October 09, 2009

On September 30, Senators John Kerry (D-MA) and Barbara Boxer (D-CA) unveiled their much-anticipated draft climate bill, the Clean Energy Jobs and American Power Act. The legislation draws a great deal from the American Clean Energy and Security Act (HR 2454) passed earlier this year in the House, although there are some noteworthy departures and several key areas left open for negotiation. Kerry and Boxer have the support of roughly 45 senators, although many will require some additional negotiation before their vote is guaranteed. An additional 21 senators remain undecided, and will require more substantial concessions.

Boxer, who chairs the Environment and Public Works Committee, did the bulk of the work on the bill, but it is Kerry, chair of the Foreign Relations committee, who is listed as the lead sponsor. It is not uncommon to see a disconnect between the lead committee of jurisdiction and the Senator who gets top billing; in this case, many observers believe it is a strategic move to frame the climate debate around national security rather than the environment. Kerry and Boxer’s bill arrived on the same day that the Department of Defense announced a plan to conduct its first-ever review of how climate change will impact military operations. The review, which will be released as part of the department’s quadrennial review next year, will address how climate change could affect defense infrastructure and the threats that its impacts (such as community displacement and resource shortages) pose to national and international security.

Beyond his work with national security, Kerry also brings to the table a number of important relationships with undecided lawmakers, including GOP Senators Richard Lugar (IN) and John McCain (AZ). He has thus far led the effort to win support for the bill in the Senate, and he has been active in the international dialog, meeting with key players including UN Secretary General Ban Ki-moon, British Foreign Secretary David Miliband, and top officials in the Obama Administration. Upon unveiling the bill, he was quick to highlight several areas open for compromise, including emissions targets and allowances, and the role of the Environmental Protection Agency (EPA) in regulating emissions. Currently, the bill has no Republican cosponsors, although Kerry says he will have an announcement of support in the near future. Many observers see Senator Olympia Snowe (ME) as the most likely candidate.

Areas of interest in the Kerry-Boxer proposal:

Emission limits: The Senate bill calls for a 20-percent reduction in emissions (based on 2005 levels) by 2020—a steeper reduction than both the House version (17 percent) and President Obama’s request (14 percent). Kerry and Boxer have acknowledged that this is a starting point for negotiations, and that it could change as they work to win the support of swing voters like Senators Max Baucus (D-MT) and Jay Rockefeller (D-WV), who urged them to take a less aggressive approach than the House bill. Liberal Democrats, however, are pushing for even higher cuts, many seeking a 40 percent reduction by 2020. Both the House and the Senate bill call for an 83 percent reduction by 2050, but near term targets are of particular interest, since they will guide business investments in large new infrastructure. Meanwhile, Senator Tom Carper (D-DE) has been working on a plan to strengthen emission standards for other pollutants—sulfur dioxide, nitrogen oxide, and mercury—and will push to have it incorporated into the final bill.

State pre-emption: Both the House and the Senate climate bills would prohibit state and regional cap-and-trade programs for several years after a federal program is initiated, effectively dissolving existing programs like the Northeastern Regional Greenhouse Gas Initiative. But while both versions establish a 2012-2017 timeframe for the moratorium, the Senate bill includes a flexible start date in case federal agencies stall in deploying a nationwide program in time. This modification would remove the possibility of a gap between the end of regional regulations and the commencement of a national program.

EPA regulation: The Kerry-Boxer bill removes a section of the House bill that restricts EPA’s ability to regulate emissions under the Clean Air Act, although Kerry has indicated that he would be open to negotiating this matter.

Cost containment: Perhaps the greatest concern about the bill centers on the price tag associated with a cap-and-trade program. To address this, Kerry and Boxer include a “soft price collar,” which allows the EPA to release additional allowances into the carbon market via auction, should permits exceed a certain price. (The House version includes similar safeguards, although the two bills differ in how they increase the price ceiling over time.) But many undecided senators remain unconvinced, given the remaining uncertainties about the bill’s financial toll on the nation. Senator Byron Dorgan (D-ND), for example, said his skepticism was justified by the “very existence of the need for a price collar.”

