THE U.S. CLIMATE CHANGE BILL: DO THE MATH

A new report compares 2 major pieces of climate change legislation soon to come before the U.S. Senate.

Benchmarking Air Emissions compares the Lieberman-Warner Climate Security Act and the Bingaman-Specter Low Carbon Economy Act. It finds that Lieberman-Warner could provide better consumer benefits (billions of dollars/year) because more emissions allowances (credits) would be sold to emitters through auction. Money from auctioned allowances could fund New Energy, energy efficiency and consumer programs like assistance to low-income ratepayers and electricity bill rebates.

Proponents of cap-and-trade want to put market forces to work in the U.S., the world’s biggest per capita greenhouse gas emitter, against global climate change. Cap-and-trade was, on a smaller scale, instrumental in controlling acid rain and it has (arguably) begun to slow emissions growth in the EU.

The enormous size and complexity of a national cap-and-trade plan leaves many cynical, expecting such a system to make the rich richer, the poor poorer and the air no cleaner. A major financial group, an environmental group and 2 utilities undertook a study of the details, wherein the devil might be expected to be found.

Dan Lashof, science director, NRDC Climate Center: "Billions of dollars in allowances are at stake under the proposals to cap and reduce global warming pollution…The value of pollution allowances should benefit consumers and smart programs that deliver real pollution reductions, not polluters."

The report uses a hypothetical allowance price of $10/ton of CO2. It concludes that the total annual value of free allowances allocated to the 100 largest electric power producers under Lieberman-Warner in 2012 would be nearly $10.4 billion. Under Bingaman-Specter, more allowances are given for free. The total annual value would be nearly $18.3 billion, including $6.2 billion to the nation's 10 largest investor-owned utilities.

Under either plan, power companies get a huge windfall of free credits. The plans are so designed to allow the power producers to keep the lights on for the country.

The difference in the amount of auctioned credits, though, is the key. Obviously, power companies – especially those burning a lot of coal – favor more free allowances. The report warns against that, describing the EU’s problems in 2005 with its cap-and-trade system from having provided too many free allowances to power companies.

The report: "Research indicates that an over-allocation of free allowances to electricity generators can lead to excessive profits for companies, while providing limited benefits in terms of reducing electricity price impacts for consumers and funding energy efficiency and other programs that reduce overall greenhouse gas emissions…The European Union's Emission Trading Scheme experienced such problems because the program's pilot phase was overly generous in allocating free allowances to electric generating companies. Europe's program is now being redesigned with a larger reliance on the auctioning of allowances."

The report shows that an average household in Indiana could, under a properly designed system, completely offset cost burdens from a national cap-and-trade program through rebates funded by the sale of allowances and through investments in energy efficiency.

This is a landmark study. There will be lots more noise. Cap-and-trade is coming.

From the study. (click to enlarge)

New Report Lays Out Potential Implications of Global Warming Carbon Allowance Proposals on Consumers and Power Companies; Reports Details Rising CO2 Emissions from 100 Largest U.S. Power Companies; Company-by-Company Exposure to Proposed Greenhouse Gas Limits Before Congress
May 1, 2008 (National Resources Defense Council)

WHO
Ceres investor coalition; Natural Resources Defense Council; PG&E; PSEG

From the study. (click to enlarge)

WHAT
Benchmarking Air Emissions, an analysis of projected financial implications to consumers and power companies in the 2 main Senate climate change bills: the Lieberman-Warner Climate Security Act and the Bingaman-Specter Low Carbon Economy Act

From the study. (click to enlarge)

WHEN
- 1990 to 2006, under the cap and trade system instituted to deal with acid rain from sulfur dioxide (SO2) and nitrogen oxide (NOx) power plant emissions: SO2 emissions dropped 40% and NOx emissions dropped 46%
- 1990 to 2006, under the same system, the unregulated CO2 emissions went up 29%.

WHERE
- In its earliest phase, the European Union (EU) Emission Trading Scheme (ETS) allowed too many free credits to power companies. The price was credits ended up so low there was no incentive for the companies to cut emissions. The EU has corrected the problem. It is crucial the U.S. does not repeat the mistake.
- NRDC has offices in New York, Washington, Chicago, Los Angeles, San Francisco and Beijing.
- Ceres is based in Boston.
- PG&E Corporation is headquartered in San Francisco.
- Public Service Enterprise Group (PSEG) is based in New Jersey.

From the study. (click to enlarge)

WHY
- Both Senate bills would allot some free allowances to power companies, based on past CO2 emissions.
- Lieberman-Warner would GIVE 1.21 billion tons to power plant operators in 2012 (45% of total 2006 power CO2 emissions) and AUCTIONS 573 million tons of allowances to raise money for New Energy, energy efficiency and consumer programs.
- Bingaman-Specter GIVES 2.12 billion tons of CO2 to electric power producers in 2012 (80% of 2006 power CO2 emissions).
- The report describes a Lieberman-Warner provision to offset rate increases through targeted rebates and energy efficiency incentives.

From the study. (click to enlarge)

QUOTES
- Eric Svenson, vice president, PSEG: "One of the purposes of the report is to shed more light on the potential value of the allowances provided under different legislative approaches…We hope this will inform the discussion about auctioning and distributing allowances in the power sector."
- Mindy S. Lubber, president, Ceres/director, Investor Network on Climate Risk: "CO2 emissions are an especially big investor concern because emerging policies to limit emissions will make power plants substantially more expensive to operate, requiring large CO2-emitting power companies to reduce their emissions or pay for them. This report provides essential data to help investment analysts estimate company-specific financial risks."
- Steven Kline, vice president, PG&E: "The continued growth in greenhouse gas emissions from the utility sector reinforces the need for timely and effective climate change legislation…Effective policy must provide clear direction for all sectors of the economy, encourage the development and deployment of the most efficient and lowest-emitting technologies, and provide direct benefits to consumers."