Senators Push For Renewable Tax Credits in Stimulus
Thirty-three senators, including several Republicans, sent a letter Friday urging leadership to include the renewable tax incentives set to expire this year in the economic stimulus package. Inclusion of the production tax credits in the 2007 energy bill failed by one vote.
We strongly support current bipartisan efforts to mitigate an economic downturn by providing direct financial relief to American families. At the same time, we believe that we must be cognizant that energy prices have been a leading cause of our current economic environment. Accordingly, we strongly believe that we must provide a timely long-term extension of clean energy and energy efficiency tax incentives that expire at the end of this year. Given record energy prices and growing demand, postponing action on these critical energy incentives will only exacerbate the problems afflicting our economy. In fact, these renewable energy and energy efficiency investments have a verifiable record of stimulating capital outlays and promoting job growth. We must ensure that this impressive record is maintained in 2008 and extend these tax credits expeditiously.
Nine of the signatories are members of the Finance Committee.
Full text of the letter is available here.
Are 1990 Levels by 2020 a Sufficient Cut?
The Lieberman-Warner cap-and-trade bill (S. 2191), which Sen. Boxer said may come to the floor before June, sets a cap of 15% below 2005 emissions levels by 2020 for covered sectors, reducing allowed emissions to the amount last seen in 1990.
Is that near-term target sufficient, in terms of the science?
As Holmes Hummel points out, the IPCC Fourth Assessment Report (AR4) paints a much different picture.
At Bali, all of the Annex I signatories to the Kyoto Protocol (every industrialized country other than the US and Turkey) agreed to this roadmap, which states in convoluted language that the Annex I countries “noted” that the AR4 indicates that global emissions “need to peak in the next 10-15 years” and be reduced “well below half of levels in 2000” by 2050 “in order to stabilize their concentrations in the atmosphere at the lowest levels assessed by the IPCC to date in its scenarios.” The countries also “recognized” that the AR4 indicates that to achieve those levels “would require Annex I Parties as a group to reduce emissions in a range of 25–40 percent below 1990 levels by 2020.”
25-40% below 1990 levels is dramatically below the Lieberman-Warner target. From AR4, these “lowest levels” of concentrations are 350-400ppm CO2.
What’s the value of achieving concentrations “at the lowest levels”? The report says that using the “best estimate” for climate sensitivity (the temperature response to greenhouse gas concentrations), reaching a stable concentration of 350-400ppm CO2 leads to 2.0-2.4 degrees C warming above pre-industrial levels. But Hummel notes that the “best estimate” is just one for which half the estimates are higher and half are lower.
Thus:
To have a 50% chance of making the 2°C stabilization target, global emissions need to peak by 2015 and Annex I countries need to be 25-40% below 1990 by 2020.As AAAS president John Holdren argued in his speech Meeting the Climate Challenge (at 38:29; see also the slide presentation):
The chance of a tipping point into truly catastrophic change grows rapidly for increases in the global average surface temperature more than about 2°C above the pre-industrial level, and again we’re already committed basically to one and a half. For a better than even chance of not exceeding 2°C above the pre-industrial level, CO2 emissions must peak globally no later than 2025 and they need to be falling steadily after that. That is a great task.From the UN Scientific Expert Group on Climate Change and Sustainable Development, an international panel of 18 top scientists (including John Holdren):
In our judgment and that of a growing number of other analysts and groups, however, increases beyond 2°C to 2.5°C above the 1750 level will entail sharply rising risks of crossing a climate “tipping point” that could lead to intolerable impacts on human well-being, in spite of all feasible attempts at adaptation.
International Climate Change Negotiation: Bali and the Path Toward a Post-2012 Climate Treaty
Sen. Menendez presiding.
Witnesses:
Panel 1- James L. Connaughton, Chairman, Council on Environmental Quality, Executive Office of the President
- Jim Lyons, Vice President for Policy and Communication, Oxfam America
- Elliot Diringer, Director of International Strategies, Pew Center on Global Climate Change
- Glen Prickett, Senior Vice President, Business and U.S. Government Relations, Conservation International
- John J. Castellani, President, Business Roundtable
EPA Admin on the Hot Seat at EPW Hearing
At today’s Committee on Environment and Public Works hearing on the EPA’s decision to deny the California waiver, EPA administrator Stephen L. Johnson defended his decision under intense questioning from the Democratic members of the EPW (the only minority member to attend was Sen. Inhofe).