Emission credit auction: From 2012 to 2050, the Kerry-Boxer legislation would auction 25 percent of annual emission credits, directing proceeds to the Treasury to keep the bill deficit neutral. This differs from the House bill, which would gradually increase the credits auctioned from 15 percent in 2011 to 25 percent in 2025, directing proceeds to lower income families. President Obama supported the House approach while working to earn additional votes for the HR 2454, although his 2010 budget request called for a 100-percent auction. Several lawmakers have questioned the Senate bill’s higher auction percentage, arguing that it would increase energy costs even more.

Allowance allocation: The House and Senate bills both direct companies to transfer 70 percent of their emission allowances back to consumers to lessen the impact of higher energy bills. Details on how these allowances would be distributed have yet to be worked out in the Senate—Finance Committee Chair Max Baucus (D-MT) will likely play an important role. According to the Congressional Budget Office, in 2020 the allowances will produce $40 in energy savings for households with the lowest incomes; the highest-income households will pay an average of $340 more.

Energy: The Senate bill prioritizes a diverse energy portfolio and includes a variety of provisions for natural gas, nuclear power, coal and renewable energy. Still, many lawmakers are dissatisfied, calling for expanded offshore drilling and greater incentives for nuclear power and “clean coal” plants. The bulk of the energy provisions will come from S 1462, a bill passed by the Energy and Natural Resources Committee in June. For details on the bill, see the June 5 edition of the ESA Policy News at www.esa.org/pao/policyNews/pn2009/06052009.php

• Nuclear power: Kerry-Boxer offers much more for nuclear energy than the House version, funding a number of research and training programs, including an Energy Department initiative to expand expertise in the field, and a “science-based” research program to examine improvements in nuclear waste management, including storage, disposal, and recycling. Still, Senators including Lindsey Graham (R-SC), John McCain (R-AZ) and Joe Lieberman (I-CT), are pressing for additional nuclear provisions, Lieberman largely as part of an effort to win centrist support for the bill. McCain and Graham are both pushing incentives related to new nuclear power plants, since the current draft only supports initiatives to expand the life of existing plants. Many argue that the 2020 emissions target won’t be possible without a strong nuclear title.
• Natural gas: Kerry and Boxer are hoping to win additional votes by including a natural-gas-friendly “clean energy” provision, which creates incentives for companies to reduce emissions from power generation. EPA would be in charge of distributing the incentives, and would prioritize energy storage; carbon capture and storage; projects that help integrate renewable energy onto the grid; and projects that achieve the greatest greenhouse gas reduction per dollar. Natural gas stands to gain a great deal from the provision—it emits significantly less carbon dioxide than either coal or oil, it is second only to coal as the most likely candidate for carbon capture and sequestration projects, and it is one of the primary backup power sources for intermittent energy resources like wind and solar. The Kerry-Boxer bill also funds a separate program to research lower-emitting natural gas technologies. On the consumer end, the Senate and House bills treat natural gas similarly, proving 9 percent of the total free emission allocations to state-regulated natural gas utilities, a third of which must go towards energy efficiency. Shortly before introducing their bill, Kerry and Boxer received a bipartisan letter from nine senators requesting more incentives for natural gas. The signatories ranged from those in strong support of the bill to those firmly against it, along with several who are yet undecided. Whether the provision will win over new support remains to be seen.
• Biofuels: The Senate bill provides new grants for advanced biofuel research and development. Notably, it does not include language from the House bill blocking EPA from considering emissions from indirect land-use changes for the next six years. For more information, see the March 5 edition of the ESA Policy News at: www.esa.org/pao/policyNews/pn2009/03052009.php

Efficiency: Both the Senate and the House bills contain measures on efficient building codes and a “Retrofit for Energy and Environmental Performance” section to help states improve building efficiency.

Transportation: The language on transportation in the Senate bill largely follows that of the House; it requires states and cities to develop plans for reducing transportation emissions, establishes nationwide fuel economy and emission requirements for heavy-duty trucks, and provides incentives to bolster advanced vehicle production. It does include a few departures, though, some of which could prove significant:

