United States: Weekly Climate Change Policy Update - October 6, 2008

Article by Kyle W. Danish, Shelley N. Fidler, Andrea Hudson Campbell and Kevin M. Gallagher

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Commentary

According to industry sources, we may see action in the House of Representatives this week: the release of a much anticipated Dingell-Boucher "discussion draft," a full legislative program with choices of policies in a number of areas. In the Congress, each new climate bill has built in some ways on previous proposals, but then has had noteworthy departures. In this light, here is a partial list of things to look for if the long awaited draft is released by this important and influential duo: What are the targets and timetables? How are allowances distributed – what portion auctioned, what portion allocated, and for those that are allocated, how and to whom? How are offsets handled; are there limits on use or type? Is there further elaboration of a cost containment system involving a price ceiling and a reserve of allowances? What is the point of regulation for natural gas? Does the program break new ground? . . . The Senate "Gang of 10" is now a "Gang of 16" and it continues to draw a group of heartland and mountain state Democrats . . . It was a busy week for California climate initiatives. Gov. Schwarzenegger signed a bill establishing an interesting, uniquely state-based weapon against GHG emissions: an anti-sprawl bill. . . . In the international arena, several countries released position papers outlining their views of what a post-2012 regime should look like. The papers reveal a critical issue for the negotiations. The Kyoto Protocol absolved "developing countries" of any obligations to take on emission limits. Is it time that large, fast-growing developing countries – e.g.., China, India, Mexico, and perhaps some others – accept commitments? If so, should those commitments take some form other than absolute caps on emissions?

Congress

• Sen. Alexander Favors Simpler, Utility-Only Approach to Emissions Reduction. Citing the failure of a complex economy-wide cap-and-trade proposal this summer, Senator Lamar Alexander (R-TN) has said he will push ahead with his narrow approach to program coverage: establishing a cap-and-trade on CO₂ emissions from power plants. Sen. Alexander's "low surprise, less cost" plan also would establish a low carbon fuel standard, similar to the one implemented by Gov. Arnold Schwarzenegger to curb transportation emissions in California. This limited approach also faces its share of opposition. Some power companies, industries and labor groups have expressed opposition to singling out any one sector, while environmental groups are striving for a stronger, more comprehensive approach to tackle emissions. In addition, both presidential candidates, Sen. Obama and Sen. McCain, favor an economy-wide approach.
• House Bill Aims to Limit Carbon Intensive Industry Outsourcing. House Democrats Jay Inslee (D-Wash) and Mike Doyle (D-Pa) introduced a bill this week to try to prevent U.S. industries from moving overseas to avoid a domestic emissions cap. H.R. 7146 would help the iron, steel, paper, cement, glass, rubber, chemical and aluminum industries deal with the economic implications of a cap-and-trade program to curb global warming. Some economists predict that a domestic cap-and-trade plan could create incentives for businesses to move to countries that do not have comparable emissions restrictions. The Inslee-Doyle legislation would seek to reduce international competition for U.S. industries by setting aside up to 15 percent of a cap-and-trade program's allowances, which would be given to sectors of industry that the Environmental Protection Agency has deemed most vulnerable to moving overseas.
• Moderate Democratic Senators Form "Gang of 16" to Address Climate Change Legislation. Sixteen moderate Senate Democrats have come together in an effort to influence the global warming debate in the 111^th Congress. The Senators, who have state interests in several industries, such as agriculture, coal and manufacturing, are hoping to influence cap-and-trade legislation in four key areas: international competition, technology, cost containment and offsets. The original members of the "Gang of 10" (Senators Stabenow (Mich.), Levin (Mich.), Rockefeller (W. Va.), Lincoln (Ark.), Pryor (Ark.), Webb (Va.), Bayh (Ind.), McCaskill (Mo.), Brown (Ohio), and Nelson (Neb.)) have now been joined by Sens. Byrd (W. Va.), Bingaman (N.M.), Conrad (N.D.), Dorgan (N.D.), Johnson (S.D.) and Salazar (Colo.). Collectively, the Senators agree that developing a cap-and-trade program is "perhaps the most significant endeavor undertaken by Congress in over 70 years and must be done with great care." Still in the development phase, the 'gang' has not selected a leader and has prepared no legislative language, though that is expected to change after the November elections.

