The Performance of Voluntary Climate Programs: Climate Wise and 1605(b)

Despite the growing importance of voluntary programs as tools for environmental management, they have been subject to quite limited evaluation. Program evaluation in the absence of randomized experiments is difficult because the decision to participate may not be random and, in particular, may be correlated with the outcomes. The present study is designed to overcome these problems by gauging the environmental effectiveness of two voluntary climate change programs—the U.S. Environmental Protection Agency’s Climate Wise program and the U.S. Department of Energy’s Voluntary Reporting of Greenhouse Gases Program, or 1605(b)—with particular attention to the participation decision and how various assumptions affect estimates of program outcomes. For both programs, the analysis focuses on manufacturing firms and uses confidential census data to create a comparison group and to measure outcomes (expenditures on fuel and electricity).Overall, we find that that the effects from Climate Wise and 1605(b) on fuel and electricity expenditures are no more than 10 percent and probably less than 5 percent. Virtually no evidence suggests a statistically significant effect of either Climate Wise or 1605(b) on fuel costs. Some evidence suggests that participation in Climate Wise led to a slight (3–5 percent) increase in electricity costs that vanished after two years. Stronger evidence suggests that participation in 1605(b) led to a slight (4–8 percent) decrease in electricity costs that persisted for at least three years.

Since the early 1990s, U.S. climate policy has emphasized voluntary programs as a means for reducing greenhouse gas emissions. New research by RFF scholars finds that while voluntary programs can promote emissions reductions, it would be a mistake to count on very dramatic impacts.

There are numerous such programs initiated by both the Clinton and Bush administrations including Energy Star, Rebuild America, Green Lights, Motor Challenge, the Voluntary Reporting of Greenhouse Gases Program (Under Section 1605b), Climate Wise, as well as the Climate Leaders and Climate Vision programs. The proliferation and prominence of voluntary programs to reduce greenhouse gas emissions raises the question of whether they work as advertised.

A major difficulty in evaluating any voluntary program is accounting for self-selection by participants. It stands to reason that firms with greater opportunities for reductions are more likely to take part, thus making a straightforward comparison with non-participants misleading. It becomes hard to ascertain whether or not any observed differences are simply the normal course of affairs that would have occurred with or without the program.

In a new discussion paper, RFF Senior Fellows Richard Morgenstern, William Pizer, and Fellow Jhih-Shyang Shih address this question head on. They study the performance of two programs, Climate Wise and 1605(b), taking into account factors that affect the decision to participate and using fuel and electricity expenditures as a proxy for emissions. Their results provide mixed evidence for the effectiveness of voluntary programs: 

• Overall, they find the effects of Climate Wise and 1605(b) on fuel and electricity expenditures are no more than 10 percent and probably less than 5 percent.
• Virtually no evidence suggests a statistically significant effect of either Climate Wise or 1605(b) on fuel costs.
• Some evidence suggests that participation in Climate Wise led to a slight (3–5 percent) increase in electricity costs that vanished after two years.
• Stronger evidence suggests that participation in 1605(b) led to a slight (4–8 percent) decrease in electricity costs that persisted for at least three years.

A detailed description of the study’s results and methodology is contained in “Evaluating Voluntary Climate Programs in the United States,” RFF DP 8-13.