *vaJue*. developed as an earlier part of the analysis, may be derived from emissions reduction
   projections, costs, and other factors; extensive analytic processes exist for defining and developing both
   "Value" and "probability" estimates. The  sample below is only illustrative and does not represent an actual
           Sample Possible Outcomes               Value of outcomes         Probability    Value*
                                                  ($ or some other measure)               Probability

           1}  Successful conversion to                      $11,380         *       .25   = $2,845
             alternative fuels

           2}  Partial conversion to                          $2,385          *       .60   = $1.431
             alternative fuels

           3)  Citizens reject or                             $0              *       ,15   =   $0
             legislature repeals the policy

                                                  Sum Expected Value of this Policy Option  $4,276
   Stage 2: Analyze Alternative Policies Based on Expected Values

           Depending on the analytic structure chosen, policy makers may be able to compare the sum
   expected values of different policy options, or combinations of options, and select those with the highest
   expected values, given the predetermined probabilities and outcomes. Results of this analysis could look
   like the following:


           Policy Option                                              Expected Value

           1) Methane Recovery Technology Demonstration and Support        19,784

           2) Methane Emissions Tax                                        7,900

           3) Alternative Fuels Subsidy                                      4,276

           4}  ...
estimates of global impacts. A more complex model used within the United States is the EPA's
Atmospheric Stabilization Framework (ASF), which combines energy/economics and land use models
and atmospheric composition  models with a highly simplified global impacts models.
                                                 8-17

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       Several methodologies are solely applicable to estimating energy use and/or accompanying
emissions of greenhouse gases amd have extensive economic modeling components. At the global
level, there is the ORAU energy/economics model of carbon dioxide emissions developed by the
International Energy Agency.  A spreadsheet model that can be employed to forecast regional
industrial energy use, but does not estimate greenhouse gas emissions, is the U.S. Department of
Energy's PC-AEO model, which is coded in Lotus 1-2-3. An especially useful regional emissions
model is MARKAL, which has been adapted to evaluate carbon dioxide emission control strategies by
the New York State Energy Office. Other methodologies for forecasting CO2 emissions are the Joint
Decision Analysis Model (ISAAC), which was developed by the Bonneville Power Administration and
used to examine future emissions in the Pacific Northwest by the Oregon Department of Energy, and
the Total Emissions Model for Integrated Systems (TEMIS), which is a fuel cycle model developed by
the OKO Institute in Germany and is best used to simulate urban emissions, when specific local data
are available.

Exhibit 8-8:  Sample Methodologies for Analyzing Greenhouse Gas Policies
Acronym
PC-AEO
TEMIS
: ISAAC
MARKAL
lEA/ORAU
.DICE
ASF
MAGICS
ESCAPE
IMAGE
.: DRI/
. McGraw-Hill
REMI*
IDEAS (DOE)
Energy Use
Model
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
Yes
Yes
Yes
Yes
Emissions
Model
No
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
Yes
Yes
Yes
Yes
Atmospheric
Composition
Model
No
No
No
No
No
Yes
Yes
Yes
No
Yes
No
No
No
Climate
Impacts
Model
No
No
No
No
No
Yes
Yes
Yes
Yes
Yes
No
No
No
Socio-
Economic
Impacts
No
No
No
No
No
Yes
Yes
No
Yes
Yes
Yes
Yes
Yes
Scale
Regional
Urban
Regional
Regional
Global
Global
Global
Global
Regional
Regional
National/
Regional
Regional
National
   Regional Economic Models, Inc.
                                            8-18

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Exhibit 8-9: Modular Structure for the Integrated Model to Assess the Greenhouse Effect

industrial
pathways

energy
pathways

ENERGY / ECONOMICS MODEL
                                 IMAGE

agricultural
pathways


deforestation

natural
sources

LAND USE CHANGE MODEL
                                I   I •>ป•>	•mil (tor r* immami
The IMAGE model was developed by the National Institute of Public Health and Environmental Protection
(RIVM). of the Netherlands. Details regarding 4ts structure and application are available in the RIVM
brochure, Global Change Research Programme: An Overview.
                                        8-19

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                                        CHAPTER 9

                           PREPARING THE STATE ACTION PLAN
       The previous chapters provided some detail on the issues with which states should deal and
the processes they should go through when developing their Climate Change Action Plans. This
chapter is intended to assist states in developing an organizational framework for presenting the
information in their plans.

