Climate Bill - Cap and Trade etc. Options

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Carbon Cap May Hit House Floor Next Week
RTT News: "The chairman of a House panel overseeing climate change legislation said Monday that he hopes to have a bill ready to go to the House floor next week. Rep. Henry Waxman, D-Calif., who heads the Energy and Commerce Committee, said that he hopes to reach an agreement with [House Ag Chair] Rep. Colin Peterson, D-Minn ... Waxman ... said his self-imposed deadline for getting a deal Peterson and other House moderates who agree with him is tomorrow."; "Pew says Climate Change Bill Good for Indiana,' reports Hoosier Ag Today; Investors Business Daily reports corporate lobbyists are trying to weaken the bill further; Grist's David Roberts defends the creative structure of the permit allocations: "roughly half the allowance value goes to consumers. Roughly a quarter goes to Clean Stuff like clean energy, prevention of international deforestation, adaptation, state efficiency programs, and the like. And roughly a quarter goes to Dirty Stuff like merchant coal generators, oil refineries, and trade-exposed, carbon-intensive industries like steel. Not how I'd do it, but not 'giving away 85% of allowances to polluters.' The bulk of the value is going toward protecting consumers and transitioning to a clean energy economy."

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CBO Backs Up EPA on Carbon Cap Cost
TNR's Brad Plumer on the new CBO report on the Waxman-Market climate compromise: "For some time, the GOP has been insisting that the cap would cost upward of $3,000 per family per year. And they may have been hoping the CBO would agree. But the report's now out, and the CBO estimates that the cap will actually cost Americans just $175 per household-or $70 per person-by 2020."; EARLIER: "The Environmental Protection Agency ... said the contentious plan would cost households less than $150 a year. That's a far cry from some of the dueling price tags that have been bandied about."; Change.org's Emily Gertz notes "The bottom fifth of households by income would see a net benefit of $40 a year ... households in the second highest fifth, about $340 ... That's less than $1 a day per family to create a safer future."; Ezra Klein adds: "That number is for 2020. And it's pure cost. The CBO's analysis does not 'encompass the potential benefits associated with any changes in the climate that would be avoided as a result of the legislation.' Furthermore, the bill will actually be cheaper for consumers in the years after that."; Climate Progress' Joe Romm puts a sharper point on additional savings: "energy efficiency measures alone will save nearly as much as this estimated cost." Ryan Avent on global impact; CQ on the ongoing protracted House negotiations; Politico notes deadline lapse for other committees to alter bill; Mother Jones looks at the split in the environmental movement over the Waxman-Markey climate compromise.

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Climate Surprise Despite incomplete negotiations with rural Dems, House climate bill will head to the floor. Bloomberg: "The U.S. House of Representatives plans to vote on a proposed 'cap-and-trade' law to cut greenhouse gas emissions by the end of this week, a spokesman for Speaker Nancy Pelosi said."; CQ on state of negotiations: "The negotiators worked on the compensation to farmers for sequestering carbon dioxide and the share of carbon allowances allocated to rural Midwestern utilities ... agreement was near on allowances for rural utilities operating coal-fired generators."; ALSO, CQ on new cost analysis from CBO: "Lobbyists following the climate talks said the CBO finding that the average annual per-household cost of the legislation would total $175 in 2020 boosts the bill's prospects. The finding undercuts GOP efforts to paint the bill as a costly energy tax that would cost families more than $3,000 a year."; Repower America's Al Gore to host conference call tonight with activists nationwide to rally support for the bill; The Hill says vote is uncertain; Ryan Avent debunks conservative complaints by Megan McArdle: "Is the only way for emissions pricing to have an impact on emissions through 'real financial pain?' ... If there are very good substitutes available, such that consumers are nearly indifferent between products, then emissions pricing involves practically no pain at all."; AP on new support to improve fuel-efficiency: "The Energy Department is expected to announce Tuesday it is lending money to the Ford Motor Co. and [Nissan and Tesla] from a $25 billion fund to develop fuel-efficient vehicles."

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Optimism for Climate Vote Friday
McClatchy reports backers predict passage in House tomorrow: "[Rep. Ed Markey] who helped draft the sweeping climate bill that limits greenhouse gases and improves the nation's energy efficiency predicted Wednesday that the legislation would be approved by the House on Friday."; McClatchy also finds opponents still using phony numbers; W. Post poll finds support for climate bill's provisions: "Three-quarters of Americans think the federal government should regulate the release into the atmosphere of greenhouse gases ... 56 percent would back cap and trade if it resulted in a $10 [monthly] increase in utility costs..."; Grist's Kate Sheppard on hopes for strengthening the bill later: "Environmental groups are downplaying hopes that their allies in Congress will be able to strengthen the American Clean Energy and Security Act once the House begins debate on the bill later this week, though some officials from climate action groups remain optimistic that the bill can be strengthened later in the legislative process." Get Energy Smart Now and Open Left's Chris Bowers speculate that environmental groups are resisting attempts to amend on House floor, for fear of breaking up the tenuous coalition; Politico profiles the remaining fence-sitters in Congress

