Think Tank? Or In the Tank?

World Resources Institute conducts ostensibly independent and objective analyses of environmental legislation for Congress, media including the New York Times, and advocates. But in its analysis of competing climate legislation, WRI used a double standard for measuring emissions reductions in a way that resulted in a more favorable intepretation of Waxman Markey legislation -- legislation WRI helped create.

1. Role of Carbon Offsets Central to Understanding Whether Legislation Will Reduce Emissions

Carbon offsets represent perhaps the most contentious single element of climate legislation currently proposed in Congress. Many environmental groups and energy industry interests support the broad use of carbon offsets because they promise to limit the cost associated with reducing carbon emissions while offering firms greater flexibility in complying with carbon caps.

Unfortunately, there is strong and growing evidence that carbon offset programs deliver little by way of actual emissions reductions. Numerous experts warn that offsets may not represent real emissions reductions (logging, for example, may just move to non-offsetted properties) and are in many cases fraudulent (e.g. businesses being paid to do what they would have done anyway, like capturing methane, planting trees, building dams, not tilling, and not logging).

Investigations by Business Week and Wall Street Journalfound that many companies were being paid for offset activities (e.g. burning methane) that they were already doing prior to qualifying for offset funding. A 2008 Stanford Study found that "between a third and two thirds" of emission offsets under the United Nations Clean Development Mechanism do not represent actual emission cuts. The Government Accountability Office study concluded that offsets offered ""limited assurance of credibility." In 2009, two of the world's largest carbon offset auditors were suspended by the U.N. because they had approved offset projects without checking to see whether they were actually reducing emissions. A recent investigation by the Center for Investigative Reporting published in January 2010 by Harper's magazine concluded that the carbon market is "an elaborate shell game." And major firms including Sun and most recently Nike have stopped purchasing offsets out of concerns about their legitimacy.

Offsets play a central role in the Waxman-Markey and Kerry-Boxer bills and their availability, price and legitimacy will likely be the principle factor determining the ultimate impact of the legislation.

Both Waxman Markey and Kerry Boxer permit such a large quantity of offsets -- up to 2 billion tons per year or virtually all of the required emissions reduction between 2012 and 2020 -- that U.S. firms could be entirely exempt from reducing their own emissions, adopting new power technologies, or transforming the U.S. energy system for much if not all of the next two decades. If offsets do not in fact deliver real emissions reductions, then total emissions could rise at business-as-usual levels through 2020 or beyond if firms turn to offsets at even a fraction of the level permitted by the legislation.

With securing a competitive and job-creating U.S. clean energy economy increasingly central to the objectives of climate legislation, a responsible analysis of pending climate bills would clearly account for the huge variance offsets introduce to the ultimate impact these bills will have on both U.S. carbon emissions and the U.S. energy system.

Instead, WRI's analyses and graphics of Waxman-Markey and Kerry-Boxer assume all offsets are "real, verifiable and additional." They present offsets purchased by U.S. polluters from domestic or international businesses outside of the capped sectors of the U.S. economy as real emissions reductions. They represent ostensible emissions reductions from sources outside of the United States as if they constituted reductions of emissions from U.S. sources. And they ignore the vastly different impact on the pace and scale of clean energy transition if U.S. firms turn to offsets instead of transforming their own energy technologies and business practices.

2. WRI Hides Use of Offsets in Graphs of Waxman Markey

While WRI maintains a reputation for independent analysis, WRI is in fact a policy advocacy organization. It cofounded the lobbying group known as the United States Climate Action Partnership (USCAP) with Duke Energy, other green groups, and other energy companies. The policy framework authored by USCAP became the foundation of the Waxman-Markey and Kerry-Boxer bills.

In Foreign Policy magazine, we criticized World Resources Institute (WRI) for creating a widely-used graph showing that Waxman Markey climate legislation would reduce U.S. greenhouse gas emissions 17 percent by 2020, even though the legislation would allow most if not all of those emissions to be reduced through the purchase of carbon offsets.

WRI analysis author John Larsen responded by pointing to a caveat he made in his analyses starting on June 25:

If the environmental integrity of offsets were not completely real, permanent, and additional then the emission reduction estimates included in this analysis would be diminished proportionately.

But this caveat did not appear in WRI's analyses of April 22 and May 19, when the legislation was being debated. In fact, in its April 22 analysis WRI wrote:

[W]e assume: Offsets will be real, permanent and additional. As a result, we depict offsets as a real reduction in total global GHG emissions.

WRI said nothing about the problem of counting offsets as emissions reductions, nor of the highly nuanced caveat Larsen cites above.

Moreover, WRI's widely used graph, reprinted in the New York Times and other media, counted and showed carbon offsets as legitimate emissions reductions under Waxman Markey. There was no way for readers to know that the legislation required few if any emissions reductions by polluting firms for the first one or two decades of the program since they could just purchase offsets. The New York Times reprint of the WRI graph acknowledged "critics" who were skeptical that the emissions reduction targets would be met, but did not show on the graph what percentage of Waxman Markey's proposed emissions reductions could be met through offsets. The Timesgraph is not visible in the on-line story, so we have reprinted it here.

UPDATE: The graph is now online at the Times. We have reproduced it here.

Graphs, like pictures, speak a thousand words, and an accurate and unbiased visual representation of what legislation does and does not do is the expectation of independent analysts.

Today WRI continues to promote a graph showing Waxman Markey reducing emissions 17 percent (the above graph was from December 22, 2009) with no mention of offsets as comprising most and perhaps all of the emissions reductions required by the bill.