Johnson repeatedly argued that because greenhouse gases are a global problem, California did not have a “unique” or “exclusive” interest; two terms which have been found to be distinct from the “compelling and extraordinary” criteria the Clean Air Act the waiver petition must meet. As NRDC advisor Fran Pavley noted in the January 10 field briefing:A 1984 waiver determination by then-EPA-Administrator William Ruckelshaus deeming that California’s plight need not be “unique” in order to be “compelling and extraordinary.”
The senators pressed Johnson hard on the long-delayed endangerment finding, a timeline for which he would not discuss. Under repeated questioning, he refused to concede that global warming represents a threat to public health, even when confronted with the CDC testimony from last October’s hearing. He agreed only that it is a “serious issue.”
Sen. Whitehouse (D-R.I.), displaying his prosecutorial background, leading Johnson into a discussion of how he overruled his staff, trying to parse Johnson’s description of a presentation of a “range of options” with the existence, if any, of a “consolidated recommendation.” In the end Johnson argued that the two terms could be synonymous.
Interestingly, Sen. Carper (D-Del.) favorably discussed Sen. Levin’s colloquy that implied that the Energy Act CAFE standards restrict EPA action on emissions regulation.
The Environmental Protection Agency's decision to deny the California waiver
Sen. Barbara Boxer continues the investigation.
WitnessesPanel I (Warming Law live-blog)
- Stephen L. Johnson, Administrator, Environmental Protection Agency
- Martin O’Malley, Governor of Maryland
- Jim Douglas, Governor of Vermont
- Edward G. Rendell, Governor of Pennsylvania
- Mike Cox, Attorney General, State of Michigan
- Doug Haaland, Director of Member Services, Assembly Republican Caucus, State of California
- David D. Doniger, Policy Director, Climate Center, Natural Resources Defense Counci
- Jeffrey R. Holmstead, Partner, Bracewell & Giuliani
Witnesses
Panel I
- Stephen L. Johnson, Administrator, Environmental Protection Agency
10:10 AM: Senator Inhofe (R-OK) is on, and he’s angry at the media for saying Johnson refused to appear at a January 10th hearing in Los Angeles. It was a field hearing, and a blatant political event, and had Johnson shown up he’d have been critical of him. Today’s hearing is also theater. Where was the outrage when the Clinton EPA was repeatedly late, given far more time?P.S. He thinks Johnson’s decision was right, in case you didn’t figure that out—carbon is “ordinary, not extraordinary” when it comes to carbon. Plus temperatures there have been DECLINING over the last 2 decades according to his chart. Also Oklahoma would lose jobs if this went into effect. 10 AM: And we’re live! Senator Boxer is speaking about this “unconscionable” decision affecting over half the population; she has “never seen such disregard and disrespect” for Congress from an agency head than in this process. Places in the record statements from CA officials, the governor of CT, and so forth. Also worth noting that Johnson’s prepared testimony, from what I can see so far, very clearly announces that EPA will be trying to have the existing lawsuit tossed and force it to have to be refiled in the DC Circuit:
“The final decision document and federal register notice are currently being prepared by agency staff. When I review and sign the decision document for publication, that will be the final agency action and that will be the time for any court challenges. As with prior waivers, I expect that decision to be a final action of national applicability, and accordingly…Federal Register’s notice of the decision will say so.”
10:12 AM: Boxer uses up the rest of her time now, and icily notes Inhofe went over his by 30 seconds. This is the first time a waiver has been denied in full; she thought the field hearing was in friendship and of benefit to the people of CA. Holds up a tray with all the tape her staff had to pull of the EPA staff documents Tuesday: this is not befitting of treatment of Congress, in the greatest nation on earth.
10:18 AM: Senator Lieberman (I-CT) is up, to be followed by Senator Carper (D-DE). No Republicans besides Inhofe are present. Lieberman state leadership’s benefits, and quotes Bob Dylan’s “The Times They Are A Changin’” regarding the federal government standing in the road. This is actually how federalism is supposed to work—.laboratories of democracy! There is no patchwork; CA analysis refutes Johnson’s assertions that federal fuel economy goes further; denial letter’s statement on lacking “compelling and extraordinary conditions” is bunk in light of Mass. v. EPA.