However, the 16 Senators have voiced their concerns with the uncertain level of costs for business that would accompany new environmental requirements. They are also looking to aid low-income families through funds for electric utilities and "clean coal" technologies, perhaps with a plan similar to the $1 billion fund for carbon capture and storage projects previously proposed by Rep. Boucher (D-Va.). In addition, the Senators hope to increase the share of offsets available to farmers who plant trees, utilize methane digesters, and practice no-till farming. This last provision could be expected to produce a considerable amount of support from farm interests and those who represent them.

• Aggressive Cap-and-Trade Plan Finds 152 Democratic Supporters in the House. Reps. Markey (D-Mass.), Waxman (D-Cal.) and Inslee (D-Wash.) have gathered 152 signatures on a letter they have been circulating in the House of Representatives calling for large-scale emissions reductions in the U.S. The letter, which has been signed by 10 committee chairmen (as an indication of the senior, experienced support for their views), promotes a 15-20 percent reduction in U.S. emissions below current levels by 2020, and an eventual decline to 80% below 1990 levels by 2050. The Democrats call for an economy-wide cap-and-trade program to reduce global warming, a mission of Speaker Nancy Pelosi who is hoping to construct a climate bill that will receive the 218 votes necessary to pass the House in the 111^th Congress. While this letter drew praise from environmental groups, some business advocates expressed concern that the costs and impacts on international competitiveness, jobs, and goods and services have not been taken into consideration.

Administration

• EPA Misses Congressional Deadline for Emissions Reporting Rule. The omnibus appropriations bill from December 2007 set a deadline for the Environmental Protection Agency to propose a rule by September 26 that requires industrial plants to report their greenhouse gas emissions. However, the EPA has now missed this deadline, claiming to be in the "interagency review" phase. Though electric power plants must monitor their emissions under the Clean Air Act Amendments of 1990, that requirement does not apply to other facilities and does not include an emissions reporting provision. Sen. Amy Klobuchar (D-Minn.), who has introduced legislation that would establish specific requirements for a greenhouse gas reporting system at EPA, referred to EPA's failure to meet the deadline as "just another example of the Administration's refusal to act on climate change." As noted last week, Rep. Tammy Baldwin (D-Wis.) has introduced companion legislation in the House.

