4 SENATORS TO PROTECT EMERGING US GHG MARKET

This is big news because it is demonstrates legislative preparation for the upcoming fight over emissions regulation. Will it be a "carbon" tax? Unlikely, though a tax has been proposed. Will it be Cap-and-Trade? This cost containment measure says the senators are getting ready to say "Yes" to Cap-and-Trade. And business is ready for them to do so. Will they say "Yes" before the 2008 presidential election? The smart money is still betting "no."

Cost Containment for the Carbon Market: A Step Toward Cap-and-Trade
David Roberts, July 25, 2007 (The Huffington Post)

WHO
John Warner (R-Va.), Lindsey Graham (R-S.C.), Mary Landrieu (D-La.), and Blanche Lincoln (D-Ark.)
Two regional cap-and-trade systems are being implemented in the U.S., adding to the EU system and the upcoming Australia-New Zealand system. (click to enlarge)

WHAT
Cost-Containment for the Carbon Market, a program to protect businesses against unexpected, disruptive surges in the cost of greenhouse gas (GHG) credits when a Cap-and-Trade plan is implemented.

WHEN
The proposal regards a national program to control emissions as “inevitable” but does not specify when. Senators Warner and Lieberman are working on legislation to be presented this fall but most observers don’t expect it to be finalized until after the 2008 presidential election.

WHERE
This is for a U.S. GHG emissions market.

WHY
There are 2 basic aspects:
- (1) Oversight. The plan calls for a presidentially-appointed 7-member “Carbon Market Efficiency Board” similar to the Federal Reserve Board that would provide periodic informational updates and make corrections in the form of additions or withdrawals of future credits to hold the market steady and allow businesses the ability to make plans for emissions control measures.
- (2) Credit cost containment methods.
(a) If costs go up and stay up, the Board would allow borrowing against future credits to achieve short-term goals that reduce long-term emissions and earn the future credits back: "For example, if I'm a power company and I know I'm building a new plant that can capture and store carbon emissions that will be ready in eight years, I can borrow a few more permits now, knowing I'll be able to pay them back when that low-emissions plant is up and running. This remedy allows companies more flexibility in making those individual decisions but does not change the national environmental objective."

(b) In a true emergency, the Board could release future credits to be paid back when prices came into line: "Those extra permits would be "paid back" by reducing permits allowed in future years. That's how we guarantee the environmental goal."
Senators Lieberman and Warner are reportedly preparing to bring the best synthesis of these suggestions before the Senate in the fall. (click to enlarge)

QUOTES
- From the Q & A on the plan’s details: “This proposal will help guide a healthy U.S. carbon market by providing cost relief measures and oversight…This plan is aimed at creating a healthy, continuing greenhouse gas emissions market.”
Roberts: Importantly, the cost-relief measures would…be invoked only if average prices exceed a pre-set range, established by Congress and updated regularly…they are explicitly not intended to shield the market…not be invoked on behalf of individual industries or sectors…be explicitly temporary…
- Roberts: The board will be politically appointed; that opens the door to politicization…
- Roberts: Now the key is getting a cap-and-trade program with appropriately ambitious targets.