Rep. Doyle Says Waxman-Markey Will Give Away Most Permits for 'Ten to Fifteen Years'

Posted by Wonk Room Fri, 08 May 2009 15:22:00 GMT

From the Wonk Room.

Mike DoyleAccording to Rep. Mike Doyle (D-PA), corporations would be subsidized for most of their global warming pollution for more than ten years, under terms being negotiated for the climate and energy bill being drafted by the House Energy and Commerce Committee. If this is true, the Waxman-Markey American Clean Energy and Security Act would violate a pledge by President Obama to fund tax cuts for working families through carbon market revenues and runs the risk of windfall profits for covered emitters. Doyle said most of the pollution permits created for a cap-and-trade system to reduce greenhouse gases would be given away:

While the exact numbers were still in flux, Doyle said, “The majority of the permits will be allocated (given away) at first.”

Asked what percentage would be sold to utilities, manufacturers and other firms, Doyle responded, “Not a big number initially…in the first 10 to 15 years.”

The Center for American Progress “supports auctioning 100 percent of the greenhouse gas emission permits from day one under a cap-and-trade program” and using the auction revenues to assist workers and industries to make the transition to a low-carbon economy:
This would include supporting new investments in green technology and energy efficiency; sheltering American households from any economic dislocations due to shifting energy prices; alleviating higher costs for energy-intensive industries; adapting to some of the effects of global warming that we are already experiencing globally; and creating good, “green jobs” and more vibrant, healthier communities in this process. A 100 percent auction will ensure that large polluters, and not the hardworking Americans least able to foot the bill, are financing the investments necessary to carry out these vital public projects.
Without any climate policy, the public is subsidizing all the present and future costs of climate change. President Obama has previously expressed his willingness to be flexible on the pollution subsidies in order to establish a cap-and-trade system. As President Obama explained to business leaders in March, he is flexible on his campaign pledge for full auction of pollution permits:
Now, the experience of a cap-and-trade system thus far is that if you’re giving away carbon permits for free, then basically you’re not really pricing the thing and it doesn’t work, or people can game the system in so many ways that it’s not creating the incentive structures that we’re looking for. The flip side is, you’re right, if it’s so onerous that people can’t meet it, then it defeats the purpose – and politically we can’t get it done anyway.

Auction vs. Allocation: Distributing Emission Credits Under a Carbon Cap-and-Trade System

Posted by Brad Johnson Wed, 09 Apr 2008 19:30:00 GMT

Please join the Select Committee on Energy Independence and Global Warming for a Staff Briefing on distributing emission credits under a carbon cap-and-trade system. This briefing is open to all staff and the public.

  • Jason Furman—Senior Fellow at the Brookings Institution and Director of the Hamilton Project
  • James Barrett—Executive Director, Redefining Progress
  • Stephen Smith—Executive Director, Southern Alliance for Clean Energy

Competitiveness and the Future of Carbon Trading: A View from Europe

Posted by Brad Johnson Fri, 29 Feb 2008 15:00:00 GMT

The Environmental and Energy Study Institute (EESI) invites you to a briefing addressing the efficiency of a cap-and-trade approach to controlling carbon emissions. The cap-and-trade approach is often set against concerns about its possible impact on industrial competitiveness. These and related concerns led to significant excess allocation of free allowances in the first phase of the European Union’s Emissions Trading Scheme (EU ETS), which caps carbon from five major trading industrial sectors, in addition to power generation.

  • With the first phase of the EU ETS now complete and the system in its second (Kyoto) phase, what has been learned to date?
  • What is now proposed for the future of the EU ETS beyond 2012 – with the recent structure proposed for a third term, right out to 2020?
  • And what may the EU ETS experience and future plans imply for the international effort to control climate change?

The EU ETS covers 45 percent of European CO2 emissions. Concerns about the loss of industrial competitiveness and leakage of CO2 emissions remain one of the major barriers to placing more robust CO2 mitigation obligations on industrial sectors in the EU. A January 15 report by Climate Strategies, “Differentiation and Dynamics of EU ETS Industrial Competitiveness Impacts,” analyzes what would happen if Europe presses ahead with strong CO2 prices without waiting for similar policies elsewhere. The study finds that competitiveness and leakage concerns are no threat to the viability of the EU ETS overall, but can be analyzed and addressed for the individual sectors affected. Various policy instruments are available, and the best option can be selected individually for each of the affected sectors.

