Draft White paper: Issues and Options for Benchmarking ...

DRAFT White Paper Issues and Options for Benchmarking Industrial GHG Emissions Submitted to: the Washington State Department of Ecology PRELIMINARY DRAFT May 12, 2010 With support from: Öko-Institut Ross & Associates Environmental Consulting, Ltd.  DRAFT Acknowledgments This report was commissioned by the Washington State Department of Ecology and supported in part by the Energy Foundation. The report and underlying research were completed by the Seattle office of the Stockholm Environment Institute U.S. (SEI-US) with assistance from Öko-Institut and Ross & Associates Environmental Consulting, Ltd. The authors gratefully acknowledge contributions from the following individuals. Washington Department of Ecology Janice Adair Justin Brant Eli M. Levitt SEI-US Peter Erickson Michael Lazarus Öko-Institut Hauke Hermann Ross & Associates Environmental Consulting, Ltd. Tim Larson Bill Ross Amy Wheeless In addition, we would like to thank representatives of the following companies who assisted in reviewing draft text for Section 4 of this White Paper particular to their respective industries: Alcoa, Ash Grove Cement Company, Cardinal Glass, Lafarge Cement, Northwest Food Processors Association, Nucor Steel, Solvay Chemicals, and Weyerhaeuser Company.  DRAFT Table of Contents 1. Introduction and Context ...................................................................................................................................... 1 Benchmark Basics ...................................................................................................................................................... 2 Roadmap of the White Paper .................................................................................................................................... 3 2. Summary of Current Policy Approaches ................ 4 Voluntary Performance Goals.................................................................................................................................... 4 Market-Based Approaches ........ 6 Emissions Performance Standards .......................................................................................................................... 12 Summary: Benchmarks in the Three Policy Approaches ........................ 16 3. Benchmark Construction: Issues and Options .................................................................................................... 16 Definition of Product or Activity Being Benchmarked ............................. 16 Measurement Protocol and Boundaries .................................................................................................................. 20 Units for Normalizing ............................................... 22 Benchmark Ambition ............................................................................................................... 23 Data Sources ............................................................ 24 How Different Policy Approaches Might Affect Benchmark Construction .............................................................. 27 4. Focus on Particular Industry Sectors ................................................................................... 29 Aluminum ................................................................................................ 31 Cement .................................................................... 33 Chemicals ................................................................................................. 35 Food Processing ....................................................................................... 36 Glass ......................................................................................................................................................................... 37 Pulp & Paper ............................ 39 Steam ....................................................................................................................................................................... 42 Steel ......... 44 5. Summary of Preliminary Findings and Potential Next Steps ............................................................................... 47 6. References Cited .................................................................................. 50 Issues and Options for Benchmarking Industrial GHG Emissions Stockholm Environment Institute – U.S.  DRAFT Appendix A. Expected GHG Reporting Data ............................................................................................................... 55 Aluminum ................................................................................................................................................................ 55 Cement .... 56 Chemicals ................................................................................................................................................................. 59 Food Processors ....................... 59 Glass ......................................................................................................................................................................... 59 Pulp and Paper ......................................................................................................................................................... 60 Steam ....................................................................................................................................................................... 60 Steel ......... 60 Issues and Options for Benchmarking Industrial GHG Emissions Stockholm Environment Institute – U.S. 𝑖 𝑖 𝑜 𝐺 𝑜 𝐻 𝑂 𝐺 𝑛 𝐵 𝑟 𝑒 𝑜 𝑐 𝑈 𝑖 𝑠 𝑟 𝑠 𝑡 𝑠 𝑒 𝐸 𝑚 𝑚 𝑟 𝑓 𝑒 𝑡 𝑡 𝑛 𝑜 𝑒 𝑟 𝐶 𝑜 𝑛 𝑠 𝑡 𝑛 𝑛 𝑜 𝑖 𝑡 𝑠 𝑡 𝑚 𝑢 𝑘 𝑝 𝑎 𝑡 𝑐 𝑢 𝑂 DRAFT 1. Introduction and Context Industrial activity remains a cornerstone of modern economies, as well as a major source of emissions of heat- trapping greenhouse gases (GHGs). Industrial processes and energy use account for 20% of direct greenhouse gas emissions globally (Metz et al. 2007) and in Washington State (Center for Climate Strategies 2007). Many industries, such as aluminum production, are highly reliant on electricity use; when the emissions associated with generating electricity for industry are included, the share rises to a quarter of global emissions, and an even larger share of energy-related CO emissions. A handful of energy-intensive industries – iron and steel, aluminum, 2 chemicals, petroleum refining, minerals (e.g., cement, lime, and glass), and pulp and paper – account for over 80% of global industrial energy use, and a large majority of industrial GHG emissions (Metz et al. 2007). These same industries could also play central roles in a transition to a low-carbon economy. Aluminum can reduce transportation energy needs by “lightweighting” vehicles. New low-carbon transportation and energy infrastructure, from public transit systems to wind turbines, may require significant amounts of steel and cement. Advanced low-emissivity (“low e”) glass is a key component of ultra-low energy buildings. Sustainably harvested forest products offer the potential for carbon sequestration in the built environment as well as a low-carbon energy source. In short, a few key energy and GHG emissions intensive industries – most of which are represented here in Washington State and operate in a highly competitive international markets – are central to tackling climate change. With these considerations in mind, state and federal policymakers are considering a range of approaches to address GHG emissions from industrial activity. Approaches under consideration for emissions-intensive industry sectors include voluntary agreements or incentives, inclusion of industry in an economy-wide cap-and-trade program, and direct regulation through performance standards. A common theme to all three such approaches is the use or development of GHG benchmarks, which enable the assessment of GHG emissions performance across facilities or against a common standard. GHG benchmarks are typically expressed as a quantity of emissions per unit of output, as in the following simple 1 equation, and may in some contexts be called emissions intensity. ( )2 ℎ = ( , $, ℎ ) Policymakers can use GHG benchmarks in any of at least three policy approaches:  Voluntary performance goals, in which participating companies commit to achieving a particular emissions benchmark by a particular year;  Allocation of allowances in a cap-and-trade program, where emissions allowances are freely allocated to industry sectors based on a benchmark level of emissions performance and in proportion to the output of 2 each facility; and  Regulatory GHG performance standards, where individual facilities are required to meet an emissions 3 performance standard that may be set using a benchmark approach. With this range of possible purposes in mind, Washington Governor Gregoire issued Executive Order 09-05 in 2009, directing the Washington State Department of Ecology to develop emission benchmarks in consultation with industry and other interested stakeholders to be delivered to the Governor, per the Executive Order, by July 1, 2011. Specifically, the Executive Order calls for the Director of the Department of Ecology to: 1 A common unit of emissions benchmarks is kilograms of carbon dioxide equivalent per ton of material processed or produced. 2 th For example, H.R, 2454 in the 111 Congress (the “Waxman-Markey” bill) included a rebate to certain energy intensive and trade-exposed sectors based on the average level of emissions per output of the sector. 3 Other approaches to setting emissions performance standards also exist, such as