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The House Needs to Pass the Climate Bill - New York Times
1,200 Page Cap-And-Trade Bill is a Disaster - Investor's Business Daily

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Making Climate Change History - Kate Sheppard, The Guardian
The Climate Change Climate Change - Kimberley Strassel, Wall St. Journal

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Climate Bill In The House Politico on the head count: "By late Thursday, aides and lawmakers said Democrats were within a dozen of the 218 votes needed to pass the legislation. Democratic sources said their leaders aimed to lock in 230 yes votes - and leaning on key Blue Dogs such as Reps. Earl Pomeroy of North Dakota and South Dakota's Stephanie Herseth Sandlin so that more vulnerable members such as Reps. Eric Massa of New York and Maryland's Frank Kratovil can vote no."; Rep. Mike Doyle tells Grist of both optimism and uncertaint; AFL-CIO pledges its support. TPMDC: "...this is also the first time the group has supported energy legislation like this, and the move gives cover to moderates and representatives from blue collar districts to support the bill and avoid inevitable jobs attacks."; Climate Progress's Joe Romm: "If you want to know what the best talking points on the bill are, read what [the President] said today. Not only is this a 'jobs bill' (that will create 1.7 million net new jobs across the country) and that "will protect consumers from the costs of this transition" (especially with 7% lower electric bills by 2020), but "the price to the average American [household] will be just about a postage stamp a day," (as reported by the CBO)."; Grist's Meredith Niles offers nuanced criticism of the final compromise with farm-state Dems; Further compromise in the Senate may break coalition. Time; TNR's Brad Plumer on how the House vote may impact the Senate.

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Can Climate Bill Cross the Finish Line? - Steve Benen, Washington Monthly
The Cap-and-Trade Stampede - Victor Davis Hanson, National Review Online
The Real Climate Cost Shift - Ronald Brownstein, National Journal

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• Global Warming Bill
  • Dems Smell Win on Climate Vote
  • Philly Inquirer: Big First Step
  • IBD: 1,200 Page Bill a Disaster

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The House Needs to Pass the Climate Bill - New York Times

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Everyone Hates the Cap-and-Trade Bill - Mary Katharine Ham, The Blog
Global Warming Deniers Contort Reason - Jay Stevens, Left in the West
More Bad News for Waxman-Markey - Eric Zimmermann, The Hill's Blog
Dems Rush to Cap and Trade Suicide - Robert Stacy McCain, AmSpecBlog
"What Can I Do?" - Robert Reich, Robert Reich's Blog

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ENVIRONMENT
Moving Forward On Global Warming
Friday was a historic day in Congress, as the House passed the first-ever bill designed to curb greenhouse gas emissions that contribute to global warming. The narrow 219-212 vote was a hard-fought victory, overcoming the regional interests of lawmakers, aggressive lobbying by business groups, and misinformation by right-wing pundits. "After more than three decades of being held hostage to the influence of foreign energy suppliers, this legislation at long last begins to break our addiction to imported foreign oil and put us on a path to true energy security," said House Energy and Commerce Committee Chair Henry Waxman (D-CA), one of the authors of the landmark American Clean Energy and Security Act (ACES). The other author of the bill, House Select Committee on Energy Independence and Global Warming Chair Ed Markey (D-CA), added that the legislation will "create jobs by the millions, save money by the billions and unleash investment in clean energy by the trillions." The bill now moves to the Senate, where the fight for passage will be even tougher. In his weekly address on Saturday, President Obama recognized the challenge and called on senators to not "be prisoners of the past." "Don't believe the misinformation out there that suggests there is somehow a contradiction between investing in clean energy and economic growth," he urged. "It's just not true."

A FLEXIBLE BILL: ACES "would establish binding greenhouse gas pollution limits, set the first national renewable electricity and efficiency standards for utilities, and improve efficiency standards for buildings and appliances -- creating 1.7 million new jobs and spurring $150 billion in investments." In fact, by 2020, U.S. emissions are required to decline by 17 percent. ACES wasn't the ideal bill for most people. Some business interests were opposed to stringent regulations and many environmentalists preferred the auction of all the pollution allowances. Speaking to reporters over the weekend, Obama explained why this fragile compromise was necessary: "Part of the reason I think that business was supportive, and ultimately we got support from legislators who in the past had been opposed, is because of the flexibility that was built...into this bill." Despite the fear-mongering by many conservatives on ACES, regulating greenhouse gas emissions is widely supported by the American public. A recent Washington Post-ABC News poll found that three-quarters -- including "substantial majority support from Democrats, Republicans and independents" -- support such regulation. Obama has also received high ratings for his handling of the issue, with global warming his second strongest area after international affairs.