  • Dr. Michael Grubb, Chief Economist, Carbon Trust; Professor, Cambridge Faculty of Economics; and Contributing Author, Differentiation and Dynamics of EU ETS Industrial Competitiveness Impacts

Professor Michael Grubb is Chief Economist at the UK’s Carbon Trust, the $200 million/year public-private partnership established by the UK government and business to kick-start the UK’s transition to a low carbon economy. He combines this with academic positions at Cambridge University and Imperial College London. Prof. Grubb was also recently appointed to the UK government’s Committee on Climate Change, being established under the UK Climate Change Bill, with statutory powers to advise the UK government on future carbon reduction targets and to monitor government progress towards those targets.

This briefing is free and open to the public. No RSVP required. For more information, contact Fred Beck at [email protected] or 202-662-1892.

Sierra Club ED Takes Strong Stand on Cap-and-Trade Legislation

Posted by Brad Johnson Thu, 14 Feb 2008 19:19:00 GMT

The Sierra Club, until today, has stayed on the sidelines during the contretemps over Lieberman-Warner (S. 2191) fueled by a campaign by Friends of the Earth asking Sen. Barbara Boxer (D-Calif.) to “fix or ditch” the bill. The 1.3 million member organization has now made its position clear.

In an essay posted to Grist’s Gristmill blog this afternoon, Sierra Club executive director Carl Pope delineates clear principles for endorsing climate legislation, all of which Lieberman-Warner currently fails to satisfy:

  • Reductions in total emissions on the order of 80 percent by 2050 and 20 percent by 2020
  • All allowances should be auctioned or otherwise used to benefit the public
  • Revenue should fund “highest-value solutions”, not coal or nuclear energy
  • Ensure a just transition for workers, protect vulnerable groups, and help induce world action

He compares the current political situation to the one that led to the Clean Air Act in 1971, saying that “Maine Sen. Edmund Muskie, fearing that industry would block him on other points, acceded” to the industry insistence to grandfather old plants, and that environmentalists like the 25-year-old Pope went along.

He then responds to Sen. Barbara Boxer and advocates of pushing a climate bill this year hell or high water:
Fast-forward to present day: the carbon industries are lobbying to get a deal done this year that would give away carbon permits free of charge to existing polluters – bribing the sluggish, and slowing down innovation. And politicians are telling us that while it would be better to auction these permits and make polluters pay for putting carbon dioxide into our atmosphere, creating that market unfortunately gets in the way of the politics. We are being urged to compromise – to put a system in place quickly, even if it is the wrong system.

Hearing Looks at Implications of Auction in Cap-and-Trade

Posted by Brad Johnson Wed, 23 Jan 2008 22:51:00 GMT

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:
  1. 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)
  2. Investment in energy efficiency provides greater immediate taxpayer return than technology investment
  3. Because power generators are free from competition they don’t need any protection through free allowances
  4. A European Commission analysis found no macroeconomic negative impact of moving their cap-and-trade system to full auction
  5. 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
  6. The “virtual tax” a cap-and-trade system imposes can be greatly alleviated if revenues are used to reduce pre-existing taxes
  7. 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)
  8. 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:

  1. 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.
  2. 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:

  1. 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.
  2. 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

  1. 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.
  2. 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.
  3. 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:

  1. 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

Posted by Brad Johnson Wed, 23 Jan 2008 14:30:00 GMT

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.

  • 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

Amendment List for Lieberman-Warner Markup

Posted by Brad Johnson Tue, 04 Dec 2007 21:44:00 GMT

Tomorrow morning’s Environment and Public Works markup of the Lieberman-Warner climate bill (S. 2191) promises to be long and contentious, quite possibly to be extended to Thursday. Republicans have proposed over 150 amendments, with Sen. Craig offering 46; EE News reports they expect votes on upwards of 50 of the amendments. Democrats have submitted about 30 amendments.

Below is a summary of the amendments the senators of the committee are planning to submit, in addition to Sen. Boxer’s manager’s mark.

Major amendments include Sen. Clinton’s two amendments. The first establishes 100% auction of permits, and the second dramatically restricts CCS funding. Sanders #4 establishes an 80% target and #7 limits total offset permits. Vitter #10 restricts ownership of allowances primarily to covered entities. Carper #1 places caps on traditional air pollutants and Carper #2 bases permit giveaways to power sector on historical electricity production, not emissions. Isakson proposed various pro-nuclear amendments.

Friends of the Earth has highlighted five amendments they support.