Carper cites the same decision re: EPA’s duty to harmonize vehicle GHG efforts with the DOT standards, not shirk it! Thinks inconsistencies/patchwork being possible is a real concern there, but EPA has done squat to address and act; instead made it an excuse for inaction, despite the Supreme Court knocking down the same excuses. Also, we need a national GHG cap-and-trade program, cites state and regional leadership. Congress must lead and not preempt, and then states won’t have to do the job for them.
10:30 AM: Lautenberg (D-NJ) says this is a step backward in a global sense, chose to protect industry over environment. Glad states are suing to overturn; he and Boxer will soon introduce legislation to do the same thing. Cardin (D-MD) reiterates public health impact, subversion of EPA’s historic role, and Lieberman’s points—this is an “affront to federalism.” He’s glad to press ahead with legislation—federal agencies should press ahead without legislative interference, but when they ignore own scientists. Congress needs to step in.
10:32 Sanders It was only last year that this administration admitted that global warming was a reality. As others have said, if you can’t do the right thing, at least get out of the way. We are an outdoor state. We want our kids to live in a world without flood, drought. The law in my mind could not be more clear. California waited on a decision for its waiver for two years. No decision document, just a press release. Unprecedented. Sen. Boxer, I’m proud to join you in your legislation.
10:35 Klobuchar To think that the Supreme Court, which is not a radically liberal court, would say that the EPA can regulate carbon dioxide as a greenhouse gas. You’d think that the EPA would have been able to do that on its own. I question the inference that the increase in the CAFE standards obviates the need for the California waiver. The U.S. District Court found that the California waiver and increased CAFE standards overlap but do not conflict.
10:39 Whitehouse I’d like to say three things. The state of Rhode Island is one of the waiver states. I’m extremely glad Chairman Boxer has held this hearing. It’s apparent that the EPA has a pattern of ignore the science, ignore the law, deliver the goods. The directors of health of the states are unanimous on this subject. For some reason we seem unable to unwind ourselves from the axle here.
10:44 Stephen Johnson: In light of the international nature of the problem, I concluded that California does not have a unique and compelling interest.
10:47 Boxer Do you understand that many other states are being impacted?
Johnson Under the law I only consider California.
Boxer Your mission is to protect the health of Americans and the environment. Many of us believe you are going against your mission. Let’s talk about a process that you promised this committee in your nomination hearings that your guiding principles would be that your decisions would be guided by the best available science and the process would be open and transparent. Let me show you the docements you sent us.
Three pages that have been completely redacted.
Is this your notion of an open and transparent way to make decisions?
Johnson When the agency is in litigation, we protect with attorney-client privilege documents so we can defend ourselves. I decided to waive my privilege to let your staff see documents. I followed the law.
Boxer You sending us blank documents, you’re so magnanimous you gave us documents covered with tape. You have no privilege vis-a-vis the Congress. You cannot assert privilege against Congress. They’re not classified, they’re not confidential. This is just the beginning of information.
I have to say, sir, when you look at was in the taped-over documents, you’re walking the American taxpayers into a lawsuit you’re going to lose.
10:54 Inhofe As you’re aware the EPA documents that are confidential and litigation-sensitive were released. Do you think this will have a chiling effect?
Johnson Yes, I was disappointed.
Inhofe Was this a staff decision or your decision to make?
Johnson I had a wide range of legally defensible options presented to me, and I made the decision.
Inhofe This applies to other greenhouse gases similarly?
Johnson Yes. They are global in nature. Therein lies the problem. It is not unique, it is not exclusive to California.
Inhofe Does the Clean Air Act require the EPA to grant waiver petitions?
Johnson No, it does not require me to rubber-stamp waivers.
Inhofe Are you the first administrator to consult with the administration, the Justice Department?
Johnson I have routine conversations with members of the administration, I think that’s good government.
Inhofe Sierra Research, NERA. They conclude the California standards would result in decades of worse air quality.