1. Funding for transit: The House bill gives states the option of using as much as 10 percent of their allocations for transit projects like bus systems and light rail; the Senate makes the full 10-percent investment mandatory. In the House version, states receive 10 percent of all allocations, meaning that up to 1 percent of the total revenue will be available for transit. Many lawmakers would like to see additional funding for transit and other low-carbon transportation; in the Senate, they are pushing a bill (S 575, often referred to as “CLEAN-TEA”) that would require 10 percent of any cap-and-trade revenues to go toward such projects.
2. Clean taxis: Kerry-Boxer includes a provision from Senator Kristen Gillibrand (D-NY), which would permit states and cities to hold taxi fleets to fuel economy and emission requirements that are higher than the national standard. Gillibrand’s language would help major metro areas require an increased number of hybrid vehicles in taxi fleets.
3. Clean Vehicle Technology Fund: The Senate bill would create a new fund, with which the Energy Department would develop a “national transportation low-emissions energy plan,” promote plug-in and electric vehicles, and reduce diesel emissions. The House bill takes a different approach, doubling an existing $25 billion Energy Department loan program, which helps carmakers and part suppliers retool to meet tighter fuel economy and emission standards.
4. Aircraft emissions: The Senate version of the bill will place emission requirements on new airplanes and airplane engines—these requirements were stripped from the bill that passed in the House.

Water Conservation: Under Kerry-Boxer, water conservation and adaptation programs could receive nearly $1 billion over the next five years. The majority of this money would go towards incentive programs aimed at encouraging consumers to buy water-efficient products. According to the Environmental Protection Agency (EPA), if all US households installed water-efficient appliances, the country would save over 3 trillion gallons of water and $17 billion every year. It would also give agency buildings a year to develop a plan for retrofitting all water-inefficient fixtures.

Water Adaptation: The Kerry-Boxer bill would authorize $250 million over 10 years for a new federal research program to help water utilities plan for climate change. The research would focus on how water quality and quantity will likely be impacted by extreme weather events, changes in watershed vegetation, and underground carbon sequestration. The bill would also finance grant programs to help water utilities “climate proof” their infrastructure and to assist states with flood control and prevention efforts.

Industry protections: To help energy-intensive US industries remain competitive, the House-passed bill would effectively institute so-called “carbon tariffs” on energy-intensive imports from countries not engaged in international climate agreements. Industry protections are vital to manufacturing states, but many business groups caution against such measures, saying they would trigger a “green trade war.” The Senate Finance Committee has jurisdiction over the matter but is  currently embroiled in the health care debate and has yet to provide specifics. If a Finance markup isn’t possible, the issue may be punted until Senate Majority Leader Reid (D-NV) assembles a final bill for the floor debate.

Carbon market oversight: Whereas the House bill divides oversight responsibilities between the Federal Energy Regulatory Commission and the Commodity Futures Trading Commission (CFTC), the Senate version places carbon markets entirely under the regulation of CFTC, and provides the commission with additional power to prevent market manipulation and “excessive speculation,” which many Democrats think contributed to soaring energy costs last year.

Like its House-passed counterpart, the Kerry-Boxer proposal includes provisions allowing industries to offset up to 2 billion tons in annual greenhouse gas emissions by investing in green energy or greenhouse gas reduction projects. These provisions, which will encourage companies to finance ecosystem conservation and restoration projects, reduce compliance costs for heavy emitters, while benefitting landowners and conservation interests.

Throughout the national discussion on emissions reduction, the matter of offsets has drawn criticism from many directions—fiscal conservatives say they won’t do enough to keep prices from rising and environmental interests say they will weaken an already modest emissions-reduction plan by giving credit for offsets that would have occurred anyway. To address the latter concern, Kerry and Boxer propose in their bill to establish an office of offset integrity in the Justice Department—the office would verify that carbon credits actually reduce greenhouse gas concentrations and enforce sanctions when they don’t.

The Kerry-Boxer proposal’s language on offsets includes several other significant departures from the House-passed version:

Oversight: In a particularly controversial departure from the House bill, the Senate places the President, rather than EPA and the Agriculture Department (USDA), in charge of the offset program. Farm interests have already spoken out, arguing that jurisdiction over agriculture and forestry projects belongs with USDA, which has the expertise to work with farmers, foresters, and other impacted landowners. Kerry-Boxer does not preclude USDA’s involvement, but rather gives the President discretion over which agencies to consult. Still, the language could very likely change after additional negotiations, since a large percentage of the undecided Senators hail from states with heavy farm interests. The new Agriculture Committee Chair, Senator Blanche Lincoln (D-AR), has signaled that she plans to hold a markup—the likely outcome would be offset provisions that are much closer to the House language. In addition, Senator Debbie Stabenow (D-MI) is floating a draft revision of the offset text that gives USDA a more explicit role in oversight.

