ENERGY & CLIMATE LAW – THE DEBATE IS JOINED

Dems' climate bill shy on tax credit help
Dina Cappiello, May 15, 2009 (AP)
and
Waxman-Markey Climate Change Bill Advances
ClimateBiz Staff, May 15, 2009 (Reuters)
and
U.S. Chamber of Commerce sharpens critique of House climate bill
Michael Burnham, May 15, 2009 (NY Times)

SUMMARY
The House Energy and Commerce Committee formally presented H.R. 2454, the American Clean Energy and Security Act of 2009 (ACESA).

Representative Henry Waxman (D-Calif), Chair of the Energy and Commerce Committee, and Representative Ed Markey (D-Mass), Chair of the Energy Subcommittee, are co-authors of the 932-page bill.

The Table of Contents is 7 pages long.

The markup process, during which the Committee introduces proposed amendments, will now begin. At the Chair’s discretion, a vote from the Committee will be called for. Chairman Waxman has announced the vote will come by the end of the week, when the House will adjourn for a Memorial Day recess.

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Waxman and Markey significantly compromised provisions in their original “discussion draft” of the bill in order to get support from Blue Dog Democrats and other conservative factions in their own party.

The only leverage the bill’s authors and proponents had in negotiations was the threat of severe restrictions likely to be put on big emitters by the Environmental Protection Agency (EPA) and the endless lawsuits that would follow if Congress does not act.

The 2 most notable and controversial items in the bill: (1) A national Renewable Electricity Standard (RES) and (2) a national cap&trade system.

The 2 most notable items compromised: (1) The RES will require U.S. utilities to obtain 15% of their power from New Energy sources by 2020, down from the discussion draft proposal (and Obama campaign promise) of 25% by 2025. (2) The portion of allowances in the cap&trade system created by the bill that will be auctioned in the immediate future is 15%, down from the discussion draft’s proposed (and Obama campaign's promised) 100%.

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The compromised RES provides a guarantee of a market for New Energy through 2020, the most stable, long-term New Energy policy ever proposed in the U.S. It falls short of the higher goals many in the New Energy community believe are necessary to spur a real New Energy economy.

The cap&trade system is the most ambitious new market ever created by Congress and, for the first time, will put a price on the greenhouse gas emissions (GhGs) that are accumulating in earth’s atmosphere and driving global climate change.

The biggest practical obstacle to the proprosed cap&trade system is that the dimished allowance auction may leave the system without a source of revenues to adequately compensate utility ratepayers for rising power prices that will result in putting a price on GhGs. That could shift the cost of fighting global climate change to the ratepayers and away from utilities and power producers.

One thing no legislation can take away from cap&trade is the cap. It's a crucial starting point from which much can follow. (click to enlarge)

The 3-million member U.S. Chamber of Commerce, the most prominent voice of the country’s business community, says cap&trade will create an expensive, complicated, regulation-heavy system and will do nothing to stop emerging economies from continuing to spew GhGs. The only thing the Chamber of Commerce likes about cap&trade is that it is preferable to EPA action.

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The U.S. Climate Action Partnership (U.S. CAP), a coalition of major businesses (like General Electric, Alcoa, ConocoPhillips, Duke Energy, DuPont, Johnson & Johnson and Xerox, many of whom are members of the Chamber) and environmental groups (like the Environmental Defense Fund, the Natural Resources Defense Council and World Resources Institute) endorses the Waxman-Markey cap&trade plan. (See Blueprint for Legislative Action)

Greenpeace, Friends of the Earth, Public Citizen and TheCLEAN.org have rejected the compromise bill and called for new legislation.

The Union of Concerned Scientists acknowledged the efforts of Waxman and Markey and called for work to improve the legislation as it is debated in the House, is reconciled with Senate legislation and is molded into the package that would, finally, be sent to the President.

U.S. CAP megacompanies back the Waxman-Markey bill. (click to enlarge)

COMMENTARY
It has been clearly demonstrated in the European Union (EU) Emissions Trading System (ETS) that one of the keys to a cap&trade system’s effectiveness is the auction of an adequate portion of emissions allowances. The compromise reducing the Waxman-Markey bill’s auction to 15% makes the system’s potential for effectiveness in the short term low and the potential for big emitters to manipulate and profit from the trade of emissions allowances high.

The good thing about the bill’s proposal is that it puts a system and its regulatory framework in place and allows escalating percentages of allowances to be auctioned going forward. In time, there will be adequate revenues to make the system equitable and there could still be future legislation to make the system more workable.

A 100% auction was expected to generate $650 billion in federal revenues over 10 years from big emitters. Part of that revenue was to be transferred to consumers so as to shift the burden of increased power prices back to big emitters. Part of it was to be invested in New Energy and Energy Efficiency. 15% of that figure is $97.5 billion, not even 2/3 of the $150 billion President Obama promised to invest in New Energy over 10 years.