Clinton proposed two amendments:

Amendment 1 (with Sanders) eliminates allowance giveaways Amendment 2 restricts CCS funding to those determined necessary to commercialize such technology

Sanders proposed nine amendments:

Amendment 1 tweaks the the advanced-tech vehicles incentive program Amendment 2 allows auction proceeds for zero/low carbon tech to go to domestic manufacturing of components Amendment 3 restores the subcommittee markup language that makes only CCS projects that meet an 85% reduction eligible for bonus allowances Amendment 4 changes the 2050 target to an 80% reduction Amendment 5 requires EPA to strengthen cap if global average temperature increase not likely below 2 degrees Celsius Amendment 6 replaces the 1/3 state allocation based on fossil fuel activities with energy efficiency efforts Amendment 7 limits total offsets allowed instead of 15% per entity Amendments 8 and 9 restore definition of “leakage” and “reversal” to subcommittee markup language

Carper proposed four amendments:

Amendment 1 caps pollutants such as sulfur dioxide, nitrous oxide, and ozone. Amendment 2 bases emissions permit giveaways on electricity output, not historical emissions (a change requested by PG&E). Amendment 3 supports recycling. Amendment 4 expands and modifies the transit allocation

Whitehouse proposed four amendments:

Amendments 1 and 2 deal with coastal impacts Amendment 3 proposes a tax rebate system for low- and middle-income households Amendment 4 restricts states’ use of free allowances to investment in energy efficiency

Lautenberg proposed five amendments:

Amendment 1 increases the decoupling incentive in permit allocations to states from 1% to 2% Amendment 2 calls for a study on aviations emissions Amendment 3 creates a set aside in auction revenues to fund local energy efficiency efforts Amendment 4 is intended to protect scientific integrity Amendment 5 directs 0.5% of auction proceeds for intercity rail

Barrasso proposed 11 amendments:

Amendments 2 and 3 support Wyoming and Montana coal R&D. Amendment 8 eliminates the Climate Change and National Security Fund Amendment 11 overrides the Endangered Species Act

Vitter proposed 14 amendments:

Amendments 1 and 5 allow offshore and on-land natural gas drilling, respectively Amendments 2 and 3 require studies on industry displacement Amendment 4 allows renewable fuel program credits to qualify as emissions credits Amendments 6 and 9 removes various sources from coverage Amendment 7 removes injury liability from CCS activities Amendment 8 prevents implementation if other environmental regulations are found to be adversely impacted Amendment 10 restricts permit banking to 18 months on non-covered entities (a change requested by the AFL-CIO) Amendment 11 modifies transportation fuel coverage Amendments 12-14 make “technical” corrections

Isakson proposed four amendments, three of which support nuclear energy. Amendment 3 prohibits the enactment of a cap without sufficient known technology, an amendment which failed in subcommittee.

Klobuchar proposed four amendments:

Amendment 1 establishes bonus allocations for renewable energy Amendment 2 reduces allowance giveaways to the power sector Amendment 3 establishes a RES Amendment 4 supports low-income consumer energy costs

Bond proposed eight amendments. 1-6 are designed to protect consumers and industry against economic harm through various means of limiting emissions reductions. Amendment 7 provides a liability system for carbon sequestration. Amendment 8 supports CCS technology.

Cardin proposed three amendments:

Amendment 1 funds the management activities of the federal agencies involved by selling allowances. Amendment 2 increases allowance allocations reserved for mass transit support from one to two percent. Amendment 3 directs auction proceeds to a Global Environmental Monitoring Systems Fund.

Inhofe proposed approximately 45 amendments, some of which are joke amendments (#12 “directs 20% of all auction proceeds be used to build homeless shelters for families without shelter as a result of job displacement due to this Act”). Amendments #23-#28 are pro-nuclear. Amendment #32 increases the auction percentage to 100% by 2029. Amendment #38 overrides the Massachusetts vs. EPA decision.

Craig proposed 46 amendments, many of which add other legislation into the bill. Amendments 2-10 deal with forestry provisions. Amendments 11-20 are “technical” corrections. Amendment #36 allows offshore natural gas drilling. Various amendments scattered throughout deal with nuclear power.

Climate Youth Invade Capitol

Posted by Brad Johnson Mon, 05 Nov 2007 22:29:00 GMT

© 2007 Ben Wikler
Today saw thousands of Power Shift participants coming to Capitol Hill for a day of testimony before the House Global Warming Committee, a large rally on the Capitol steps, and perhaps most importantly, hundreds of meetings with staff and legislators.

The youth activists introduced the 1Sky platform and asked for a commitment to the goals of making green jobs, strong emissions cuts, and no new coal top climate legislation priorities. They also called for 100% auction of pollution permits, and for an energy bill with the Senate 35 MPG standard, the House renewable energy standard, the Green Jobs Act, and no coal or nuclear subsidies.

Friends of the Earth Excoriates Lieberman-Warner Polluter Giveaways

Posted by Brad Johnson Tue, 30 Oct 2007 19:52:00 GMT

Erich Pica, Friends of the Earth:
The Lieberman-Warner bill will reward corporate polluters by handing them pollution permits worth almost half a trillion dollars. And that’s just one part of this bill. The bill also includes hundreds of billions of dollars of other mind-boggling giveaways. The levels of pollution-rewarding giveaways in this bill are truly obscene.

