Draft Recommendations for Climate Leaders Program Enhancements

                                         October 2009

I.     Background

Climate Leaders is an EPA-industry partnership that reduces greenhouse gas (GHG) emissions through
standardized emissions management practices and incentives for industry action. Since 2002 the program
has made significant progress toward its objectives. It spurred action by industry to develop and report
GHG emissions inventories and set emissions reduction goals. As a result, the program helped establish
best practices in these areas, and many companies have been recognized for setting and achieving
significant goals.  The program is estimated to reduce GHG emissions by 50 million metric tonnes of
carbon dioxide equivalent annually. Over 200 large commercial and industrial companies participate in
Climate Leaders, and many additional applications are pending.

In the years ahead, Climate Leaders has an important set of assets that can be used to produce additional
results, including its partnership network and technical resources. Because U.S. efforts to address climate
change are shifting in significant ways, though, the program should be reassessed and strengthened to
optimize its effectiveness in reducing emissions and ensure that it continues to generate maximum value.
To that end, a set of draft recommendations are proposed.

EPA is seeking feedback on these recommendations from Partners and other stakeholders to ensure that
the proposed changes are sensible, timely and feasible. A separate feedback form is provided, and
instructions are included at the end of this document.  The deadline for comments is November 9. 2009.

II.    Process to develop the draft recommendations

To develop the draft recommendations, EPA began by establishing  a set of core principles to guide the
evaluation of various options for updating the program. EPA believes that changes to the program should
achieve the following:

    •   Significantly reduce GHG emissions on an  absolute basis.
    •   Be rigorous, credible and transparent.
    •   Build on existing assets, relationships and goodwill with industry partners.
    •   Complement regulations, State programs, other voluntary programs and private-sector services.
    •   Have broad market impact that extends beyond the partnership.

EPA identified key trends relevant to climate change and their basic implications for the future of Climate
Leaders.  In brief, the team reviewed trends in GHG regulation; changes in corporate action; increasing
consumer interest and awareness in climate change; the emergence  of a professional services sector for
GHG management; advancements in clean energy technologies; increasing energy prices and price
volatility; and rising GHG emissions in developing  countries.

Drawing on these key trends, EPA identified a broad set of potential program enhancement options and
conducted preliminary consultations to evaluate their pros  and cons. EPA interviewed 40 stakeholders
during this step in this process.  Based on these consultations, EPA  developed draft recommendations for
comment by the Climate Leaders Partners and other stakeholders.
October 2009

The process to develop the draft recommendations was distinct from a parallel process to design a new
Small Business Network to provide technical assistance and recognition to small businesses. For more
information on the Small Business Network, contact Verena Radulovic (
III.   Draft recommendations

Strategic purpose of Climate Leaders

The draft recommendations are framed by the program's strategic purpose in the coming years. The long-
term goal of Climate Leaders is to reduce GHG emissions by spurring action among commercial and
industrial companies. The partnership should achieve significant absolute GHG emissions reductions
consistent with the mitigation of climate change and Administration policy. Climate Leaders needs to
stimulate corporate-wide programs, policies, investments and new business approaches that yield
significant absolute emissions reductions and demonstrate to the broader business community the
possibilities of decoupling business and emissions growth.

Aspects of program continuity

Many basic features of Climate Leaders are expected to remain in place. The program will continue to be
based on partnerships between EPA and industry leaders to reduce corporate-wide GHG emissions.
Partners will continue to develop inventory management plans, maintain emissions inventories, annually
report emissions to EPA, set emissions reduction goals, and strive to achieve those goals. EPA will
continue to provide technical guidance and assistance, conferences and other forums for peer-to-peer
sharing and learning, and public recognition for the achievement of important milestones.