       While each state bears chief responsibility for drafting its own plan, it is important to bear in
mind that climate change is a global issue and that the nation has made an international commitment
to reducing greenhouse gas emissions. Each state's action is part of a concerted, national effort.  It is
therefore possible and desirable to identify components of a State Climate Change Action Plan that
should be common to all states.  An action plan should contain at least the following elements:  '

•  Executive Summary
•  Background on the Science of Climate Change
•  Regional and Local Risks and Vulnerabilities
•  1990 and Forecast Baseline Emissions
•  Goals and Targets
•  Alternative Policy Options
•  Identification and Screening of Mitigation Actions
•  Forecast Impacts of Mitigation Actions
•  Recommendations and Strategy for Implementation

Each of these elements of the action plan will be discussed in turn, with references to the appropriate
sections of this guidance document.
9.1     EXECUTIVE SUMMARY

       This section summarizes the Plan's conclusions and recommendations.


9.2    BACKGROUND ON THE SCIENCE OF CLIMATE CHANGE

       For some readers, the Plan will serve as their first introduction to the issues surrounding
climate change, while others may already be well educated about the subject. A concise presentation
on the science of climate change and the history of national and international climate change policy,
as discussed in Chapter 2, will help to educate readers about the problems confronted in the Plan.



9.3    REGIONAL AND LOCAL RISKS AND VULNERABILITIES

       The global  phenomenon of climate change will manifest itself at the regional and local levels.
To the extent possible, states should anticipate the local and regional manifestations of climate
change, such as shifting patterns of agriculture, increased incidence of temperature-related diseases,
and risks to water resources.


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9.4    1990 AND FORECAST BASELINE EMISSIONS

       As discussed in Chapter 3, identifying major sources of anthropogenic greenhouse gases will
enable states to prioritize various policy initiatives. This inventory of greenhouse gas emissions will
also establish a baseline against which the effectiveness of mitigation activities may be measured. For
inventories developed in partnership with EPA, states are requested to use the year 1990 as their
baseline year.  The choice of 1990 as a baseline is consistent with the nation's international
commitment under the Framework Convention for Climate Change to return the nation's greenhouse
gas emissions  to 1990 levels by the year 2000.

       To evaluate the set of mitigation actions contained in the Plan, each state should also forecast
a baseline set of emissions. The forecast (see sec. 3.2) baseline scenario describes a future in which
a state conducts "business as usual,' pursuing no initiatives specifically targeted to reduce or
sequester greenhouse gases. At the same time, the  baseline scenario must portray the expected
economic, social, demographic, and technological developments over some future time horizon. The
maximum time frame for projecting emissions is generally 15 to 20 years.
9.5    GOALS AND TARGETS

       Once baseline emissions have been forecast, each state should commit to attaining realistic,
measurable goals of greenhouse gas reduction or sequestration, as discussed in Chapter 4.  Using
the baseline forecast, states may establish reduction or sequestration goals over a given period of
time (see sec. 7.1).
9.6    ALTERNATIVE POLICY OPTIONS

       Although this guidance document is intended to assist states in formulating mitigation
strategies, i.e. strategies to reduce greenhouse gas emissions, states may also choose to develop
strategies that will allow them to adapt to the potential changes that climate change may generate.
States should discuss these adaptation strategies in a separate section, distinct from mitigation
strategies.
9.7    IDENTIFICATION AND SCREENING OF MITIGATION ACTIONS

       Based on the guidance provided by Chapters 5 and 6, states can begin to identify policy
options to reduce greenhouse gas emissions.  These options can then be analyzed, as discussed in
Chapter 8, to select mitigation actions that are economically viable, politically feasible, and
technologically plausible.

       When identifying and screening mitigation actions, states should also describe the process
through which they arrived at their conclusions. They should discuss:

•   the political infrastructure that ensured the Plan's formulation (see sees. 7.2, 7.3, and 7.4);
•   the development and application of selection criteria used to screen mitigation actions (see sec.
    4.3);  and
•   the analytical tools used to compare mitigation options (see Chapter 8).


