THE FIGHT FOR AN ENERGY-CLIMATE BILL IN THE SENATE

Analysis of the American Power Act
June 15, 2010 (ClimateWorks Foundation)

THE POINT
It’s kind of funny to listen to the so-called experts talk about the fight for energy and climate legislation reportedly coming to the Senate floor in July. Never have so many experts sounded so befuddled.

This is what is happening: Because of the Gulf oil spill, the situation has gone from dormant to dynamic. The death of Senator Byrd (D-WV) only adds uncertainty. The fate of any legislation is now unpredictable, so everybody – everybody left in the game, that is – is taking their best shot.

Besides measures to deal with offshore oil drilling – like increased liability requirements for drillers and reform of the Minerals Management Service (MMS) that oversees the drilling) – what will the legislation contain? Perhaps nothing else and perhaps much more.

Among the proposals, the Kerry-Lieberman (KL) American Power Act (APA), is probably the leading candidate at this fluid moment. The competing Bingaman American Clean Energy and Leadership Act (ACELA) avoids a crucial element in the KL bill and includes a key element missing in KL. A third piece of legislation, the Cantwell-Collins Carbon Limits and Energy for America’s Renewal Act (CLEAR), is undoubtedly the most interesting and least likely of the bills. Its chief virtues may be that it is brief and very different. The newest in the competition is Senator Lugar’s Practical Energy and Climate Plan (PECP), which capitalizes on the furor around the Gulf oil spill by calling for stronger vehicle fuel efficiency standards.

Analysis of the American Power Act, from the ClimateWorks Foundation, is the newest in what will surely be a long line of studies supporting each approach and rejecting the others. It follows on Assessing the American Power Act (see AN ECONOMIC LOOK AT THE SENATE ENERGY/CLIMATE BILL) in showing multiple benefits from KL.

As documented by ClimateWorks, KL’s main thrusts are its cap on greenhouse gas emissions (GhGs) and its emphasis on funding and implementing Energy Efficiency (EE).

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To the disappointment of the New Energy industries, KL has no Renewable Electricity Standard (RES) requiring all regulated U.S. utilities to obtain a specific portion of their power from New Energy sources by a specific year. The Bingaman ACELA does have an RES.

KL puts all its effort into getting a cap on GhGs - any cap, as a starter. It will be a major accomplishment. The premise for this KL goal was validated by Evaluating Renewable Portfolio Standards and Carbon Cap Scenarios, a recent study from the National Renewable Energy Laboratory (see THE BEST THINGS FOR THE BEST ENERGY-CLIMATE BILL). The study found a cap is likely to result in more New Energy and less coal use than an RES.

The problem is that a cap is the bane of conservatives. As demonstrated by the ACELA proposal by Senator Bingaman, which has no cap, conservatives reject the many studies showing a GhG cap will not significantly raise utility rates and they ignore the provisions in KL that return revenues to businesses and ratepayers most harmed by the impacts of a cap.

Conservatives have successfully labeled Cap&Trade as “cap-and-tax” and made it politically untenable. The Bingaman ACELA, which eschews Cap&Trade and includes the New Energy industries-favored RES, is the perfect anti-KL option. That is why Senators Cantwell and Collins are pushing Cap&Dividend

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The Cantwell-Collins CLEAR Act Cap&Dividend proposal is a straightforward way to impose a cap using a simple framework. So far, it has avoided being labeled a tax because, instead of imposing IRS-like complexity, it directly rebates most of the revenues from its cap to citizens and allots the balance to the building of New Energy and Energy Efficiency infrastructure. (See CAP&DIVIDEND CLEAR-ED…)

The Lugar Practical Energy and Climate Plan (PECP) avoids the GhG-capping controversy and New Energy issues by centering almost entirely on Gulf oil spill-related measures and calling for stronger vehicle fuel efficiency standards. It is ideal for conservatives who want to give no significant ground and it could become part of something larger and more substantive as the floor fight proceeds.

Both the Peterson Institute and ClimateWorks studies, using substantive research and statistical analyses, insist KL, whatever its complexities, is not a “subversive tax.”

ClimateWorks Foundation used McKinsey & Company's Low Carbon Economics Tool to conclude KL will (1) grow 540,000 more jobs than business-as-usual (BAU) from 2012 to 2030, (2) cut residential utility bills $35 per year through 2020, (3) sustain a 2.3% per year growth in the U.S. gross domestic product (GDP) through 2030, and (4) cut U.S. GhGs 45% below BAU by 2030.