Domestic offsets: While the House bill allows companies to derive up to half of their offsets from international investments (and as much as 75 percent if sufficient domestic offsets are not available); the Senate version limits these investments to 25 percent. This emphasis on domestic offsets comes largely in response to complaints from Environment and Public Works Committee Democrats that many of the overseas projects used in the 1997 Kyoto Protocol were of questionable integrity. But an EPA analysis indicates that adequate domestic offsets may not be available, and there is concern that  limiting offsets from other countries could complicate negotiations, since many countries have already factored US offset investments into their plans. What’s more, investing in clean energy overseas is considerably less expensive than investing in ones developed in the US—a recent analysis by the Congressional Research Service found that international offsets reduce the estimated cost of a US emissions cap by at least 60 percent. Those arguing in favor of the Kerry-Boxer approach note that the bill expands qualifying offset projects beyond those included in the House bill, increasing the supply of domestic projects and providing more opportunity for US interests.

Forestry provisions: Foresters are concerned that the Senate bill’s language is not explicit enough to guarantee them a place in the offset program. At issue is language aimed at developing a list of acceptable offset projects. The Senate proposal tasks the Administration with creating this list, providing its own list of projects for “priority consideration.” Although this list includes all the projects that foresters and conservation groups have supported (e.g. reforestation and forest management projects), many are concerned that the provision does not mandate their inclusion. Suggesting priorities, they say, still leaves the decision entirely to the Administration; they prefer the House bill, which says that offset projects “shall” include those listed in the bill.

Although hopes of signing a climate bill into law before December negotiations in Copenhagen grow ever dimmer, many key players— ranging from White House climate czar Carol Browner to the Senate proposal’s lead sponsor John Kerry (D-MA)— assert that the US could still be well-positioned for the talks. Diplomats will piece together the country’s various climate efforts, while being careful not to repeat the mistakes of the Kyoto negotiations, where President Clinton signed the protocol without any hope of a mandatory emissions cap being signed into law.

Senate Majority Leader Harry Reid (D-NV) says he still hopes to pass a climate bill before Copenhagen, and President Obama has vowed to personally lobby for the bill’s passage

If the Senate isn’t able to hold a floor vote on climate change legislation this year, it is unclear how it will fit in to next year’s calendar, given the political dynamics surrounding midterm elections; he has not outlined any dates for the floor schedule next year.

International negotiations are also proceeding at a slower pace than expected, and Copenhagen will not likely end with a new global emissions treaty, but rather a less formal registry or schedule that would be held to international standards. At the most recent round of climate talks in Bangkok, world leaders discussed an unofficial draft agreement, which touches on many questions at the heart of the debate: How quickly should wealthy nations reduce emissions? To what standards should newly industrialized nations like China be held?

Another central question—how much money to provide developing countries for climate change limitation and adaptation efforts—came a step closer to resolution at the G-20 meeting in Pittsburgh, where leaders tentatively agreed to generate $100 billion annually. UN Secretary-General Ban Ki-moon pointed to this as a sign of significant progress in the broader negotiations, although the countries must still determine how to generate and distribute the funds.

In the midst of these talks, several heavy emitters are weighing in:

Indonesia: The world’s third-largest greenhouse gas emitter, Indonesia recently announced plans to cut projected emissions 26 percent by 2020. The reductions would result from increased investment in renewable power and new limits on deforestation and land-use change. According to President Susilo Bambang Yudhoyono, the majority of the country’s emissions are from deforestation, both intentional and due to fire—he vowed to change his country’s forests from carbon sources to carbon sinks by 2030. Regional Indonesian leaders joined US governors and regional leaders from Brazil in calling for forestry provisions as part of the new international climate pact.

India: India will not be a “deal breaker” at Copenhagen, says Jairam Ramesh, India’s Environment Minister. India’s proposal, called “per capita-plus,” is based on the country’s vow never to exceed the per-person emissions of industrialized nations. The plan would mandate fuel economy standards by 2011, building efficiency standards by 2012, and a 5 percent reduction in energy intensity by 2020. India is currently on track to triple its carbon dioxide output by 2030, even though its current per capita emissions are well under 2 tons per year. The average American emits 23.5 tons annually.