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9.8    FORECAST IMPACTS OF MITIGATION ACTIONS

       Once a state has identified those mitigation actions that are economically viable, politically
feasible, and technologically plausible, it should analyze and communicate the benefits of these
actions through the use of mitigation scenarios. Mitigation scenarios are not predictions of the future.
Rather, they allow policymakers and the public to imagine the future by modeling the effects of a wide
range of policy initiatives.

       The mitigation scenario describes a future similar to the baseline scenario with respect to
underlying economic and demographic trends;  however, it assumes initiatives are taken to address
the issue of climate change. The mitigation scenario should take into account both the technical
potential for reducing or sequestering greenhouse gases and the institutional, cultural, and political
constraints that may prevent a state from exploiting all technical possibilities. States may develop
several mitigation scenarios based on different assumptions that vary according to the degree to
which they yield greenhouse gas reductions.

       It is beyond the scope of this guidance document to go into the specifics of the various
models that have been developed to generate long-term forecasts of climate-related phenomenon.
Forecasting emissions relies on such uncertain variables as population growth,  energy consumption
and changing sources of power, number of automobiles, and changes in the agriculture and forestry
sector. Section 3.2 of this guidance document provides a broad overview of forecasting methods.
Whichever forecasting method a state uses, it will probably involve three essential broad types of
activities:  data collection and analysis;  quantification of emissions/reductions/sequestration; and
extrapolation.

•  Data Collection and Analysis.  Currently, greenhouse gas emissions are estimated by multiplying
   data that  measure the level of activity that generates greenhouse gases (hereinafter referred to as
   "GHG activities*) with the appropriate greenhouse gas coefficient. It is therefore necessary to
   collect these  data, which can be accomplished when states complete their greenhouse gas
   inventories (see sec.  3.1).

   Some effort must also go into collecting data on the parametric assumptions that underlie the
   scenarios. States should determine and define which societal indicators—such as population
   growth, GDP, market penetration rate for certain technologies—significantly affect GHG activities.
   These key parameters will be used  to make extrapolations of greenhouse gas emissions in the
   future.

•  Quantification of Emissions/Reductions/Sequestration.  Methods currently exist to estimate
   greenhouse gas emissions based on data on GHG activities (see EPA's Stare Workbook:
   Methodologies for Estimating Greenhouse Gas Emissions). States should develop methodologies
   to quantify the greenhouse gas reduction or sequestration associated with their set of mitigation
   actions.

•  Extrapolation. States should develop a model—a quantitative means to express the relationship
   between the  key parameters and GHG activities—that permit estimates of the  level of GHG activity
   from a given  parametric value. To forecast future levels of GHG activity, projected values of the
   key parameters can be input into the model. These projected parametric values may be
   exogenous (i.e. external to the model) or may  be based on assumptions and  algorithms
   incorporated within the model.
9.9    RECOMMENDATIONS AND STRATEGY FOR IMPLEMENTATION

       The ultimate product of a state's analytical efforts in developing a Climate Change Action


                                             9-3

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Plan is a set of policy recommendations and a strategy to implement those recommendations.  The
implementation strategy should clearly lay out the tasks that must be accomplished, the agencies or
parties responsible for accomplishing those tasks, and a timeline for implementation.

       Depending on their implementation strategy, states may organize their policy
recommendations in a variety of ways. States may organize recommendations by:

•   targeted sector (e.g. utilities, transportation, agriculture);
•   fuel source (e.g. coal, gasoline, natural gas);
•   amount of greenhouse gas reductions anticipated;
•   cost of implementation; or
•   governmental role (e.g. legislative actions, regulatory actions, voluntary actions).
       States who respond to the challenge of climate change face a daunting mission, but one that
is critical to the world's well-being. The scientific evidence strongly suggests that increasing the
concentration of greenhouse gases will alter global climate.  While the effects of global climate change
are uncertain, they could be substantial.  Sea-level rise could inundate many coastal areas, entire
species could be threatened with extinction and ecosystems lost.
       This guidance document outlines procedures and strategies that states may use to implement
initiatives that not only reduce greenhouse gas emissions, but that conserve energy and enhance
economic efficiency as well.  Hopefully, it will help to facilitate continued collaborations among the
state, local, and the federal governments and to encourage states to forge innovative, creative, locally-
based approaches to risks that threaten the global commons.
                                             9-4

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                                         GLOSSARY1
Aerosol:  Paniculate material, other than water or ice, in the atmosphere. Aerosols are important in
       the atmosphere as nuclei for the condensation of water droplets and ice crystals, as
       participants in various chemical cycles, and as absorbers and scatterers of solar radiation,
       thereby influencing the radiation budget of the earth-atmosphere system, which in turn
       influences the climate on the surface of the Earth.