3. WRI Uses Double Standard When Evaluating Competing Climate Legislation

Further evidence that WRI's analyses are biased in favor of legislation WRI helped to create comes in its analysis of Senator Cantwell's CLEAR legislation, a competing proposal introduced late last month in the Senate.

Breakthrough has done its own analysis of the strengths and weaknesses of the CLEAR approach and has taken no position either in favor or in opposition to the legislation. In so doing, we have made sure to treat emissions mitigation activities in non-capped sectors of the economy consistently in our analysis and representation of CLEAR, Waxman-Markey, and Kerry-Boxer. By contrast, WRI's analysis of the Cantwell bill, and the graphics that accompanied it, treats such activities differently than it does in its earlier analyses of Waxman-Markey and Kerry-Boxer, choosing not to count reductions resulting from policies targeting emissions outside the capped sector of the economy and thus using a different standard than it used when analyzing the Waxman-Markey and Kerry-Boxer proposals WRI supports.

CLEAR does not permit any offsets but does pursue additional emissions reductions outside the cap, setting aside 25% of the bill's cap and trade revenue for a trust fund that prioritizes funding for programs that pursue emissions reductions in non-CO2 emissions and carbon sequestration in forestry and agriculture (both domestic and overseas).

These policies target exactly the same kinds of supposed emissions reductions, such as tree planting and methane capture, as would be accomplished through offsets allowed under Waxman Markey. Only CLEAR funds such activities directly, rather than leaving it to private firms to finance them in lieu of reducing emissions.

Given the well documented failures of the offsets markets to date, it would be reasonable to assume that funding non-energy related emissions reduction efforts directly through the mechanisms proposed in CLEAR would be at least as effective, if not more effective, than the offsetting allowed in Waxman Markey. Yet WRI attributes zero emissions reductions to these programs in its analysis of CLEAR while attributing up to 2 billion tons of emission reduction, virtually all of the emissions reduction required through 2020, to these same actions in its analysis of Waxman Markey.

For example, in the "net emissions reductions" graphic above, WRI counts any emissions reductions pursued outside of the capped sectors through offsets as real reductions and includes them in the emissions reductions trajectories depicted for Waxman-Markey, while at the same time portraying none of the emissions reductions pursued outside of the cap in CLEAR.

In contrast to Waxman Markey/Kerry Boxer, CLEAR deals with the questionable nature of offsets transparently. CLEAR distinguishes between carbon emission and other greenhouse gas emissions. It distinguishes between actual reductions of carbon emissions and programs intended to create or preserve carbon sinks like reforestation. It distinguishes between reductions in capped sectors of the U.S economy and non-capped sectors. And it distinguishes between U.S. emissions reductions and those that occur elsewhere. In so doing CLEAR does not allow efforts to drive additional emissions reductions outside the cap to undermine the pressure on firms under the cap to turn to new energy technologies and practices. WRI ironically uses this transparency against CLEAR to claim Waxman Markey will reduce emissions faster than CLEAR.

WRI's bias is further revealed in a second way. WRI did not update its business-as-usual emissions assumptions for 2012 to take into account the impacts of the recession, which reduced emissions 6 percent in 2009 alone. Thus, WRI overestimates 2012 emissions levels, which biases their analysis against CLEAR.

While Waxman-Markey and Kerry-Boxer's caps are set based on 2005 levels, and are thus unresponsive to real emissions levels in 2012, CLEAR sets its emissions based on 2012 levels, so WRI's higher projections for 2012 BAU emissions substantially understates the emissions reductions mandated by CLEAR. Using current (and more accurate) projections of post-recession emissions trajectories results in CLEAR emissions targets potentially achieving similar (or greater) levels of real emissions reduction in U.S. capped sectors as Waxman-Markey and Kerry-Boxer.

This could be remedied by updating their baseline with new Energy Information Administration data, which give a fair, apples-to-apples comparison of climate legislation. The new EIA BAU estimates were available last August. Breakthrough Institute developed preliminary estimates of post-recession BAU emissions back in September, which revealed that Waxman-Markey and Kerry-Boxer are both likely to over-allocate permits in 2012 and 2013 (since their cap levels in 2012 are pegged based on pre-recession 2005 levels). Yet WRI's December analysis of CLEAR continued to rely upon outdated baseline estimates that overstated reductions in Waxman Markey and understated reductions in CLEAR.

4. WRI Misrepresents Funding in Climate Bills for Energy R&D

At the end of his response World Resources Institute analyst John Larsen claims that we understated how much Waxman Markey would invest in R&D. In fact, the legislation would invest just $1.2-1.6 billion in R&D (at EPA and CBO-projected allowances prices, respectively), roughly one-tenth of what President Obama has promised to invest, with a small amount of money going to deploying technologies such as $2 billion a year for clean coal technologies, which would not be enough to build a single new clean coal plant.

The argument in the Foreign Policy piece was clear. Much larger sums of money need to go into R&D to solve a set of technical problems with solar, nuclear, biofuels, and batteries - problems that Secretary Chu and other experts have identified. The portions of Waxman Markey tied to specific projects, from clean coal to electric cars, may be worthy but are simply not the same as R&D. That Larsen includes money for adaptation in his list of "investments and new requirements for clean energy technology" speaks loudly of WRI's understanding of what it will take to overcome the wide technological gap between fossil fuels and low-carbon energy sources.