Draft recommendations

1.  Require absolute goals

What this recommendation means:  Starting in 2010, when a Partner submits a goal proposal to EPA for
approval, the goal must be stated in absolute terms.  This applies to existing as well as new Partners. A
Partner may set an additional intensity goal in parallel to—but not as a substitute for—an absolute goal.
All intensity goals currently approved under the program may remain in place until completion.  As
Partners achieve those intensity goals or the goal periods expire,  subsequent goals set by those Partners
should be absolute goals.  EPA will update its guidance on goal setting. Evaluation of goal proposals will
take into consideration Partners' production efficiencies and differences among sectors.

Why EPA is proposing this:  A broadly held view within scientific, policy and business communities is
that significant absolute emissions reductions are required across the U.S. economy.  Absolute goals by
Climate Leaders Partners are consistent with this view and demonstrate leadership.  Absolute goals are
also easier to communicate and therefore improve the transparency of the program. Absolute goals have
some disadvantages relative to intensity goals,  but EPA believes  that these can be managed and are
outweighed by the advantages.

2.  Require both near-term and longer-term goals to be  set on a simultaneous, rolling basis

What this recommendation means:  Partners typically set GHG reduction goals with goal periods that
extend roughly 5 or 10 years into the future.  EPA believes that effective GHG emissions management

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should include both near-term and longer term goal periods at roughly 5 year intervals.

Why EPA is proposing this: Climate change is a long-term challenge that requires near-term, sustained
action. Partners that have 5-year goal periods but no vision of the longer-term trajectory of emissions run
the risk of achieving the goal without sufficient planning or preparation to continue making progress.
Conversely, Partners that set longer-term goals run the risk of losing focus in the near term and allowing
several years to pass without progress toward the goal, thus making goal achievement significantly more
difficult.  EPA believes the program should stimulate corporate GHG management practices that result in
both near-term emissions reductions as well as effective long-term planning.

3.  The program's resources should shift from emissions reporting to emissions performance

What this recommendation means:  To date, the Climate Leaders agenda and technical resources have
been largely devoted to developing  and reporting emissions inventories as well as setting goals. In the
future, the program should focus more on how to achieve goals.  For example, the program could do the
following: assist Partners with identifying and evaluating low-cost emissions reduction options; develop
guidance and tools related to best practice for goal achievement; help Partners to identify and understand
emerging low-carbon technologies;  put more effort into helping Partners navigate EPA resources that can
be used to reduce emissions; and develop a mentoring program that connects experienced Partners with
other Partners coming up the learning curve.

Why EPA is proposing this: When  Climate Leaders was launched in 2002,  a significant need among
industry was standardized practices  for emissions inventories and reporting, and Climate Leaders
responded to that need. At present,  most Partners have goals in place and their primary challenge is to
achieve those goals. The program needs to maintain its work on emissions reporting but shift emphasis
and resources to meet Partners' needs related to reducing emissions and goal achievement.

4.  Develop special classes of EPA recognition

What this recommendation means:  Currently, EPA provides recognition to Partners when they set goals
and achieve goals.  Recognition  is typically provided through public service announcements, press
releases,  events such as the annual Partners meeting, and general recognition through the EPA web site.
Partners are also allowed and encouraged to use the Climate Leaders mark according to EPA's guidance.
In the future, EPA believes that the  recognition aspect of the program can be strengthened through a
limited set of special classes of recognition, including one or more of the following: high efficiency / low-
carbon intensity of production; significant absolute emissions reductions; supply chain initiatives that
credibly reduce emissions; and/or long-term achievement of multiple, successive goals.

Why EPA is proposing this: As  Partners' GHG emissions management programs mature, their
achievements take on different characteristics that demonstrate leadership and should be recognized
accordingly. Also, different companies and sectors face different challenges that ought to be taken into
consideration when EPA provides recognition. Lastly, the proposed shift to absolute goals has the
potential  to be a disadvantage to highly-efficient companies that have been early movers in reducing
emissions, and the program ought to recognize companies that achieve extraordinary efficiencies.