States and Cities

• RGGI Holds First U.S. GHG Allowance Auction. The Regional Greenhouse Gas Initiative (RGGI), a regional cap-and-trade program made up of ten northeastern states, held the nation's first auction of GHG emissions allowances for a mandatory cap-and-trade program. The auction drew 59 participants and resulted in the sale of the full allotment of 12 million allowances for a total price of $38 million. The allowances sold for $3.07, well above the auction reserve price of $1.86. While experts agree that the relatively low auction price is unlikely to drive significant emission reductions, state officials claimed that the auction was important because it demonstrated that regulators have the technical expertise to sell GHG allowances through an auction. Six of the ten RGGI states contributed allowances to the auction. The next RGGI auction will be held in December of this year and will include all ten RGGI member states.
• California Governor Takes Action on Climate; State Regulators Approve New Offset Standards. California continued its multi-pronged efforts to meet the state's goal of reducing 2020 GHG emissions to 1990 levels:
• • Gov. Schwarzenegger Signs Land-Use Bill Aimed at Reducing GHG Emissions. Gov. Arnold Schwarzenegger (R) signed land-use legislation that expands the state's efforts to address climate change. The legislation requires the state's 18 metropolitan planning organizations to reduce emissions through their urban planning decisions. Planning organizations that do not meet the bill's requirements risk losing state transportation funding, a sanction that has been included since 1990 in the federal Clean Air Act, and which seems effective as a prod, in that case, to state action to comply with federal law. The bill also included provisions authorizing the California Air Resources Board (CARB) to develop regulations to limit GHG emissions from cars and light trucks for the years 2020 and 2035.
  • Gov. Schwarzenegger Calls for Governors Climate Summit. In other action, Gov. Schwarzenegger proposed a "Governors' Global Climate Summit" (Summit) to bring together state and provincial leaders from around the world to discuss climate issues. The Governor intends to invite the governors from all 50 states, as well as provincial government officials from Australia, Canada, China, Europe, India and Mexico to the meeting. The Summit would be held in Los Angeles on Nov. 18-19, with the goal of forming "a broad international alliance" of state governments on climate issues that could impact the international climate negotiations taking place in Poznan, Poland in December.
  • Gov. Schwarzenegger Vetoes Low-Carbon Technology R&D Institute. Stating that the legislation was too restrictive and premature, Gov. Schwarzenegger vetoed legislation that would have created a $500 million low-carbon technology research and deployment institute. The University of California would have operated the "California Climate Change Institute" using funds raised partly through a fee imposed on electricity ratepayers. Gov. Schwarzenegger said the bill was premature because California has not yet finalized its climate change scoping plan under A.B. 32 and was too restrictive because it placed the institute entirely under the purview of the University of California system, ignoring the important role other elements of California's higher education system should play in developing and deploying new low-carbon technologies.
  • CARB Approves New Emission Offset Standards. CARB, the air regulatory body tasked with implementing the state's A.B. 32 climate legislation, approved two sets of standards for voluntary emissions reduction projects in the state. The new standards will regulate urban forestry sequestration projects and manure digester projects using waste management practices to reduce methane and carbon emissions. The standards were developed in cooperation with the California Climate Action Registry, a private GHG emissions registry that promotes early action emission reductions, and other stakeholders.
• Florida Reviewing Observer Status for RGGI, WCI. Florida's Action Team on Energy and Climate Change (Action Team) is considering recommending to Governor Charlie Crist (R) that the state join RGGI and the Western Climate Initiative (WCI) as an observer. The Action Team, a climate advisory group created by Gov. Crist, is meeting to prepare final recommendation for the Governor on the state's response to climate change. The recommendations, to be delivered to Gov. Crist on October 15, are intended to help the state meet its goal of reducing GHG emissions to 1990 levels by 2025 and to 80 percent below 1990 levels by 2050. The Team's analysis found that participation in either of the two regional cap-and-trade programs would allow Florida to meet its emissions goals at substantially lower cost; however, such cost savings presumably could be realized only if the state become a full member (as opposed to being only an "observer") in one or both of the programs.
• Wisconsin Signs Climate Pact With Germany. Wisconsin Governor Jim Doyle (D) signed an agreement with German officials pledging that his state will cooperate with Germany in addressing climate change and sharing advancements in low-carbon technologies. Wisconsin, which signed a similar agreement with the United Kingdom in April of this year, has a voluntary goal of obtaining 25 percent of its energy from renewable sources by 2025 and, as a member of the U.S. Midwestern Greenhouse Gas Reduction Accord, aims to reduce its emissions 60-80 percent below current levels by 2050.

Studies and Reports

• GAO Report Concludes that Absence of Federal Climate Policies is Slowing Deployment of CCS. The Government Accountability Office (GAO) report found that the "absence of a national strategy to control CO₂ emissions" provides little incentive for the owners of coal-fired power plants to invest in commercial-scale carbon capture and sequestration (CCS) technology. Rep. Ed Markey (D-MA), Chair of the House Select Committee on Energy Independence and Global Warming, requested the study, Federal Actions Will Greatly Affect the Viability of Carbon Capture and Storage as a Key Mitigation Option. The GAO also concluded that the Department of Energy had made only minor progress in lowering the cost of carbon capture for existing coal-fired facilities, in part because of an emphasis on CCS at new plants. According to the GAO, EPA also must resolve numerous statutory and regulatory issues under the Safe Drinking Water Act (SDWA), the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), and the Resource Conservation and Recovery Act (RCRA) with regard to underground injection and storage of CO₂. Overall, the GAO said that while technological barriers remain, "regulatory and legal uncertainties, including uncertainty regarding liability for CO₂ leakage" compound the problem. The report is available at: http://www.gao.gov/new.items/d081080.pdf.
• Federal Agencies Reduced Emissions Associated with Buildings, GAO Says. A GAO report found that of the 22 federal agencies reporting their energy intensity to the Department of Energy, 21 met goals established by Congress and the President. The Energy Policy Act of 2005 (EPAct 2005) directed federal agencies to reduce energy consumption per square foot by 2 percent annually from 2006 through 2015, compared to a 2003 baseline. Under a 2007 Executive Order (EO), however, federal agencies were required to reduce energy intensity by 6 percent by the end of 2007. By 2015, the agencies are required to reduce energy intensity by 30 percent below 2003 levels. The GAO noted that under the EO, agencies might not achieve an overall reduction in GHG emissions because building square footage is not taken into account. Sen. Joe Lieberman (I-CT) requested the study, which is available at: http://www.gao.gov/new.items/d08977.pdf.
• Industry Group Report Finds Uncertain Federal Climate Policy Prevents Investment in Energy Infrastructure, Posing Blackout Risk. The report, issued by the clean coal advocacy group NextGen Energy Council, concluded that at least $300 billion in new investment in the nation's electricity generation and transmission infrastructure will be necessary to meet demand by 2016. The group stated, however, that uncertainty regarding future federal energy and climate policy is preventing the necessary investment in new power plants. The group noted that alternative sources of energy, such as wind and solar, can be key contributors to electricity supply but are not always reliable during periods of peak demand due to the intermittency of wind and sun. NextGen Energy Council pointed to lawsuits over new coal and nuclear facilities and opposition to increased natural gas production as contributing to the delay in building new capacity. The study is available at: http://www.nextgenenergy.org/Portals/NextGen/studies/Nextgen_Lights_Out_Study.pdf.