NEXT STEPS IN THE SENATE: As Center for American Progress President and CEO John Podesta has noted, the Senate Energy Committee is off to "an inauspicious beginning by passing an energy bill that would do little to boost investments in renewable electricity." "The bill would allow oil drilling in an area only 45 miles off the Florida Gulf Coast and worsen global warming by lifting the prohibition against the federal government purchase of oil from Canadian tar sands, which produce twice as much greenhouse gas pollution as regular oil," said Podesta. "The Senate bill is weak, toothless, and unacceptable, and it must be improved before it passes." In addition to allowing drilling, environmentalists are upset that the bill has a weaker renewable electricity standard than the one in the House bill. Senate Majority Leader Harry Reid (D-NV) is hoping to have the full Senate consider the bill sometime this fall and Environment and Public Works Committee Chair Barbara Boxer (D-CA) plans to have a bill on climate strategy ready for consideration by early August. Obama is also urging the Senate to strip out a provision present in the House bill that would "impose a tariff in 2020 on imports from countries without systems for pricing or limiting carbon dioxide emissions."

'TREASON AGAINST THE PLANET': On Friday, Sen. Claire McCaskill (D-MO) wrote on Twitter, "I hope we can fix cap and trade so it doesn't unfairly punish businesses and families in coal dependent states like Missouri." McCaskill's state gets 85 percent of its electricity from coal and is home to the world's largest coal company, Peabody Energy, which has spent nearly $10 million lobbying against climate legislation since 2008. As The Wonk Room's Brad Johnson notes, "In reality, the cap-and-trade system the House passed fully protects states now dependent on coal, with multi-billion-dollar programs for advanced coal technology." But interest groups have poured millions of dollars into lobbying against this bill. In the first three months of 2009 alone, the oil industry spent $44.5 million on lobbying, and last year spent 73 percent more on lobbying than it did the year before. In March, the top public relations group for the coal industry announced that it was looking to shape public attitudes online, with a $20 million media budget for Internet-based advertising. As Obama told reporters this past weekend, the bill's foes have been seeking to "get political gain by scaring the bejesus out of people." In today's New York Times, columnist Paul Krugman says that in light of the fact that "the planet is changing faster than even pessimists expected," global warming deniers and people unwilling to take action are committing "treason against the planet." "The deniers are choosing, willfully, to ignore that threat, placing future generations of Americans in grave danger, simply because it's in their political interest to pretend that there's nothing to worry about," he writes. "If that's not betrayal, I don't know what is."

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Climate Battle Heads To Senate Grist's Kate Sheppard assesses what's next following House passage of clean energy/climate protection bill: "Sen. Barbara Boxer (D-Calif.), chair of the Environment and Public Works Committee, issued a statement congratulating House leaders for the landmark passage. Boxer has pledged to have her own climate bill, likely based on Waxman-Markey, passed out of committee in August ... a number of Midwestern and Southern Democrats have expressed concerns about passing the legislation, and few observers expect more than two or three GOP lawmakers to vote for a climate bill ..."; National Journal analyzes where the votes came from: "the findings suggest that calculations about the underlying political and ideological inclinations of the districts may have shaped the Democratic vote somewhat more powerfully than assessments of the districts' vulnerability to energy price increases if the legislation passed. In both parties, nothing appeared to drive the outcome more than the presidential result in last November's election." (via Political Wire); Ezra Klein is pessimistic on Senate prospects: "My sense is that this looks like what it is: a slim margin for a weakened bill. And now it goes to the Senate. What further worries me is that the bill is all inside-game right now."; Stan Collender argues the close vote bodes well for the future; WH adviser Axelrod predicts Senate passage on NBC's Meet The Press; Treehugger flags Sen. Claire McKaskill's negative reaction; The Hill profiles the wavering House members that helped pass the bill; Conservatives spout complete nonsense on Sunday TV, ignore compromises with coal, ag, pretend there's no such thing as green jobs; Bloomberg on industry impact: "The climate-change bill that passed the U.S. House on June 26 would set up a 'cap-and-trade' market for greenhouse gases that cushions the cost for power producers, manufacturers and farmers while limiting aid to oil companies."; Following presidential interview by energy reporters, NYT and W. Post highlight Obama opposition to carbon tariff: "At a time when the economy worldwide is still deep in recession and we've seen a significant drop in global trade, I think we have to be very careful about sending any protectionist signals out there ... I think there may be other ways of doing it than with a tariff approach."