5.  Make the annual emissions reports public

What this recommendation means:  The Partners' Annual GHG Inventory Summary and Goal Tracking
Forms covering the goal period will be posted on the program's web site as  they are received.  The data in

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these forms is aggregated at the corporate level and does not include facility-level information. This
would take effect in 2010 covering the 2009 calendar year reporting cycle.

Why EPA is proposing this: Publishing the annual emissions reports will improve the transparency of the
program and help the program to remain consistent with and complementary to the Mandatory Reporting
Rule recently issued by EPA. Also, public reporting of emissions is a sign of leadership, and most
Partners annually publish their corporate-wide GHG emissions data on their web sites and in annual

6.  Expand work on scope 3 emissions

What this recommendation means: EPA currently encourages Partners to include scope 3 emissions, for
example, emissions from business travel, in their inventories and goals.  EPA has also developed
calculation guidance on some of these types of emissions.  In the future, EPA should develop additional
guidance and provide additional technical assistance on scope 3 emissions. For example, EPA could
develop guidance and identify best practices for engaging Tier 1 suppliers on emissions data.

Why EPA is proposing this: Many Partners in Climate Leaders have GHG emissions management
programs that are mature. As Partners gain experience and skill with managing scope 1 and 2 emissions,
their interests tend to  expand to include some classes of scope 3 emissions, which is an additional sign of
leadership. The program should respond to this  trend and support Partners in accounting for and reducing
scope 3 emissions.

7.  Broaden the program's impact through better marketing

What this recommendation means: EPA and its Partners should develop and implement a strategy that
will increase the visibility of the program, explain the results that it achieves, disseminate its findings
broadly, and maximize its impact in the marketplace by spurring broad industry action.  Also, EPA should
leverage intermediaries such as professional services providers to help mainstream the technical resources
and tools developed under the program.

Why EPA is proposing this: Apart from the individual recognition that EPA provides to its Partners, the
Climate Leaders program requires visibility in order to enhance the value of Partner recognition, attract
and retain the best Partners, and have the greatest impact in the marketplace.  The program does not exist
solely for the benefit of its Partners but rather to affect industry action broadly.
IV.   Should Climate Leaders require third-party verification of emissions reports?

EPA requests comments on whether the program should require third-party verification of annual GHG
emissions reports that are submitted to EPA by the Partners. This would augment existing quality-control
processes used by the program and the Partners themselves and bring added credibility to the program.

Climate Leaders currently uses a quality-control process that begins with the development of GHG
emissions inventory management plans. Each Partner is required to develop a written plan describing its
system to develop and manage its inventory from year to year. The finalization of these plans usually
entails a site visit by EPA to a Partner's facility. Each Partner is required to submit an Annual GHG
Inventory Summary and Goal Tracking Form and underlying emissions data to EPA for review. Third-
party verification is not currently a requirement.

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V.   Feedback instructions and next steps

Using the separate feedback form provided in the e-mail announcement, please send comments
electronically to EPA. The feedback form is also available on the Climate Leaders website:
www. epa. gov/climateleader s.
       Deadline for comments:
       E-mail address:
9:00 pmEST, Monday, November 9, 2009

aulisi. andr ew @ epa. gov
Andrew Aulisi, Director, Climate Leaders Program
EPA is organizing a webinar for the Partners on Tuesday, November 3, 2009 from 2:00-3:30 pm EST to
discuss the draft recommendations and answer questions. To register for the webinar at no cost, go to
www. epa. gov/climateleaders/events. EPA may organize additional webinars and meetings as needed for
the Partners and other stakeholders to discuss the draft recommendations.

Written feedback that is submitted to EPA may be shared publicly.

Following the comment period, EPA will review and synthesize the feedback, make adjustments, and
announce final program changes. EPA is targeting a deadline of November 24, 2009 to announce final
program changes.  The changes will be presented and discussed at the Climate Leaders Partners Meeting,
December 1-3, 2009.
October 2009