International greenhouse gas trading programs: a discussion of measurement and accounting issues

There is general scientific consensus that global warming is occurring and that this results from human activities, primarily burning fossil fuels. There is also a growing international consensus that the most cost-effective way to slow global warming is to establish international climate change trading programs that let institutions sell greenhouse gas (GHG) reductions in an international trading program. A well designed international GHG trading program could save billions or tens of billions of dollars and could result in a more rapid transfer of cleaner, more modern energy generating, transmitting and using technologies to developing nations. Establishing an international GHG trading program will require the development of international consensus rules on how to value and credit investments, for example in energy efficiency, that result in reduced emissions of greenhouse gases. Such a program would require the development of an international technical agreement on how to value emissions reductions attributed to energy-efficiency investments that reflect realistic estimates of future energy savings—and emissions reductions—that come from those investments. This paper examines five possible approaches for valuing energy savings which might serve as the basis for an international agreement, discusses the strengths and weaknesses of each approach, and discusses lessons learned from conducting this evaluation process.