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http://www.cbsnews.com/blogs/2009/06/26/politics/politicalhotsheet/entry5117890.shtml

EPA May Have Suppressed Report Skeptical Of Global Warming - Political Hotsheet - CBS News

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Are There 60 Senate for Carbon Cap?
Asked by Politico if there are 60 votes for a "price on carbon," Senate Energy cmte chair says, "I think so."; Coal Tattoo reports Sen. Byrd opposes House bill, Rockefeller has "concerns:" "It will be interesting to watch things develop, and see if Byrd and Rockefeller move on this at all - especially since the United Mine Workers union said last week that, under the current bill 'the future of coal will be intact.'"; Rep. Waxman defends bill on Air America's Montel Across America; Treehugger reports Europe wants a stronger US bill: "...Europeans didn't even wait until the bill was officially passed before they came out to announce they 'demand more' from the US ... [Swedish minister for the environment Andreas] Carlgren's voice takes on an additional authority, too--Sweden takes the helm of the EU's revolving presidency until December, which just so happens to be when the Copenhagen climate talks are set to take place."; Grist reports on possible MoveOn campaign: "The progressive activist group MoveOn is trying to rally its 5 million members behind an aggressive campaign to strengthen the climate and energy bill that passed the House last week. If at least two-thirds of voting members consent, the group will begin a 'full-court press to fix the bill, and turn up the heat on senators who might be tempted to side with Big Oil and Coal.'"

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Are There 60 Senate for Carbon Cap?
Asked by Politico if there are 60 votes for a "price on carbon," Senate Energy cmte chair says, "I think so."; Coal Tattoo reports Sen. Byrd opposes House bill, Rockefeller has "concerns:" "It will be interesting to watch things develop, and see if Byrd and Rockefeller move on this at all - especially since the United Mine Workers union said last week that, under the current bill 'the future of coal will be intact.'"; Rep. Waxman defends bill on Air America's Montel Across America; Treehugger reports Europe wants a stronger US bill: "...Europeans didn't even wait until the bill was officially passed before they came out to announce they 'demand more' from the US ... [Swedish minister for the environment Andreas] Carlgren's voice takes on an additional authority, too--Sweden takes the helm of the EU's revolving presidency until December, which just so happens to be when the Copenhagen climate talks are set to take place."; Grist reports on possible MoveOn campaign: "The progressive activist group MoveOn is trying to rally its 5 million members behind an aggressive campaign to strengthen the climate and energy bill that passed the House last week. If at least two-thirds of voting members consent, the group will begin a 'full-court press to fix the bill, and turn up the heat on senators who might be tempted to side with Big Oil and Coal.'"

I support the Move On position...

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Anatomy of the House cap-and-trade roll call


By: Michael Barone
Senior Political Analyst
06/28/09 2:09 PM EDT
The House Democratic leadership succeeded in passing the Waxman-Markey cap and trade bill by a 219-212 margin. In all, 44 Democrats voted against the bill, and 8 Republicans voted for it. It’s always interesting to examine the roll call on a close vote on an important issue—when members are voting for keeps and when some significant number of members cross party lines. And House roll call votes provide useful clues in gauging the legislation’s possible fate in the Senate.


This bill was passed by the votes of one-third of the nation—the Northeast (New England, NY, NJ, DE, MD) and the Pacific coast (CA, OR, WA, HI), as the following table shows. Just over half the votes cast for it came from those two regions.



UNITED STATES 219 212

Northeast & Pacific 110 31

Rest of US 109 181



To oversimplify just a bit, the one-third of the nation that doesn’t depend on coal for its electricity passed this over the less unanimous opposition of the two-thirds of the nation that does.

This was true despite Democrats’ gains in House seats in the rest of the nation in 2006 and 2008. Seven of the 8 Republicans who voted for the bill came from the Northeast & Pacific; 39 of the 44 of the Democrats who voted against it came from the rest of the nation. By the way, despite the opposition of Greenpeace and some other environmental restriction groups, only 3 of the Democrats who voted against this seem to have done so for similar reasons: Peter DeFazio (OR 4), Dennis Kucinich (OH 10) and Pete Stark (CA 9).

Only three members did not vote on the bill, Jeff Flake (AZ 6), Alcee Hastings (FL 23), and John Sullivan (OK 1). Nancy Pelosi made an exception to the usual custom that the speaker does not vote by casting an aye vote, indicating the importance she attached to the measure.


To gauge the bill’s prospects in the Senate, I’ll break the country down further.


● Northeast (CT, DE, ME, MD, MA, NH, NJ, NY, RI, VT). Representatives from these states voted 66-7 for the bill. These 10 states have 20 senators, 17 Democrats and 3 Republicans: Olympia Snowe (ME), Susan Collins (ME) and Judd Gregg (NH). That looks like at least 17 solid votes for a bill similar to the one that passed the House, and perhaps a couple more.


● Pacific Coast (CA, HI, OR, WA). Representatives from these states voted 44-24 for the bill, with 20 of the noes coming from California Republicans (there is one vacancy in California). These states have 8 Democratic senators and no Republicans. Count another 8 for a House-like bill, which brings the number up to at least 25.


