Reviving Climate Legislation

Reviving Climate Legislation

May 17, 2010

Ken Silverstein
EnergyBiz Insider
Editor-in-Chief

Just when the global warming debate starts to simmer, the reintroduction of legislation has caused it perk back up. Three senators across the great political divide have produced a bill that they think can win the votes to reach the president's desk.

The major sticking point is that of cap-and-trade. That is essentially a free-market approach -- as opposed to a command-and-control tack -- to curbing greenhouse gases. From there, the recently drafted bill would promote nuclear power, natural gas vehicles and clean coal. So, while the measure is meant to sway ambivalent lawmakers, it now proceeds to anger the more liberal constituents.

If Congress fails to act, the Environmental Protection Agency will go forth with its own rules. So, businesses dragging their feet can either pray for injunctive relief or get on board. The other side of the aisle, meanwhile, is torn between a carbon-constrained economy and one that is still led by traditional fuel sources.

Senators John Kerry, D-Mass., Joe Lieberman, I-Conn., and Lindsey Graham, R-S.C. have teamed up and represent all angles of the spectrum. Their measure would reduce carbon emissions by 17 percent by 2020 and 83 percent by 2050. It would also codify President Obama's $54 billion nuclear loan guarantee program. Meantime, it would give $2 billion to build out the country's clean coal program.

It would also allow federal law to trump state codes when it comes to establishing a national cap-and-trade program that sets carbon limits. Those that attain such goals would acquire credits, which can be banked or sold to those entities that cannot.

The national program would establish a price collar starting at $12 a metric ton and rising to no more than $25 a metric ton. State systems, such as the one that is set up in the Northeast, now sell a ton of carbon for $3.50 -- a price that some analysts say is too low to motivate industry to install emissions technology when they can buy cheaply the credits.

Exelon Chief Executive John Rowe said in a speech that because the legislation caps carbon prices, it would not worsen the national debt: "Fixing our nation's carbon problem need not break the economic recovery, but our current hodge-podge approach and its unnecessary costs certainly could. Putting a price on carbon is a solution that we will keep coming back to because the sexier options are all too expensive."

To be sure, the bill has its critics on both the right and the left. Conservative lawmakers on Capitol Hill are skeptical that climate change is a man-made issue and thus go on to say that any regulations would just add to the cost of doing business. They are critical of the current Senate proposal, saying that it is just a "warmed over" version of what has long been sitting on the sidelines.

While moderate environmental movements say that the approach now articulated in the revised Senate bill is practical, the more stalwart groups say that it must be stopped. That's because they are opposed to any further nuclear or coal development, maintaining that they soak up scarce resources and do not advance green energy.

Workable Solution

Other coalitions are willing to work with the Kerry-Lieberman bill. Crafting a workable cap-and-trade program is vital to its success. At issue is whether to conduct such transactions bilaterally or on open exchanges, which prevailed in the Senate bill.

Central to that choice had been the whole derivatives debacle and how such complex financial instruments had been exchanged in private. By trading carbon credits in public forums, it would increase transaction costs but it would also make it more transparent, says Brian Harms of the law firm Troutman Sanders.

At the same time, the credits would be auctioned or sold at no more than $25 a metric ton. That is in stark contrast to initially allocating them for free to industry. According to Harms, that decision is likely the result of the European experience whereby free or cheap credits made it more difficult to cut emissions.

"This cap will benefit the industry -- utilities and other large emitters of carbon will know the maximum they could have to pay and can plan for it," says Harms. A national cap would preempt state limits, which he does not think would rile the localities as their carbon prices are now much lower.

Obviously, if big business is to sign on, it would need more certainty. Scott Segal of Bracewell & Giuliani, who represents utilities, refineries and manufacturers, says that among the issues they want to see addressed are reasonable timetables and targets that coincide with the commercialization of modern technologies. Meantime, they want to ensure that carbon prices are raised gradually so as to give companies an opportunity to recover from a deep recession as well as to give them more leeway to conform.

Climate change legislation is in a state of perpetual being. The latest iteration of it might have been enough if not for the great oil spill in the Gulf of Mexico that has driven a deeper wedge between the political parties on Capitol Hill. As a result, compromise on tough and controversial energy legislation now seems insurmountable.

But conservatives still see potential in offshore drilling while progressives want to move to a green economy founded on carbon constraints. If they can work out their differences, a global warming bill may be revived. And that's something that a politically disparate threesome in the U.S. Senate say would spur innovation and create jobs.

More information is available from Energy Central:

To subscribe or visit go to: http://www.energycentral.com