Washington (Platts)--22May2009

Legislation to cap carbon dioxide emissions across the US, create a
carbon allowance market and mandate a renewable electricity standard cleared a
major hurdle when the House Energy and Commerce Committee approved the bill in
a 33-25 vote late Thursday.
The American Clean Energy and Security Act of 2009 (HR 2454) sets the
first national cap on 85% of the CO2 emissions from the electric power sector,
large industrials and refiners and other entities. Starting in 2012, the
sectors must meet a cap of 3% below 2005 levels. That cap tightens to 17%
below 2005 levels by 2020 and ultimately to 83% below 2005 levels by 2050.
The legislation creates a carbon allowance market and allocates portions
of these credits for free to the capped industries. The majority, 35%, go to
the electric power companies. Regulated electric utilities or local
distribution companies would get 30% and 5% would go to merchant coal and
independent generators with long-term power contracts.
State-regulated natural gas distribution companies would get 9% of the
allowances beginning 2016 and home heating and propane consumers would get
1.5%. The free allowances for the energy sector would begin to phase out in
2026 and in 2030 and utilities and merchants would have to buy emission
allowances in the market.
Industries sensitive to global competition -- including steel, aluminum,
cement and chemicals -- also would get 15% of the available allowances and US
oil refiners would receive 2% of the allowances.
As part of an agreement with Republican committee members who opposed the
bill, committee Chairman Henry Waxman, a California Democrat, and Energy and
Environment Subcommittee Chairman Ed Markey, a Massachusetts Democrat, will
hold a subcommittee hearing on the legislation's emission allocations
provisions.
The bill has been referred to eight other House committees, including
Ways & Means, which is expected to consider tariffs to protect US goods
competing with those from countries lacking regulations on greenhouse gas
emissions.
The Agriculture Committee also is expected to play a role in the
legislation's provisions that modifies the Commodities Exchange Act to give
the Commodities Futures Trading Commission jurisdiction over energy commodity
derivatives, reflecting market manipulation legislation that Michigan Democrat
Bart Stupak introduced in the last Congress.
It has not been determined when the bill would be scheduled for a vote by
the full House of Representatives.
The bill also would set a renewable electricity standard of 20% by 2020
for electric utilities that sell up to 4 million MWh/year. The RES could be
met with 15% renewable energy and 5% energy efficiency. If necessary, a
governor may appeal for an RES of 12% renewable energy and 8% efficiency. The
RES would begin in 2012 at 6%.
The bill that cleared the committee expanded the list of eligible
resources -- wind, solar, biomass and geothermal -- to include certain hydro,
biogas, biofuels, coal mine methane and waste-to-energy.
Key amendments adopted over the course of the four-day debate included
one by Michigan Democrat John Dingell to create a clean energy investment fund
to provide federal grants and loan guarantees for low-carbon technologies,
including nuclear. A separate amendment made new renewable fuel pipelines
eligible for loan guarantees.
The committee also agreed to an amendment from Stupak to extend to the
Federal Energy Regulatory Commission cease-and-desist authority over any
entities participating in the natural gas market and the new CO2 emission
market.
The committee also approved an amendment Waxman deemed as the "most
important," which would involve audits of local distribution companies, both
natural gas and electric, to ensure that they use their free emission
allowances "exclusively for the benefit of retail ratepayers."
The amendment from Ohio Democrat Zack Space "will reinforce ... the
central cause of the bill -- to protect ratepayers," Waxman said. "The
allowances given must be used for the benefit of retail ratepayers."
Efforts from a bloc of opposing Republicans to weaken or eliminate the
bill's carbon cap-and-trade provisions failed largely along party lines. Their
amendments included those to nullify the bill's carbon cap-and-trade title if
electricity prices increased or coal industry jobs were lost. Others involved
setting a price cap on carbon allowances at $15/metric ton in 2012.
The committee also rejected, in a 33-23 vote, an amendment from the
committee's senior Republican, Joe Barton of Texas, offering a power plant
performance standard as an alternative to the cap and trade approach.
John Shimkus, an Illinois Republican, introduced an amendment that would
drop the cap-and-trade system if two coal mines close as a result of the
system. "I don't trust you. I don't trust this bill," he said to Waxman.
Barton said that the "message" amendments were aimed at showing the costs
of the bill. "We want to protect them from what we think are some of the
potential ravages of this bill," he said.
The committee, however, narrowly rejected an amendment to allow nuclear
power to be considered a renewable energy source. Michigan Republican Fred
Upton's amendment failed in a 29-26 vote, but it attracted support from four
Democrats: Representatives John Barrow of Georgia, Mike Ross of Arkansas,
Baron Hill of Indiana and Zack Space of Ohio.
--Cathy Cash, cathy_cash@platts.com