● The Germano-Scandinavian Midwest (IA, MN, WI). This is the only other one of the regions I am using for this analysis that voted for the House bill, by a 13-8 margin, all on party lines. These states have 4 Democratic senators and 1 Republican; the Minnesota seat formerly held by Republican Norm Coleman is now vacant but may go to Democrat Al Franken soon if the Minnesota Supreme Court rules as generally expected. Count another 4 or 5 Senate votes for a House-like measure, which gets the number up to 29 or 30, with a live possibility of a couple more.


● The Industrial Heartland (IL, IN, MI, MO, OH, PA). This region voted 41-48 against the bill, mostly on party lines. These states have 9 Democratic and 3 Republican senators. With the exception of IL, with its large nuclear power plants, they tend to depend on coal-fired electricity. Republican senators from these can be expected to oppose a House-like bill, and some Democrats may too. Evan Bayh (IN) is up for reelection in 2010 and his state’s House members voted 2-7 against the House bill, with 3 Democrats crossing party lines. Also, 4 PA House Democrats and 2 OH House Democrats crossed party lines. That leads me to think that Bob Casey (PA), who sees himself as the spokesman for culturally conservative ethnics, and Sherrod Brown (OH), who sees himself as the tribune of unionized industrial workers, cannot be counted as sure votes for a House-like bill. MI House Democrats all voted for the bill, which suggests that their concerns particularly about the auto industry have been assuaged, but the states two Democratic senators, Carl Levin and Debbie Stabenow, may seek more concessions. As for Arlen Specter (PA), up for reelection in 2010, who knows? We’re having trouble here getting up to 40 sure votes for a House-like bill.


● The Great Plains and Rocky Mountains (AK, AZ, CO, ID, KS, MT, NE, NV, NM, ND, SD, UT, WY). Representatives from these 13 states voted 13-24 against the House bill. Only the delegations from CO, NV and NM, the three states in this group which voted for Barack Obama, voted for it. These mostly sparsely populated states have much more leverage in the Senate (where they cast 26% of the votes) than in the House (where they cast 9%). Most of them depend on coal for electricity. They have 11 Democratic and 15 Republican senators. The refusal of Kent Conrad (ND) to support the reconciliation process for cap-and-trade suggests that he and his ND colleague Byron Dorgan cannot be counted on to support a House-like bill (ND gets 93% of its electricity from coal and has big coal deposits), and that may be the case also with Tim Johnson (SD), Ben Nelson (ME), Max Baucus (MT) and Jon Tester (MT). Harry Reid (NV), who is proud of putting the kibosh on the Yucca Mountain nuclear repository, will likely support anything the administration does, but what about appointed Senator Michael Bennet (CO), who is up in 2010 and must be aware that Interior Secretary Ken Salazar’s brother John Salazar (CO) voted against the House bill? Better prospects are the just-elected cousins Mark Udall (CO) and Tom Udall (NM); the latter’s colleague Jeff Bingaman (NM) has been more cautious on some energy matters.


● The South Atlantic (FL, GA, NC, SC, VA). These were good states for Barack Obama, who carried 55 of their 78 electoral votes and helped elect Democrats to the House or Senate in FL, NC and VA. Nevertheless representatives from these five states voted 26-41 against the bill. It won pluralities in none of these 5 states. There are 4 Democratic and 6 Republican senators from these states. Bill Nelson (FL), Jim Webb (VA) and Mark Warner (VA) would probably not face too much political peril in supporting a House-like bill; Kay Hagan (NC) might, although I note that Duke Power, headquartered in her state, is one of the firms eagerly gaming cap-and-trade systems.


● The Interior South (AL, AR, KY, LA, MS, OK, TN, TX, WV). Here is the heartland of opposition to the House bill; representatives from these 9 states voted 16-60 against the bill. The AL, LA, OK and WV delegations were unanimously against, with 7 Democrats among the 44 who opposed the House bill. AR and WV both have 2 Democratic senators, whose support for a House-like bill cannot be taken for granted; Mary Landrieu (LA) seems like a sure opponent, as do the 13 Republican senators from these states.


As I have gone down the list, I have stopped trying to tabulate the number of likely Senate votes for a House-like bill, but attentive readers will see that the number is clearly short of 50, much less the 60 needed to overcome a filibuster. This doesn’t mean the fight is over. Senate Democratic and Obama administration vote counters are looking at the same numbers and trying to figure out how to modify the House approach to get the votes needed.


A couple more statistical exercises. The population increases from 2000 to 2008 in the regions favoring the House bill, according to Census Bureau estimates, was 5.9%; the population increase in that period in the regions opposing the House bill was 9.2%. As a result, according to projections by Polidata, the states whose delegations voted for the House bill will lose a net 5 House seats in the reapportionment following the 2010 Census, and the states who delegations voted against the House bill will gain a net 5 House seats.

