Climate Bill Details Garner Praise, Spill Leaves Bill in Limbo

Last month Sens. John Kerry and Joe Lieberman unveiled the 987-page climate change bill they have been working on for seven months, and while the bill has the support of numerous business leaders and environmental groups, politicians may prove harder to court.

The legislation adopts the same targets as did the House bill passed last year—reductions of greenhouse gas emissions by 17 percent by 2020 and over 80 percent by 2050. Its central innovation is that it creates separate regulations for transportation, utilities and manufacturing.

The ongoing spill in the Gulf of Mexico may make it even more difficult for the bill to garner support. Drilling provisions—originally included to help court moderate Democrats and Republicans—have been altered somewhat in response to the disaster, with provisions that allow states to opt out of federal drilling within 75 miles of their shores or to pass laws opposing specific projects if negative effects can be demonstrated.

States allowing drilling, on the other hand, would retain 37.5 percent of the revenue generated by such projects. Currently the federal government collects 100 percent of that revenue.

Sen. Lindsey Graham (R-S.C.) had been involved in developing the legislation but withdrew his support recently, saying in a statement that "The problems created by the historic oil spill in the Gulf, along with the uncertainty of immigration politics, have made it extremely difficult for transformational legislation in the area of energy and climate to garner bipartisan support at this time."

Emissions restrictions would be phased in starting in 2013 for power plants and transportation fuels, with manufacturing rules taking effect in 2016.

The bill includes a cap-and-trade market fitted with a “price collar” of $26 per ton on carbon allowances as well as an allowance reserve. The system is designed to minimize the cost of compliance for industry, but some analysts believe it could encourage emitters to rely on these mechanisms to keep prices in check rather than significantly alter their practices.

Refiners will be allowed to pass the cost of allowances on to consumers at the pump—a move that is designed to help achieve emissions reductions in the transportation sector. Point Carbon Research estimates that this practice will result in an average cost increase of less than 25 cents per gallon.

A $6 billion annual subsidy is designed to improve transportation sector efficiency and reduce oil consumption, including tax credits designed to encourage the conversion of trucks and heavy-duty fleets to natural gas.

Local utilities would be granted allowances to help offset costs to customers.

The bill also includes up to $2 billion annually in incentives for the development of “clean coal” technology and a $5 billion expansion of a clean energy manufacturing tax credit that encourages the development of cleaner vehicles and other manufacturing efficiencies.

It supports the nuclear industry by means of tax and construction credits, a loan guarantee program, and expedited licensing procedures for the construction and operation of nuclear facilities.

APPA praised elements of the bill but said it still did not do enough to protect consumers from the price increases that will be associated with compliance in every sector, suggesting the $26 price cap on carbon was still too high. The organization also criticized the bill for not pre-empting the regulation of greenhouse gases under the Clean Air Act and for allocating more emissions allowances to private generators than to local utilities.

The bill calls for new offshore drilling in the Atlantic Ocean and the northern waters of Alaska, and would lift a drilling ban in the oil-rich eastern Gulf of Mexico, 125 miles from Florida beaches.

With the oil spill dominating the news, the bill’s prospects for support are even more uncertain than they were, falling not only along party lines but also reflecting the nation’s geographical divisions.

Return to June 2010 Western Energy News

To sponsor Western Energy News, please contact WEI at 503 231-1994.