With revenues raised by capping GhGs and auctioning permits to very big emitters like power plants and heavy industries, ClimateWorks finds KL will drive the transition to a New Energy economy by motivating investment in and implementation of New Energy (NE) and Energy Efficiency (EE) on a significant scale.

The ClimateWorks study uses a variety of McKinsey economic modeling tools to conclude that such a transition to a New Energy economy will drive job gains across the manufacturing, construction, services, health, trade, and other sectors of the U.S. economy.

From SenatorCantwell via YouTube

THE DETAILS
McKinsey & Company’s Low Carbon Economics Tool is widely acknowledged as a detailed and unbiased set of interlinked economic models. It was designed to determine the costs and greenhouse gas emission (GhG) reductions from a given policy proposal.

ClimateWorks assumed a significant economic impact from New Energy (NE) and Energy Efficiency (EE) even with business-as-usual (BAU). It found, however, that KL will accelerate those impacts through 3 key mechanisms: (1) a price on GhGs, (2) funding for investment in and implementation of NE and EE, and (3) EE standards.

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BAU will increase employment in the health care, services, trade and other sectors of the U.S. economy by 12 million from 2012 to 2030. There will also be 4.1 million fewer industrial jobs in construction, manufacturing, utilities, and natural resources. That is a net gain of 8 million jobs.

With KL, economy-wide investments will lead to 110,000 more net jobs being retained from 2012 to 2020 and 150,000 more retained to 2030. Overall, there will be 440,000 more jobs than BAU from 2012 to 2020 and 540,000 more to 2030. Considering the other pluses from the legislation (GhG reductions, little harm to GDP or residential utility bills), these are impressive job numbers.

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The legislation will keep Gross Domestic Product (GDP) growth about the same, ~$9 billion per year from 2012 to 2030, as BAU. The idea behind the legislation is to protect growth and electricity ratepayers while growing jobs and cutting GhGs.

Because of the cap, offset opportunities and the EE standards in the bill, GhGs drop significantly – to 45% below BAU – through 2030.

The most GhG cuts will come from offset opportunities, part of which will necessarily come from offsetting international sources. As a result of the cap, the most GhG cuts will come from the shift to increased electricity generation by nuclear, “clean” coal (CCS), and New Energy. The third major source of GhG cuts will come from Energy Efficiency in buildings and industry. The bill will have little impact on GhGs in the transportation sector.

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The caps will cause electricity and natural gas prices to increase but reductions in energy consumption and rebates to consumers from local distribution companies (LDCs) will offset the price increases and protect ratepayers.

By imposing a cap on GhGs, auctioning allowances and creating a marketplace for allowances, the electricity sector, which emits 40% of U.S. GhGs, will shift by 2030 away from dirty coal to EE, CCS, New Energy and nuclear. The EE standard in the bill will also drive EE gains. The low-interest loans and accelerated deprecation for new nuclear plants will grow nuclear. ~$94 billion of the auction revenues are dedicated to the development of CCS.

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The bill has no RES and only dedicates $5 billion to New Energy because research shows a cap will drive the growth of New Energy more than such measures.

The bill contains an Energy Efficiency resource standard (EERS) requiring utilities to advance EE because such measures are so cost-effective and within a few years generate ~$3 of savings for each $1 invested, money that can be invested in building NE and EE infrastructure. Such EE measures have not yet been enacted because of market barriers and lack of awareness, obstacles the EERS will break through.

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Because it is labor-intensive, EE increases jobs and GDP quickly. It boosts GDP over the longer term by cutting energy consumption and driving down the allowance price.

EE will save $312 billion by 2030, one-third from industrial efficiency and two-thirds from building improvements. McKinsey & Company has estimated there are 5 times more savings available by 2020, the largest parts from building retrofits, better lighting and more efficient appliances, and improved industry practices. Tools to achieve such measures are (1) stronger codes and standards, (2) financial incentives, and (3) decoupling of utility profits from sales.

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QUOTES
From the ClimateWorks Foundation report: “The study finds that an economy-wide cap on GHG emissions would have significant impacts on US energy production and use. The model predicts a transition to low-carbon energy sources and energy efficiency in response to carbon pricing, incentives linked to carbon allowances, and supporting efficiency standards…The economic implications of this energy transition are complex, but the model points to investments in energy efficiency and new power sources as a primary stimulant of economic activity, particularly employment. In this way, the cap drives job gains in many sectors…”