Details emerging. (click to enlarge)

It was hoped by some the U.S. could benefit from the lessons learned in the opening phase of Europe's cap&trade system. The ETS opened with the auction of a very low percentage of allowances to bring utilities, power producers and other big emitters in. Sharp fluctuations in emissions prices and profit-taking manipulations by the big emitters followed. It appears the cap&trade system in the Waxman-Markey bill may be subject to some of the same pitfalls.

The bill’s backers say there are protections for consumers and against market manipulations in the legislation. They also point out the importance of getting the U.S. into the fight against global climate change, even if the designated system remains a work in progress.

The Blue Dog and moderate Democrats who forced the compromises are from fossil fuel-dependent states with big, energy-intensive industries. Some claim their states do not have adequate New Energy resources to meet a more demanding RES. Others claim a cap&trade system will drive power prices too high.

Multiple studies have shown that a cap&trade system properly instituted and administered is likely to only have modest effects on power prices. (See CAP&TRADE, CONGRESS AND INDUSTRY and TEXAS STUDY SAYS EMISSIONS CUTS COULD COME AT MODERATE COST)

Whether this bill's proposal can be properly instituted and administered remains to be seen.

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There is a growing barrage of studies on the bill’s provisions. The accumulated effect is much like reading Shakespear or the Bible in that it is possible to find an argument in favor of or against almost anything in the accumulated verbiage.

Example 1: The Chamber of Commerce says the bill would make 27 million small businesses subject to EPA-enforced New Source Performance Standards for machinery and equipment. Representative Markey’s office says small businesses would be unaffected.

Example 2: A recent report commissioned by the Chamber, the National Association of Manufacturers and other business groups said emission cuts would cause a net loss of 3.2 million U.S. jobs by 2030 and reduce household purchasing power by $2,100+ while an EPA analysis of the legislation projected a $98-to-$140/year impact through 2050 and a Sierra Club spokesman called the business groups’ report “scarce tactics.” (See Climate)

Perspective. (click to enlarge)

Allocation of emissions allowances in ACESA:
(1) 15% to be auctioned for revenues assigned to compensate low- and moderate-income families for increased power prices;
(2) 85% provided at no charge:
(a) 35% to the electric utility sector (30% to distribution companies and 5% to privately owned coal companies;
(b) 15% for emissions-intensive industries (steel, cement, glass, chemical, etc.) in 2014, reduced 2% per year;
(c) 10% to states to sell to obtain revenues for New Energy and Energy Efficiency investments from 2012 to 2015, reduced to 5% from 2016 to 2022;
(d) 9% for natural gas distribution companies, eliminated between 2026 and 2030;
(e) 5% to fund tropical deforestation prevention projects;
(f) 3% for automakers to fund advanced technologies through 2017, reduced to 1% from 2018 and 2025;
(g) 2% for U.S. climate change adaptation between 2012 and 2021, increased to 4% from 2022 to 2026 and to 8% in 2027;
(h) 2% for international adaptation and clean technology transfer from 2012 to 2021, increased to 4% from 2022 to 2026 and to 8% in 2027;
(i) 2% for carbon capture and storage technology from 2014 to 2017, increased to 5% after 2018;
(j) 2% for oil refineries from 2014 to 2026;
(k) 1.5% home heating oil and propane assistance programs, reduced to zero between 2026 and 2030;
(l) 1% for R&D funding to Clean Energy Innovation Centers;
(m) 0.5% for job training from 2012 to 2021, increased to 1% after 2022.

What environmentalists want to know is if the bill's ends are served by its means? (click to enlarge)

QUOTES
- Christine Glunz, spokeswoman, White House Council on Environmental Quality: "The summary released today ... indicates there are a number of mechanisms in place that are aimed at protecting consumers, and we're glad to see that Congress is taking this issue seriously…We remain committed to a market-based emissions reduction program that generates enough revenue to aid consumers."
- Liz Perera, Washington representative, Union of Concerned Scientists' Climate Program: "Congressmen Waxman and Markey have done an admirable job satisfying a lot of competing interests…But now, as the bill moves forward, Congress needs to strengthen many of the bill's provisions to ensure that we dramatically cut emissions, save consumers money, and strengthen our economy with a well-designed climate and energy policy."

Vice President Gore is an advocate of what is politically possible. (click to enlarge)

- Phil Radford, Executive Director, Greenpeace USA: “Despite the best efforts of Chairman Waxman, this bill has been seriously undermined by the lobbying of industries more concerned with profits than the plight of our planet…While science clearly tells us that only dramatic action can prevent global warming and its catastrophic impacts, this bill has fallen prey to political infighting and industry pressure."
- R. Bruce Josten, executive vice president for governmental affairs, U.S. Chamber of Commerce: "As Congress once again prepares to bang the gavel on a climate change policy debate, congressional leadership has a serious choice to make: continue to push the same costly, rigid ideas of the past two decades, or take steps to begin a workable process to reduce emissions of greenhouse gases…"
- Tony Kreindler, spokesman, U.S. CAP member Environmental Defense Fund: "The committee appears set to deliver a plan that is environmentally effective and smart on consumer costs, which is precisely what's needed…"