Ramesh recently spoke out against the emission targets set in the Kerry-Boxer bill; when calculated from 1990 emission levels, the benchmark that much of the international community is using, he says the cuts amount to a “measly 5 percent reduction” in carbon dioxide output. The International Panel on Climate Change has recommended near-term emission cuts of between 25 and 40 percent below 1990 levels. Although India maintains that “human considerations” considerations prevent it from accepting any binding international targets—officials say 400 million Indians are without electricity— its per-capita-plus plan would be compatible with the kind of registry likely to result from the Copenhagen negotiations.

On September 30, 29 parties signed a draft agreement to destroy four dams on the Klamath River in an effort to restore what was once among the West’s most important salmon and steelhead runs. Since the dams began to appear in the early 1900s, they have been the source of numerous water rights disputes—their destruction would mark the largest dam removal in modern history. Destruction can begin as soon as the Secretary of the Interior confirms that the dam removal is in the public interest—the deadline for this step is March 31, 2012.

The agreement follows years of negotiations among local and national stakeholders and would require PacifiCorp, the power company that owns the dams and hydroelectric plants, to transfer the title to the federal government, which would oversee their destruction. PacifiCorp would also have the option of investing in fish-saving modifications, but these would likely cost the company a great deal more than removing the dams. The removal will be financed largely by PacifiCorp’s Oregon customers, although a small percentage will come from customers in California. Those who supported the removal say that the company can offset losses that follow the removal of the hydroelectric plants with efficiency projects and renewable power.

As Senator Frank Lautenberg (D-NJ) prepares to introduce a bill to revise the 1976 Toxic Substances Control Act (TSCA), Lisa Jackson, Administrator of the Environmental Protection Agency (EPA), outlined the principles  her agency believes should guide reform. TSCA is the only environmental statue that has not been amended since its creation.

Jackson’s principles include:

• Place the burden of proving a chemical’s safety on industry
• Give EPA the necessary authority to require additional information about chemicals
• Take risk management actions when chemicals do not meet safety standards
• Prioritize high-risk chemicals
• Hold new and existing chemicals to the same level of scrutiny. Currently, existing chemicals are exempted from regulation under TSCA.

These principles are largely accepted by the parties involved, increasing the likelihood that reform efforts will succeed. Until reform legislation passes, however, Jackson plans to move forward with regulatory action on a list of “high profile” chemicals for possible risk management action.

Emission permits for heavy emitters: Hours after the Kerry-Boxer bill was introduced, Environmental Protection Agency (EPA) Administrator Lisa Jackson announced a proposal that would require new facilities and those undergoing major modifications to obtain operating permits from EPA if they produce more than 25,000 tons of greenhouse gas a year. EPA estimates that this would apply to roughly 14,000 large sources, and bring in an additional 400 new sources annually. These heavy emitting sources account for nearly 70 percent of stationary source emissions and in many cases already require permits for other pollutants.

To receive a permit, the facilities would have to prove that they are using the “best available control technology”—a term that is left ambiguous to allow EPA and state agencies to evaluate on a case-by-case basis, according to what they consider technologically and economically practical.

Passed by Subcommittee

• Algae research (HR 3650): The House Energy and Environment Subcommittee easily passed legislation to reauthorize and increase funding for a federal program aimed at researching harmful algal blooms and the coastal “dead zones” they create. The bill would establish a federal task force responsible for developing regional action plans to prepare for and mitigate the toxic blooms, which often result from agricultural runoff. The Senate Commerce Committee approved its version of the bill (S 952) last month.
• Solar energy research (HR 3585): Also cleared by the Energy and Environment Subcommittee was a bill from Representative Gabrielle Giffords (D-AZ), which would create a “roadmap” for solar technology research and development. The legislation would call for a large-scale plan detailing the current and future requirements for solar and technology and calls for projects to be prioritized on the basis of their contributions to energy security, competitiveness, and climate change. Earlier this year, the House passed a similar bill on wind energy.
• Energy and water research (HR 3598): The subcommittee also passed a bill that would require the Energy Department to consider water conservation while researching and developing  new energy technologies, and to prioritize projects that minimize freshwater consumption, increase water efficiency, and use nontraditional water sources.