Johnson There were certainly lots of comments that were duly noted.
Johnson As you correctly point out, this is the first waiver of its type. In my opinion based on the facts presented to me, California doesn’t meet one of the criteria.
Inhofe Isn’t a national solution the best way to deal with climate change?
Johnson I believe so.
11 AM Lieberman I’d like to pick up on your preference for a national standard. I want to focus in. Last year after the Supreme Court decision the goal was set to set national transportation emission standards. You had the personal goal of issuing those standards by end of 2007. Obviously it’s 2008. Do you still intend to issue national emissions standards, and when?
Johnson We are still working on fuel and emissions standards. The new energy act impacts and provides direction. It doesn’t relieve me of responsibilities. We’re working our way through what the legislation directs us to do. So that’s all being worked on. I don’t have at this point a date. I’m certainly aware of the dates in the legislation. It’s our intent to meet those dates.
Lieberman I appreciate your answer because I believe the administration’s pledge to release standards are quite distinct from CAFE. I’m glad you’re working on it. I hope you’ll come to a conclusion soon. I want to ask you that since the EPA has already taken a fair amount of time on this, when do you expect the notice to appear in the Federal Register?
Johnson The end of February.
Lieberman In light of the recent reports by IPCC and others, on what scientific grounds did you conclude the threats to California are not compelling and extraordinary?
Johnson The documents will explain the full reasoning. Again, as we’ve discussed, it’s not unique, it’s not exclusive to California. Certainly IPCC and a number of other studies are very important.
11:06 Carper There was a colloquy with Levin and Inouye about NITSA and EPA.
Johnson Congratulations to all of you to passing the legislation. It is a significant accomplishment. Two points I’d like to make. As I was deliberating on the California waiver decision, you in Congress were debating whether to pass the Energy Act, the colloquy focused on Section 209. I didn’t know what you were going to do. Section 209 was not changed. I have to make the decision based on the law of the land of the day. Our charge is to develop regulations to implement what Congress has passed.
Carper If we’re going to pass greenhouse gas legislation at the federal level, EPA could hasten that by dealing with three issues. Compiling a greenhouse registry, safety standards for CO2 sequestration, verifying offsets.
Johnson Our staff are working on the first; second, we are now drafting a regulation which you should see this summer. We’re working with the Department of Agriculture on the third.
11:13 Lautenberg Do you believe global warming is a serious problem to human health?
Johnson It’s a serious problem. One of the issues that’s facing me is the issue of endangerment under the Clean Air Act.
Lautenberg Is global warming dangerous to human health?
Johnson The agency has not made a decision on endangerment.
Lautenberg If there was no federal law that gave you a route to follow, would your conscience have anything to say?
Johnson My conscience is guided by what the law says.
Lautenberg Do you think global warming is a hoax or a serious problem?
Johnson It’s a serious problem.
Lautenberg You say the problem is national and that regional efforts have no value, and that’s strictly dictated by law.
Johnson In the context of the California waiver I have to make decision based on particular criteria.
Lautenberg I’m going to interpret what you’re not saying and say that you would have made the same decision no matter what the law directs. . .
Johnson First of all any conversations I have with the President are between him and myself. I’m satisfied, confident, and comfortable with the decision.
11:21 Cardin How much of this decision was politically motivated?
Johnson I think it’s good government to consider comments from the public, including your committee. I made an independent decision. Ultimately it’s a judgment decision by me. I feel it’s a right decision.
Cardin How much was it based on technical information, how much was it based on personal viewpoints?
Johnson It’s a global problem, requiring a global solution, at least a national solution. I stand by my decision.
11:26 Sanders Just as a human being, do you think the impact of flooding, drought, malaria, wildfires are a serious health issue?
Johnson I consider myself a human being. Those are important problems.
11:32 Klobuchar Please discuss the endangerment ruling process.
Johnson We are working through a very deliberate process on the Supreme Court rule.
Klobuchar The CDC redacted testimony said that increased heat waves would increase mortality in the United States. Diseases, lung damage; another agency is saying it’s a public health risk.
Johnson I have not said whether we are or are not using it.
Klobuchar I know that as one of the rationales for denying would create a “patchwork” system. My understanding is that there would be a California standard or a national standard.