If you assume those five seats would represent a shift in votes on the House bill, it would have lost by a 214-217 margin. Of course, that’s just an arithmetical exercise, and I expect that if the House Democratic leaders had actually faced such a counterfactual they would have switched a couple more votes and would have won. But it does suggest that cap-and-trade is not necessarily the wave of the future.

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Taking Global Warming Seriously

The Economic Benefits of Investing in Clean Energy
How the Economic Stimulus Program and New Legislation Can Boost U.S. Economic Growth and Employment

Report from Robert Pollin, James Heintz, and Heidi Garrett-Peltier outlines how the economic stimulus program and new legislation can boost U.S. economic growth and employment.
Report: The Economic Benefits of Investing in Clean Energy

http://www.americanprogress.org/issues/200...ean_energy.html

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Greetings from RGE Monitor!


Today we look at U.S. and global efforts to reduce carbon emissions and slow global warming. Last Friday, June 26 2009, The U.S. House of Representatives approved the landmark America Clean Energy and Security Act by a narrow seven vote margin, including 44 no votes from Democrats. The legislation, also known as Waxman-Markey after its sponsors, or the climate bill, will face an even tougher audience in the Senate, where it must meet a 60-vote threshold. The Minnesota Supreme Court’s decision to seat Al Franken in the Senate may add to the Democrats’ leverage. The bill aims to cut 2005 emissions levels by 17% by 2020 and has at its core a Cap-and-Trade system which calls for mandatory caps on greenhouse gas emissions. Any companies wishing to emit above a certain level will need to purchase permits to do so. Additionally the bill requires large utilities to increase their use of renewable energies such as hydro, wind, solar and geothermal power generation.

The bill’s passage by the House is historic and will likely increase President Obama's leverage in global climate negotiations as global leaders try to replace the soon-to-expire Kyoto Protocol. Detractors though point to its economic costs and the limited nature of the final legislation

How the Bill Works

At the heart of the bill is a Cap-and-Trade system, a market-based system which caps emissions at a certain level and allows large emitters to buy permits for additional emissions from other companies that emit less than the upper limit. The legislation calls for the number of permits to be reduced over time to encourage lower emissions. In practice, establishing a market for these permits will increase the cost of using carbon-based energy (especially electricity from coal), which will in turn reduce demand.

The revenue earned through auctioning would be distributed among households to offset the negative effect on their purchasing power from the higher cost of energy. Initial plans called for all or at least a majority of the permits to be auctioned but the vote-getting process increased the number allocated. The bill passed by the House calls for 85% to be allocated and 15% to be auctioned. Some of the allocated permits will go to utility companies, the idea being that they will either invest the proceeds in renewable fuels or temper price increases for consumers. This change reduces the potential revenue generation of the policy and runs the risk that low electricity costs could actually encourage greater usage.

Cost Estimates

Estimates of the total economic costs of the U.S. Cap-and-Trade program have varied widely. According to the Congressional Budget Office (CBO), the net annual economic cost of the Cap-and-Trade program in 2020 would be $22 billion—or about $175 per household. Analysis of the CBO results suggests that the implicit tax is relatively progressive. While this estimate has been accused of being understated (and it is worth noting that the Environmental Protection Agency came to an even lower estimate) it presented a baseline for analysis. Other estimates put the ultimate cost much higher. An analysis from the Heritage Foundation concludes that the Cap-and-Trade system described in the bill would cost the economy $161 billion by 2020--or about $1,870 per household. Such estimates do not necessarily account for changes in the price of energy that would occur naturally as a lack of investment limits production of fossil fuel based energy. Furthermore, they may not fully include the technological and efficiency gains that the current legislation hopes to encourage. For example, some of the allocations to utilities are granted with the expectation that they will be auctioned off and the proceeds will be used to fund renewable energy development. It’s worth noting, however, that there’s no guarantee the utilities will do this in practice.

Sector-By -Sector

Where the United States is concerned, the likely impact of the new price for carbon varies by sector. Utilities are likely to the most affected, especially in those regions that derive much of their power from coal-fired plants. The Midwest, the country’s already-shrinking industrial and manufacturing base and the home of many of its coal-fired plants, seems particularly vulnerable. (The distribution of allowances in the legislation is intended to find the funds to improve competitiveness of coal plants.)

The effects on agriculture are also varied. Recent Deutsche Bank research suggests that no-till agriculture, which limits disturbance of the soil, as well as reforestation and planting of vegetative buffers could derive significant carbon credits annually under a Cap-and-Trade regime. By some counts up to 20% of U.S. carbon emissions come from the release of carbon dioxide from farmland. However, the bill puts off to the future one contentious issue--the promotion of agricultural land to grow corn for ethanol, which critics suggest is very inefficient and contributed to global food shortages in 2008. The legislators also chose the Department of Agriculture, more likely to be sympathetic to farmers concerns, rather than the EPA, to be the regulator for approving carbon offsets.