Afforestation: The process of establishing a forest, especially on land not previously forested.

Anaerobic Fermentation: Fermentation that occurs under conditions where oxygen is not present.
       For example, methane emissions from landfills result from anaerobic fermentation of the
       landfilled waste.

Anthropogenic:  Of, relating to, or resulting from the influence of human beings on nature.

Atmosphere: The envelope of air surrounding the Earth and bound to it by the Earth's gravitational
       attraction.

Blomass: The total dry organic matter Or stored energy content of living organisms that is present at
       a specific time in a defined unit (ecosystem, crop, etc.) of the Earth's surface.

Biosphere:  The portion of Earth and its atmosphere that can support life.

Carbon Sink: A pool (reservoir) that absorbs or takes up released carbon from another part of the
       carbon cycle.  For example, if the net  exchange between the biosphere and the atmosphere  is
       toward the atmosphere, the biosphere is the source, and the atmosphere is the sink.

Carbon Dioxide (CO2): Carbon dioxide is an abundant greenhouse gas, accounting for about 66
       percent of the total contribution in 1990 of all greenhouse gases to radiative forcing.
       Atmospheric concentrations have risen 25% since the beginning of the Industrial Revolution.
       Anthropogenic source of carbon dioxide emissions include combustion of solid, liquid, and
       gases fuels, (e.g., coal, oil, and natural gas, respectively), deforestation, and non-energy
       production processes such as cement-production.

Carbon Monoxide (CO):  Carbon monoxide is an odorless, invisible gas created when carbon-
       containing fuels are burned incompletely.  Participating in various chemical reactions  in the
       atmosphere, CO contributes to smog formation, acid rain, and the buildup of methane (CH^.
       CO elevates concentrations of CH4 and tropospheric ozone (OJ by chemical  reactions with
       the atmospheric constituents (i.e., the hydroxyl radical) that would otherwise assist in
       destroying CH4 and O3.

Chlorofluorocarbon (CFC): An inert and easily liquified chemical composed of chlorine, fluorine, and
       carbon atoms.  CFCs are commonly used in refrigeration, air conditioning, and packaging and
       insulation foams, or as solvents or aerosol propellants. Because they are highly stable, CFCs
       are not destroyed in the lower atmosphere. They drift into the upper atmosphere where their
       chlorine components destroy ozone.

Climate Change:  The long-term fluctuations in temperature, precipitation, wind, and all other aspects
       of the Earth's climate.
   1 Some of the definitions shown here are excerpted from the Carbon Dioxide and Climate Glossary produced by
the Carbon Dioxide Information Analysis Center of Oak Ridge National Laboratory.

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Deforestation: The removal of forest stands by cutting and burning to provide land for agricultural
       purposes, residential or industrial building sites, roads, etc. or by harvesting trees for building
       materials or fuel.

Enteric Fermentation: Fermentation that occurs in the intestines. For example, methane emissions
       produced as part of the normal digestive processes of ruminant animals is referred to as
       •enteric fermentation.'

Flux: Rate of substance flowing into the atmosphere (e.g. kg/m2/second).

Global Warming Potential (GWP): Gases can exert a radiative forcing both directly and indirectly:
       direct forcing occurs when the gas itself is a greenhouse gas; indirect forcing occurs when
       chemical transformation of the original gas produces a gas or gases which themselves are
       greenhouse gases. The concept of  the Global Warming Potential has been developed for
       policymakers as a measure of the possible warming effect on the surface-troposphere system
       arising from the emissions of each gas relative to CO2.

Greenhouse Effect: A popular term used to describe the roles of water vapor,  carbon dioxide, and
       other trace  gases in keeping the Earth's surface warmer than it would be otherwise.