Johnson I tried to make it clear that the Clean Air Act criteria guided my decision.
Klobuchar I want to make clear it would be two standards.
Johnson It would be more like a checkerboard.
11:38 Whitehouse Did you direct the process?
Johnson The process was the standard one.
Whitehouse Did the staff briefings include staff recommendations?
Johnson Yes.
Whitehouse How were the recommendations presented?
Johnson They presented a range of legally defensible options, with pros and cons.
Whitehouse Is it customary for the staff to consolidate a recommendation before they come to the director?
Johnson The staff identify the available options and identify the pros and cons.
Whitehouse My understanding is there was an options analysis, a recommendation, and then your decision.
Johnson I would add a step of what past practices and foundational briefing.
Whitehouse With respect to the recommendation phase, it is customary for you to have the various elements of the agency to try to come up with a consolidated recommendation?
Johnson What is typical for me is that as the staff brief the options I have discussions with the policy advisors.
Whitehouse Is the recommendation just you asking people and they may or may not talk?
Johnson No, there’s usually either a consolidated recommendation or a range of options.
Whitehouse Why wouldn’t you always get a consolidated recommendation?
Johnson It’s not a popular vote.
11:45 Boxer I think the refusal of the EPA administrator refusal to state that global warming is a threat to human health is at best embarassing and at worst dangerous. You have stated that we told the American people what are in these documents. When can we expect the rest of the documents?
Johnson I’d ask you respect the privilege.
Boxer I’m asking a different question. My responsibility is to my state and this country. When can this committee expect the rest of the documents?
Johnson I believe February 15th.
Boxer Will they include communications with the White House?
Johnson I’ll have to get back to you on that.
Boxer I’m trying to avoid subpoenas. You said you were briefed on the law. This is what it says: the Act requires the waiver to be granted unless California has acted capriciously. We hope you won’t send the documents over with tape. These documents are important for the people of this country to see. It’s ridiculous, it’s a waste of time.
11:50 Inhofe How can California meet the consistency requirement since there are no federal greenhouse gas standards? When you talk about whether anthropogenic gases are the major cause, the science is not settled. I used the names of very authentic scientists, leaders, Claude Allegre. He said clearly the science isn’t there. David Bellamy in UK as well. There are several who showed up in Indonesia. I was the only skunk in the picnic in Milan. We have the 400 scientists, all of whom take issue with the fact that there is consensus. It is not settled. More and more scientists are coming and questioning it. You were asked if you agree with the IPCC. Do you agree with the assessment they cut the sea level rise in half?
Johnson That’s my understanding.
11:54 Carper I’d like to go back to my question about a mandatory registry.
Johnson The appropriations language directed a draft rule not later than 9 months after enactment and a final rule not later than 18 months. Our intent is to meet that.
Carper What is the status of the EPA’s proceedings to meet the Supreme Court demand?
Johnson We are working to develop our full package. As we propose draft regulations for both vehicles as well as fuels our finding of endangerment would be part of that. I don’t have a date.
Carper Are you in the position to provide the committee with documents?
Johnson We’re in the internal deliberative process. After I’ve made the decision I would be happy to.
Carper What are your views on the nationwide CO2 legislation we’re working on?
Johnson We are in the process of finishing up our analysis of Lieberman-Warner.
Carper I hope it will be a supportive analysis and timely. I believe we will bring L-W to the floor in early June.
Boxer I believe it may be earlier than that.
11:59 Lautenberg The California waiver decision took two years.
Johnson Only once the Supreme Court made the ruling it was within two weeks I began the process.
12:03 Cardin My question to you is that I hope we’ve learned from this experience that delay is unacceptable. You can do things better.
12:04 Sanders My understanding is that a technical document would usually be prepared and be ready for distribution before the decision is announced. Was it just a coincidence that you announced your decision at a press event on the evening signed the energy bill? It seems like a strange time to make that announcement.
Sanders Was it a coincidence?
Johnson Let me explain the decision. That afternoon the press office began receiving calls that papers had been leaked that would allow things to be misinterpreted. So I made the decision to make the announcement.
Sanders The average American would find it strange that the head of the agency would make this announcement in a press release on the evening of the signing.