International

• Japan, China, South Korea Submit Proposals for Post-Kyoto Agreement to the UN. Japan, China and South Korea joined nations from around the world that have submitted to the United Nations proposals for an international climate change treaty to succeed the Kyoto Protocol:
• • Japan Proposes Binding Targets for Major Developing Nations. In its proposal, Japan called for major developing nations, such as China and India, to accept binding numerical targets in a post-Kyoto Protocol climate agreement and for other developing nations to adhere to mandatory energy efficiency targets. The Japanese proposal also called for developed nations to commit to binding medium-term GHG targets and called for newly industrialized countries, like South Korea and Mexico, to be reclassified as developed nations. In addition, Japan proposed a range of base years for emission reduction calculations, arguing that the Kyoto Protocol's 1990 base year is unfair to Japan due to the extensive energy efficiency program the nation undertook during the 1970's and 80's.
  • China Calls for Stringent Medium- and Long-Term Targets for Developed Nations. The Chinese government submitted a proposal calling for developed nations to accept strict medium- and long-term emissions limits in a successor treaty to the Kyoto Protocol. China stated that any new international climate agreement should require all developed countries to commit to reducing their emission by 25-40 percent below 1990 levels by 2020, and by 80-95 percent by 2050. China also stated that any developed countries that are not party to the Kyoto Protocol, a group which includes the United States, should commit to emission reductions similar to those adopted by developed country parties to the Kyoto Protocol. The document included China's support for the doctrine of "common but differentiated responsibilities" for developed and developing nations (see further discussion in "Japan, Poland Reach Agreement on "Differentiation" in Post-Kyoto Treaty" below) and addressed China's position on national and international climate change mitigation efforts, adaptation, reducing emission reductions from deforestation and degradation (REDD), and clean technology transfer.
  • South Korea Seeks Voluntary International Climate Registry. Ambassador for Climate Change Rae-Kwon Chung delivered South Korea's proposal for an international registry that would integrate developing nations into the international framework for reducing GHG emissions. The South Korean proposal, similar to the Clean Development Mechanism under the Kyoto Protocol, would include the voluntary registry in the next climate treaty and would allow developing nations, such as China and India, to receive credits for verifiable emission reduction project that could be purchased by developed nations seeking to meet their own emission reduction commitments.
• Japan, Poland Reach Agreement on "Differentiation" in Post-Kyoto Treaty. Japanese Foreign Minister Hirofumi Nakasone and Polish Foreign Minister Radoslaw Sikorski signed an agreement under which the two nations agree on the need for "differentiation" between developed and developing countries in a post-Kyoto Protocol climate treaty. The two countries announced that they share the view that countries' obligations under a new climate treaty should be differentiated based on a variety of indicators, including economic development, emissions abatement capacity, share of anthropogenic (man-made) GHG emissions, and capacity to adapt to climate change impacts. The two nations also agreed to cooperate in developing an effective post-Kyoto treaty that would achieve a 50 percent reduction in global GHG emissions by 2050.
• World Bank Climate Funds Receive $6.1 Billion in Pledges from U.S., Other Developed Nations. The United States and nine other countries pledged $6.1 billion for the World Bank's Climate Investment Funds. The World Bank will uses the pledged donations to operate a pair of funds aimed at helping developing nations deploy low-carbon technologies and adapt to the impacts of climate change. The U.S. pledge totaled $2 billion, with other countries, including the United Kingdom, Australia and Japan, contributing the remaining $4.1 billion.

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