The oil and metals sectors may also face vulnerabilities. Some analysts worry that emissions standards would encourage companies to keep inventories low and to import more refined fuels, contributing to idle capacity in U.S. refineries. However, it may also encourage the creation of cleaner processes or the development of carbon capture technologies, which are as yet far from being commercial. Overall, businesses have supported establishing a climate regime, given that clarity over regulatory responses is key to planning. However, there are still many uncertainties about how such a regime will be implemented.

Trade Concerns

There is also a growing fear that climate change policies could prompt trade protectionist policies. The risk that higher costs might accelerate a decline in the U.S. manufacturing base as more production is moved offshore has contributed to the suggestion that compensatory import taxes might be placed on carbon-intensive imported goods. President Obama, in saluting the bill’s passage, did insist that the U.S. not discriminate against imports. Doing so might lead to retaliatory protectionism and a further hit to trade. In a report released last week, the World Trade Organization (WTO) suggested that import taxes might be WTO-compliant if they limit distortions. Paul Krugman suggests that the WTO’s view is analogous to that for value added taxes. However, Martin Feldstein notes that the system could be very complex. With different countries each having country-specific caps and different tariffs, it could be very difficult to assess how comparable the measures are and what remedies might be needed. Thus the implications for international trade and trade law could be quite significant. Moreover, developing countries are petitioning for trade restrictions on carbon-reducing technologies to be lifted or for technology transfer of such goods. The mostly advanced economy companies who developed such expertise have been reluctant to cut prices.

Other Efficiency Steps

The administration’s energy policy more broadly tries to offset potential costs with new opportunities and technological advances to boost productivity growth. It aims to generate 25% of U.S. energy from renewable sources by 2025, create “green jobs” and reduce dependence on imported oil. Projects to develop renewable fuels and improve the efficiency of the power grid received funding in the stimulus bill, in part to offset the impact of the triple shock of lower energy demand, lower credit and lower hydrocarbon prices on renewable producers. President Obama’s team plans to spend $150 billion over the next decade to promote energy from solar, wind and other renewable sources, as well as energy conservation.

Other key steps include the May 2009 auto efficiency program, which requires the American fleet to increase to an average mileage standard of 39 miles per gallon (mpg) for cars and 30 mpg for trucks by 2016 – a jump from the current average for all vehicles of 25 miles per gallon. Doing so would create a new national standard, after many states have unilaterally taken more aggressive steps. A national standard could make it easier for car companies to supply different jurisdictions. Government estimates that oil consumption may fall 1.8 billion barrels from 2012 to 2016 and greenhouse gas emissions may fall by 900 million metric tons could be overoptimistic. They may, however, be more effective than the recently announced “cash for clunkers” program in which consumers receive a rebate for a new more fuel efficient vehicle if they turn in a gas guzzler. Yet the required fuel efficiency increase is rather low (only 4mpg) and the threshold is lower than the current national average. As such, the latter policy, which has been effective in stocking auto demand in countries like China, Germany and South Korea, might have limited effect in the United States. However the effects of such incentives may be temporary. If they elapse without a sustained increase in consumption, demand for autos could fall quickly especially in developed economies which already have a high number of cars per household.

These initiatives together hope to reduce the amount of oil the United States imports. The bulk of energy imports (oil, gas, electricity) come not from the Middle East but from Canada. An increasing amount of the oil supplied is bitumen from the oil sands, which continues to bear an expensive environmental and economic cost per barrel under current technology. Bitumen’s carbon footprint is improving though through technological innovation – and the fuel expended in transport is clearly lower than the amount needed to ship oil from Saudi Arabia. Yet there is still a long way to go. Given the shift towards energy efficiency and lower emissions fuel supply, Canadian authorities and producers are struggling to improve production so that their largest consumer will keep buying. On President Obama’s visit to Ottawa, his first foreign trip as president, he and Prime Minister Harper announced joint investment in carbon capture technology, adding to funds already pledged by the province of Alberta. Such measures hope to help the U.S. meet energy security needs without adding to environmental insecurity. However, carbon capture technology is still far from being commercial.

Assessing Alternatives

One of the biggest benefits of this legislation is that it provides a mechanism to set a price for carbon over the mid-term. Doing so will help households and businesses make investment and savings decisions. However, economists have long argued that a carbon tax would be more efficient than a Cap-and-Trade system, as it would be less complex and vulnerable to distortions. A carbon tax would set a specific cost per unit of carbon dioxide, thus establishing a clear cost for carbon. A Cap-and-Trade system, on the other hand, would set an upper limit for emissions, but the prices it established for carbon might be variable. Of course, introducing new taxes is rarely popular, particularly not during a recession, even if the tax option would be more efficient and have lower compliance costs.