Johnson It was a unique situation.
Sanders It was a coincidence?
Johnson I would be happy to explain the situation further for the record.
Sanders Are you able to understand why the average American would be dubious? The circumstances had nothing to do with the signing of the energy bill?
Johnson As I tried to say, I was aware Congress was debating the issue. I wanted to take advantage of the knowledge that the President did indeed sign the legislation.
12:09 Klobuchar So it wasn’t unrelated.
Johnson The decision to make the announcement that day was based on leaks. I had already made my announcement to the staff.
Klobuchar This is the first waiver denied under the Act.
Johnson That’s correct. This is the first one dealing with greenhouse gases.
Klobuchar You’ve backed off the patchwork. I want to make clear that the California standards don’t require the emissions reductions come from fuel efficiency alone. At what do we see extraordinary conditions?
Johnson As you’re pointing out, it’s not exclusive, it’s not unique to California. It is not exclusive. There is not a compelling need for that state standard.
12:15 PM Whitehouse You keep saying “In my judgment”. The legislative history says the administrator is not to substitute his judgment for the state.
Johnson It just takes one of the criteria not being met. In my mind this is requiring me to make a judgment.
Whitehouse You said there is to be typical four there to be four steps: a briefing, options analysis, consolidated recommendation, then your decision.
Johnson Let me add to that.
Whitehouse I don’t want you to slow walk that.
Johnson You missed evaluating the comments.
Whitehouse Was there a consolidated recommendation?
Johnson I don’t recall that there was one on this. Sometimes there’s a consolidated recommendation, sometimes there’s not.
Whitehouse You’re under oath. You just agreed with me the process is typical, then you said there’s not.
Johnson Sometimes there are consolidated recommendations in the form of a list of options, sometimes the consolidated recommendation is just one. I leave it up to the head of the particular office.
Whitehouse Isn’t it a matter of basic discipline to get to a consolidated recommendation?
Johnson Sometimes it’s one option, sometimes it’s three options, sometimes it’s five.
Whitehouse So the options analysis and consolidated recommendation are the same thing now? It is standard procedure to come to a consolidated recommendation. Now it seems you have manipulated the process. I’m pretty familiar with administrative law.
12:24 Boxer You said there was no connection between the President’s signing of the Energy Bill and timing of your announcement. Your announcement started with praise for the signing. Let me just say as a human being to a human being, when you say it had nothing to do with it, your entire rationale was based on this. In your statement you said there would be a patchwork, and Sen. Klobuchar corrected you.
12:27 Sanders For your good, because you are under oath. There is concern about the politicization about many aspects of the Bush administration, including the EPA. I asked if it was just a coincidence. You said there were other reasons. Sen. Boxer just made public your statement, which says it begins with stating “President Bush signed the Energy Act…” The beginning of your statement in terms with why you rejected the waiver has everything to do with the President signing the bill.
Johnson I was deliberating on Section 209 and you all were deliberating on whether you were going to change that section. When it became clear that you did not change the section then it was clear I could make the decision.
Sanders You didn’t mention the leaks in your public release.
Johnson I certainly appreciate your recommendation. It’s factually correct that the bill was passed.
12:32 Boxer I don’t deny your veracity that there were leaks. One other question about dates. When will you have the decision document ready?
Johnson As I said to Sen. Carper, we expect the end of February.
Boxer The witness is excused.
Hearing Looks at Implications of Auction in Cap-and-Trade
At this morning’s House Global Warming Committee hearing on Auctions and Revenue Recycling in Cap and Trade, the witnesses presented some of the first Congressional testimony on the economic implications of a greenhouse-emissions cap and trade system such as the one proposed in Lieberman-Warner (S. 2191).