Greenhouse Gases:  Those gases, such  as water vapor, carbon dioxide, tropospheric ozone, nitrous
       oxide, and methane that are transparent to solar radiation but opaque to infrared or longwave
       radiation. Their action is similar to that of glass in a greenhouse.

Hydrochlorofluorocarbon (HCFC):  A chemical composed of hydrogen, chlorine, fluorine,  and carbon
       atoms. HCFCs are commonly used  in refrigeration, air conditioning, and packaging and
       insulation foams, or as solvents or aerosol propellants. Because HCFCs are less stable than
       CFCs, they have a lower ozone depleting potential, but most HCFCs do have a global
       warming potential.

Hydrofluorocarbon (HFC): A chemical composed of hydrogen, fluorine, and carbon.  HFCs are
       being used increasingly as refrigerants. They are completely destroyed in the lower
       atmosphere and, therefore, have no ozone depleting potential. However, many have a global
       warming potential; some significantly higher than that of carbon dioxide.

Methane (CHj):  Following carbon dioxide,  methane is the most important greenhouse gas in terms
       of global contribution to radiative forcing (18 percent). Anthropogenic sources of methane
       include wetland rice cultivation, enteric fermentation by domestic livestock, anaerobic
       fermentation of organic wastes, coal mining, biomass burning, and the production,
       transportation, and distribution of  natural gas.

Nitrous Oxide (N2O):  Nitrous oxide is responsible for about 5 percent of the total contribution in
       1990 of all greenhouse gases to radiative forcing. Nitrous oxide is produced from a wide
       variety of biological and anthropogenic sources. Activities as diverse as the applications of
       nitrogen fertilizers and the consumption of fuel emit N2O.

Nitrogen Oxides (NOX): One form of odd-nitrogen, denoted as  NOX is defined  as the sum of two
       species, NO and NO2. NOX is created  in lighting, in natural fires, in fossil-fuel combustion, and
       in the stratosphere from N2O.  It plays an important role in the global warming process due to
       its contribution to the formation of ozone (O.J).

Non-Methane Volatile Organic Compounds (NMVOCs): VOCs  are frequently divided into methane
       and non-methane compounds. Non-methane VOCs include compounds such as propane,
       butane,  and ethane (see also discussion on Volatile Organic Compounds).
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Ozone (Og): A molecule made up of three atoms of oxygen. In the stratosphere, it occurs naturally
       and it provides a protective layer shielding the Earth from ultraviolet radiation and subsequent
       harmful health effects on humans and the environment. In the troposphere, it is a chemical
       oxidant and major component of photochemical smog.

Radiative Forcing: The measure used to determine the extent to which the atmosphere is trapping
       heat due to emissions of greenhouse gases.

Radiattvety Active Gases: Gases that absorb incoming solar radiation or outgoing infrared radiation,
       thus affecting the vertical temperature profile of the atmosphere. Most frequently cited as
       being radiatively active gases are water vapor, carbon dioxide, nitrous oxide,
       chlorofluorocarbons, and ozone.

Stratosphere:  Region of the upper atmosphere extending from the tropopause (about 5 to 9 miles
       altitude) to about 30 miles.

Trace Gas:  A minor constituent of the atmosphere.  The most important trace gases contributing to
       the greenhouse effect include water vapor, carbon dioxide, ozone, methane, ammonia, nitric
       acid, nitrous oxide, and sulfur dioxide.

Troposphere:  The inner layer of the atmosphere below about 15 km, within which there is normally a
       steady decrease of temperature with increasing  altitude.  Nearly all clouds form and weather
       conditions manifest themselves within this region, and its thermal structure is caused primarily
       by the heating of the Earth's surface by solar radiation, followed by heat transfer by turbulent
       mixing and convection.

Volatile Organic Compounds (VOCs): Volatile organic compounds along with nitrogen oxides are
       participants in atmospheric chemical and physical processes that result in the formation of
       ozone and other photochemical oxidants. The largest sources of reactive VOC emissions are
       transportation sources and industrial processes. Miscellaneous sources, primarily forest
       wildfires and non-industrial consumption of organic solvents, also contribute significantly to
       total VOC emissions.
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