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Political dexterity is needed to pass any climate change legislation. No less than nine bills are now pending on Capitol Hill, all with critics ready to knock them out of the saddle. One measure, however, has emerged as the bill to beat.

While Senators Joseph Lieberman's, I-Conn. and John Warner's, R-Va., bill has a long way to go, they were able to get their measure out of subcommittee last week by a one-vote margin. Now, that legislation is headed to the full Senate Environment and Public Works Committee where the chair, Sen. Barbara Boxer, D-Calif., has said her goal is to pass a workable bill rather than draft the ultimate piece of legislation.

It's about creating momentum -- a surge to push the idea over the top. At the end of the day, though, moderate Republicans as well as to Democrats who hail from coal-producing states must support the concept. At that point, green groups would likely jump on board, reasoning that they can move later to enact even tougher rules.

The bill "will send a strong early signal to the marketplace, which is a very important part of getting where we need to go," says Boxer, a liberal.

Specifically, the Lieberman-Warner bill would cap U.S. greenhouse gas emissions from utilities, transportation and manufacturing at 2005 levels by 2012. Those industries, which are said to be responsible for 80 percent of all such emissions, would then have to cut their heat trapping emissions by 15 percent by 2020 and by 70 percent by 2050. The legislation would utilize a cap-and-trade system in which companies that are unable to meet their limits could buy "credits" from those enterprises that exceed the objectives.

The mere fact that the bill passed out of a sub-committee is notable. The Senate previously rejected two other climate change efforts. In 2003, a bill introduced by Senator Lieberman and Sen. John McCain, R-Ariz. failed by a vote of 55-43. In 2005, a similar one went down by a vote of 60-38.

The current climate change bill, however, is also under attack. Conservative critics argue that the timetable to begin reducing greenhouse gases comes too quickly and it will result in economic hardship. Liberal skeptics, meanwhile, say that 80 percent cuts in carbon dioxide emissions are needed by 2050 to avert the worst possible scenarios. According to the Natural Resources Defense Council, the Lieberman-Warner bill would achieve its goals by 2020 but would fall short by 2050, only producing cuts between 51-63 percent.

Utilities, too, are divided. Some favor the cap-and-trade approach, saying that the free-market is the best way to bring about emission reductions. Among groups that advocate this type of flexibility, however, some are saying that "credits" need to be auctioned from the onset while others are saying that they have to be initially given away to allow the market time to work.

The Divide

Then there are those that advocate a carbon tax, saying that it is the most efficient way to set a price for those emissions. They add that cap-and-trade simply awards the biggest polluters with billions of dollars of credits that they don't need and that this would come at the expense of those already using more environmentally-friendly generation.

Generally speaking, six utilities have come out in favor of the Lieberman-Warner bill. They are Calpine, Entergy, Exelon, Florida Power & Light, Pacific Gas & Electric and PSEG -- all of which shy away from coal and use or sell other alternatives such as nuclear, natural gas or renewables. Other utilities that burn mostly coal-fired generation are willing to talk but do not want to be forced, initially, to buy their carbon credits. They include such utilities as American Electric Power and Duke Energy.

At a conference of the Edison Electric Institute, FPL Group went on record to support a carbon tax. Basically, under such a regime, government would tax utilities according to their carbon footprints that can be readily measured. FPL says that it is a fairer way to compute results and that it is easier to administer than a cap-and-trade system. The proceeds from the carbon fee would then be targeted directly to an account that would help fund the development of new technologies.

In a statement, the utility does not push for a carbon tax but does say that cap-and-trade can be unfair. "If allowances are to be given away, they should be given away fairly, treating every kilowatt-hour the same," says Lewis Hay, CEO of FPL Group. "It makes no sense to give the biggest emitters a disproportionate share of the allowances."

While a carbon tax is politically the least palatable, the concept does have support. Former Vice President Al Gore has endorsed Sen. Chris Dodd's bill that seeks to raise $50 billion this way, to be diverted to clean fuel programs. New York Mayor Michael Bloomberg is also a proponent of this idea.

According to the Brookings Institution and World Resources Institute, a $15 tax on each ton of carbon dioxide would cause the price of coal to nearly double. That, in turn, would cause coal consumption to drop by one-third. At the same time, greenhouse gas reductions of 12 percent would have occurred while investments in alternative technologies would have jumped, according to Rep. John Larson, D-Conn. If such a scheme had been in place since 2005, it would have collected nearly $90 billion.

"Although both a tax on emissions and a cap-and-trade system use the power of markets to achieve their desired results, a tax is generally the more efficient approach," says Peter Orszag, director of the Congressional Budget Office. "Studies typically find that over the next several decades, a well-designed tax would yield higher net benefits than a cap-and-trade approach."

At this point, no climate change bill is politically plausible. That will change. But, any near-term measure will be watered down so as to win wider support.


More information is available from Energy Central:

The Future of Futures - Look for Boom Times in Cap and Trade, EnergyBiz, Sep/Oct 2007

 

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