A summary of some of the analysis presented in the written testimony:- Power generators will raise prices the same whether allowances are given away for free or are auctioned, because the price is set by the limitation in supply (the cap)
- Investment in energy efficiency provides greater immediate taxpayer return than technology investment
- Because power generators are free from competition they don’t need any protection through free allowances
- A European Commission analysis found no macroeconomic negative impact of moving their cap-and-trade system to full auction
- Free allocation to load-serving entities is a subsidy to electricity consumption, which leads to an increase in allowance prices and requiring greater decreases from other sectors
- The “virtual tax” a cap-and-trade system imposes can be greatly alleviated if revenues are used to reduce pre-existing taxes
- To fully offset the costs on the electricity sector through free allocation of allowances would cost the government 2.5 to ten times the value of the economic harm to the emitters, depending on whether the free allowances are narrowly targeted (15% of sector allowances) or nationally distributed (65% of sector allowances)
- To fully offset the costs on the poorest 20% of the American public takes about 14% of total revenues of a 100% auction system
Excerpts from the testimony related to the above points are below the jump.
Ian Bowles, Mass. Secretary of Energy & Environmental Affairs:
It is tempting to think that, if you make generators pay for the emissions they produce, it will drive electricity prices up, but if you give allowances away for free, it won’t. But it’s not true. The price impact is the same either way. . . As power generators determine the price at which it becomes economic for their plants to produce power, they have to decide whether to expend allowances in order to generate electricity, save those allowances for a time when electricity prices are higher, or sell allowances to other power producers who need to meet their compliance obligations. In any of these three scenarios, the market price of allowances becomes a component of the price of electricity.
While it is important that a federal program also give substantial new financial incentives to develop new clean energy technologies, energy efficiency gives the greatest near term return for the ratepayers.
Peter Zapfel, European Commission Directorate General for Environment:
Because the power generation sector is not exposed to competition from outside the EU, it can fully pass on the value of carbon allowances. Full auctioning should therefore be the rule from 2013 onwards for the power sector.
In order to underpin the energy and climate package of 23 January 2008 the Commission undertook a comprehensive (regulatory) impact assessment including an economic analysis of the effects of auctioning compared to free allocation of allowances. This analysis concluded that the full auctioning of allowances has no negative macroeconomic impact and is in fact preferable to other distribution methods in terms of efficiency of the emissions trading system and the elimination of any undesirable distributional effects of free allocation.
Dallas Burtraw, Senior Fellow, Resources for the Future
Unfortunately, free allocation to load serving entities comes with an important efficiency cost. When electricity customers do not see the increase in retail electricity prices they do not have the incentive to reduce electricity consumption. In the example we modeled it leads to a 15 percent increase in allowance price under the cap and trade program and requires greater emission reductions for the rest of the economy.. . Essentially, the free allocation to electricity customers is a subsidy to electricity consumption that is not received by users of natural gas or transportation fuels or by industry or commerce, except to the degree that they consume electricity.
Like any new regulation, climate policy imposes costs on households and firms and that cost acts like a virtual tax, reducing the real wage of workers . . . one of the most important findings in environmental economics and public finance in the last fifteen years is the recognition that the use of revenue raised through an auction (or an emissions tax), if dedicated to reducing other pre-existing taxes, can reduce this cost substantially. This so-called revenue recycling would have truly dramatic efficiency advantages compared to free distribution.
A key finding is that compensation has a significant opportunity cost, especially if the goal is to achieve full compensation. If the free allocation to achieve compensation is implemented at the federal level, we find the incremental cost of compensating for the last increment of harm in the electricity sector would cost ten times that amount in allowance value. Implemented at the regional/state level, that ratio falls, requiring the use of allowance value equal to about 4.5 times the harm.
Robert Greenstein, Executive Director of Center on Budget and Policy Priorities:
We estimate that a program designed according to the principles laid out later in this testimony, which would fully offset the impact on the poorest 20 percent of people and also provide some relief to many hard-pressed working families in the next 20 percent, could be fully funded with approximately 14 percent of the resources that would be generated by auctioning off all the allowances in a cap-and-trade system.
John Podesta, President and Chief Executive Officer, Center for American Progress, said that the federal government should pay for CCS investment:
Any cap and trade bill should also include an emission performance standard for all new coal-fired facilities equivalent to the best available carbon capture-and-store technology, and the provision of federal funds to help offset additional costs of implementing carbon capture-and-storage technology. Revenues from allowance auctions should pay for these incentives.