In calculating the value of emissions allowances, FoE follows the estimates of EPA’s analysis of McCain-Lieberman (Climate Stewardship and Innovation Act of 2007, S. 280) which estimated that between 2015 and 2050, the price of emissions permits would increase from an average of $14 to $78 per ton of carbon dioxide equivalent greenhouse gas emissions.

Friends of the Earth’s analysis found that the bill:
  • Provides the coal industry and other fossil fuel industries pollution permits worth $436 billion over the life of the legislation; 58 percent of this amount goes to coal (sec. 3901)
  • Returns revenue raised through auctions directly to polluters—for example, an additional $324 billion would subsidize the coal industry’s efforts to develop carbon capture and storage mechanisms (sec. 3601)
  • Directs another $522 billion of auction revenue to low or zero-emissions technologies, which could result in handouts to the nuclear power, big hydro and coal industries, which are not clean (these funds could also be directed toward important clean technologies, such as wind and solar—the legislation is not specific) (sec. 4401)

Sanders and Lautenberg State Climate Legislation Principles

Posted by Brad Johnson Thu, 18 Oct 2007 05:22:00 GMT

Sens. Bernie Sanders (I-Vt.) and Frank Lautenberg (D-NJ) yesterday released a statement of principles for judging climate change legislation. Both are members of the Senate Environment and Public Works Committee’s Subcommittee on Private Sector and Consumer Solutions to Global Warming and Wildlife Protection, representing the majority with Sen. Lieberman and Sen. Baucus; Lieberman and Warner plan to submit cap-and-trade legislation to the subcommittee today.

Earlier in the month, a group of liberal Democratic senators outlined their goals for climate change legislation, praising the Lieberman-Warner effort.

Here are the Sanders-Lautenberg principles in short:
  • Targets must be set to cap atmospheric concentration of greenhouse gases at a max of 450 PPM CO2 equivalent, latest science continually taken into acount
  • Quick transition to polluter-pays auction, with monies providing economic relief and significant investment in renewables and energy efficiency
  • No federal pre-emption of state efforts
  • Additional policies such as building and fuel standards and CCS requirements that ensure rapid deployment of clean energy technology
  • Offsets should be limited, real, verifiable, additional, permanent and enforceable
  • The Solution Must Recognize the Gravity of the Problem The scientific evidence is clear that humanity is responsible for global warming. As such, any action we take to prevent it must be bold, aggressive, and comprehensive enough to prevent the devastating effects of catastrophic climate change. Targets must be set to ensure that the global concentration of greenhouse gases rises to no more than 450 parts per million carbon dioxide equivalent. This requires a strong 2020 target to get the country shifted to a low-carbon economy and to make the long-term reductions that are needed in the fight against global warming. Additionally, we must ensure that the latest science is continually considered and informs our ongoing action.
  • Quickly Transition to Polluter Pays We must quickly transition to a polluter-pays scheme, and an auction is the most economically efficient and fair way to do so. Auctioning allowances will provide the incentive for companies to develop and deploy cutting-edge, low-carbon technologies. Additionally, the increased revenues from a full auction will undoubtedly help to provide relief to all those affected by global warming, help support our transition to a low-carbon economy, and to fund a significant increase in the country’s use of renewable and energy efficiency technologies, including solar and wind.
  • Encourage State Leadership The federal government should set the floor, not the ceiling, for action on and innovation in addressing global warming – consistent with the Clean Air Act and other major environmental laws. Over the past few years, states have stepped in to fill the unfortunate void left by a lack of federal leadership on global warming. As we now work to catch up, states must be able to continue to provide leadership and be able to pursue innovative strategies to protect their citizens from the risks of global warming.
  • Additional Policies to Include in a Cap and Trade Bill While a cap and trade bill sets the basis for the mandatory emission reductions that are needed throughout the country, additional policies are needed to ensure the rapid and often cheaper deployment of clean energy technologies. Examples of such policies include green building standards, which will reduce long-term energy costs for the occupants of the property, a requirement that any new coal plant deploy carbon capture and storage technology, and policies that offer a roadmap for reduced carbon transportation fuels.
  • Flexibility Mechanisms Must Not Result in Illusory Emission Reductions While theoretically offsets yield the same global warming benefit for less cost, in reality it is difficult, and some believe impossible, to ensure their long-term environmental integrity. As a result, the use of offsets should be strictly limited. In addition, they must be real, verifiable, additional, permanent and enforceable and should not undermine the signals to industry for technology development and deployment.

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