The European Union’s experience with Cap-and-Trade over the past several years provides reason for caution. The first iteration of the policy, issued too many permits, undermining demand. With prices for carbon low, so was the incentive to reduce emissions. A reformulation improved this balance and emissions have been reduced, though European countries still have a significant space to reach their targets. The EU system allows companies to bank or store their allocations for the future or to borrow them from the future. The EU system also illustrates an effect of the global recession. The drastic reduction in industrial output has meant that many companies are producing well lower than their quotas and are seeking to sell their excess allocation. Several companies sought to raise cash by selling their carbon certificates, causing the price of carbon to plummet. A market-derived carbon price might actually be very volatile.

The Road to Copenhagen

World leaders will meet this December in Copenhagen to negotiate a replacement to the Kyoto Protocol, which expires in 2012. The Kyoto Protocol aimed at reducing emissions of 1990 greenhouse gases levels by 5.2% by 2012. The range that is now being discussed is around 25% to 40% of 1990 levels by 2020. The previous U.S. administration withdrew from ratifying the Kyoto protocol, saying it deemed it unfair for allocating reductions targets between developed and developing countries. The reluctance of emerging market economies to make emissions cuts that might stunt their growth could again be an obstacle to a deal later this year.

The United States and China are the world’s top two greenhouse gas emitters, together accounting for more than 40% of annual emissions. If the United States and China can become catalysts in bringing about a strategic transformation to a low-carbon, sustainable global economy, the world will take a giant step forward in combating climate change. Given the complexities of global discussions, analysts like Kenneth Lieberthal suggest that climate change is yet another policy arena that could be best tackled by a G-2, that is bilateral talks by the two countries. Despite its reluctance to take any steps that might reduce economic growth, China, has been taking some steps to curb emissions growth. China rivals the United States as a carbon emitter, despite having low levels per capita, but now has domestic interests to slowly make changes. In particular, the increase in pollution-related illness is taxing the Chinese health care system. Yet many of these measures, such as China’s own cash for clunkers program, may be of limited effect given the potential demand for primary energy. Coal remains the primary feedstock for Chinese electrical plants, although the country is planning to build several nuclear power plants and is sourcing more of its electricity from wind. China is now the world’s largest assembler of solar technology, but little is applied domestically. Should China choose to allocate a greater share of infrastructure spending towards power generation from renewable fuel sources, it could have a significant effect on global use of such technologies.

Chinese heavy industry has been particularly hard hit by slumping global demand, leading to emissions reductions. Electricity demand continues to fall, year-on-year (as of May at least), despite the aggressive government stimulus which has including new metals processing. In fact, the persistent weakness in industrial electrical demand suggests that overall growth could be weaker than some officials suggest. Electricity demand has tended to be a proxy for economic growth. A more domestically driven growth pattern might reduce the pace of Chinese new energy demand growth over time, however, suggesting that this correlation could change if more output is shifted to the services sector.

Coming to a global consensus might therefore be difficult. Already many European countries, including Sweden, which takes up the EU presidency today, may have hoped for a more aggressive commitment from Washington. Emerging and frontier market economies like South Africa, Mexico and the UAE are now taking measures to reduce their carbon footprint. Brazil has moved to reduce the destruction of its rain forests. However these countries continue to be wary of restrictions on emissions, arguing that advanced economies should bear the bulk of the costs. They are also pushing for more technology transfer from the companies and countries that developed some of these techniques.

Higher Carbon Costs and the Global Economy

A higher price for carbon-based energy could be one of several increased taxes and costs which weigh on U.S. consumption in the near future. Should the recovery in U.S. consumption be as sluggish as feared, such higher costs could be a limitation in the absence of real investment which might prompt productivity gains. Despite the risks of a new carbon price, this cost, plus the allocation of government and private sector funds, could spur innovation and energy savings technology that could lead to productivity growth.

Moreover, the cost of energy could increase quite substantially even in the absence of a carbon price. Even in 2009, there is a risk that higher oil prices might dampen any economic recovery. Further increases, perhaps to the $80-90 a barrel range, could keep the economy well in recessionary territory this year. Given current and past short-falls in oil investment, production growth might be quite sluggish going forward. If petroleum demand returns to trend, this could contribute to higher prices in 2010. Higher oil and coal prices could encourage a change in behavior that could boost the position of alternatives in the energy mix, even though carbon-based fuels – albeit higher cost ones – are likely to fuel the economy for years to come.

[Snuffysmith]

With Something for Everyone, Climate Bill Passed
By JOHN M. BRODER
The energy bill that passed in the House was loaded with hundreds of special-interest favors, as environmentalists lamented that its aims had been diminished.