Cap, Auction, and Trade: Auctions and Revenue Recycling Under Carbon Cap and Trade
Just a few hours after its release in Europe, a new global warming pollution auction-and-trade system will arrive on American soil tomorrow morning at a hearing before the Select Committee on Energy Independence and Global Warming. A leading figure in the European Commission’s carbon market will appear before the Select Committee to discuss how the European Union has shifted from a pollution trading scheme where credits are given out for free to a system where companies must bid on credits.
“Because this administration has refused to push forward on global warming policy, we must look to the E.U. and other countries for lessons on global warming policy,” said Rep. Edward J. Markey (D-Mass.), Chairman of the Select Committee. “Europe has learned some hard lessons which can help America avoid policy pitfalls and reduce carbon dioxide emissions sooner and more effectively.”
The hearing will examine the role of auction or allocation systems for global warming emissions credits in a cap-and-trade climate bill. Along with several prominent witnesses from the United States, Peter Zapfel, Coordinator for Carbon Markets and Energy Policy, European Commission – Environment Directorate General, will cover these new developments in the E.U.
Witnesses- Peter Zapfel, Coordinator for Carbon Markets and Energy Policy, European Commission – Environment Directorate General
- Hon. Ian Bowles, Secretary of Energy and Environmental Affairs, Commonwealth of Massachusetts
- Dallas Burtraw, Senior Fellow, Resources for the Future
- John Podesta, President and Chief Executive Officer, Center for American Progress
- Robert Greenstein, Executive Director, Center on Budget Policies and Priorities
Rep. Markey Introduces Bill to Block Alaska Drilling Pending Polar Bear Decision
Rep. Edward Markey (D-Mass.) has released the text of legislation which, if enacted, would forbid the sale of off-shore drilling rights in the Chukchi Sea, which includes polar bear habitat, until the U.S. Fish and Wildlife Service makes its long-delayed determination whether the polar bear is endangered and what its critical habitat is.
At today’s hearing, FWS director Dale Hill made it clear that he recognizes that the polar bear is definitely losing habitat and has been delaying his determination to make it “clear”; he also stated, “We need to do something about climate change starting yesterday.”
Minerals Management Service Director Randall Luthi admitted that if the lease auction goes forward, it would be impossible to revoke the leases even if they are found to be in conflict with a later endangerment listing of the polar bear.
Polluters Believe This May Be the Best Year for Climate Legislation
Representatives of the coal, oil, and gas lobby met yesterday at the United States Energy Association’s “State of the Energy Industry” conference at the National Press Club in Washington. They agreed that Lieberman-Warner may be the best legislation they can hope for, especially if issues like polar bear habitat set the standard for legislation.
Katherine Ling reports for E&E Daily that David Parker, president and CEO of the American Gas Association, said “Who would you rather have writing a bill in the Senate? I might guess it may set a tone for business to fully work with the Senate this year.” He continued that “the polar bear habitat is going to really drive this [climate change] debate. We all have a big education job to do and I think we need to do it collectively.”
Bill Scher has further commentary at Blog for Our Future.
While most panelists agreed it was not likely that a full bill capping greenhouse gas emissions would pass this session, they said a great deal could be accomplished in laying the groundwork this year.Tom Kuhn, president and CEO of Edison Electric Institute, predicted there will be a floor vote in the Senate this year on a climate bill. “No matter what happens on those votes, that will set the marker for what we do in the future,” he said, especially if there is White House involvement.
David Parker, president and CEO of the American Gas Association, agreed with Kuhn. Despite a general disagreement the energy industries have with the climate bill sponsored by Sens. Joe Lieberman (I-Conn.) and John Warner (R-Va.), he said, future legislation could be even harder on the industry.
“Warner is retiring this year, and then the question is, ‘Who comes into play?’” Parker said. Potentially, Sens. Barbara Boxer (D-Calif.) and Bernie Sanders (I-Vt.) – who both favor greater emission limits than those in the Lieberman-Warner bill – could lead the next attempt to pass climate change legislation under a Democratic president, he said.
“Who would you rather have writing a bill in the Senate? I might guess it may set a tone for business to fully work with the Senate this year,” he said.
Achieving workable legislation will require educating policymakers and the public a great deal more on energy markets, panelists said.
Parker said he was worried that “the polar bear habitat is going to really drive this [climate change] debate. We all have a big education job to do and I think we need to do it collectively.”