Sweeping climate-energy bill clears first big hurdle in Congress

The compromise measure would mandate reductions in greenhouse-gas emissions and require greater use of renewable energy. The Senate could be a major stumbling block.

Scott J. Ferrell/Congressional Quarterly/Newscom
Rep. Henry Waxman (r.), Chair of the House Energy and Commerce Committee talks with Rep. Rick Boucher on Thursday during markup of a climate change bill, the American Clean Energy and Security Act of 2009.

New climate-energy legislation approved by a key congressional committee marks what some are calling the most significant tipping point in US energy policy in 30 years, thrusting the economy toward renewable energy and away from fossil fuels.

The American Climate and Energy Act of 2009 (ACES) bill, approved by the House Energy and Commerce Committee Thursday evening, is the second major step this week by US political leaders to boost energy efficiency and curb global climate change.

The first step came a few days ago when President Obama toughened vehicle tailpipe standards. If the president is able to sign a climate-energy bill ahead of December climate talks in Copenhagen, as some suggest is now possible, the two measures would give the US – the world’s largest greenhouse-gas emitter per capita – far more clout in shaping a multinational response to the climate problem.

“This is a historic breakthrough for clean energy and the environment,” says Dan Lashof, climate center director for the Natural Resources Defense Council (NRDC). “It’s now absolutely feasible to get this bill enacted into law this year – before Copenhagen – and to give the US renewed credibility going into those talks.”

Energy and climate change linked

Because stemming carbon dioxide (CO2) emissions from burning fossil fuels is central to the climate conundrum, bill architects Reps. Henry Waxman (D) of California and Ed Markey (D) of Massachusetts combined the twin puzzles of energy and climate into one piece of legislation.

Some see it as a recipe for disaster – too big for Capitol Hill to swallow. But it appears the 946-page bill may achieve safe passage this year. If it does, it may be because Mr. Waxman spent weeks behind closed doors compromising and doling out valuable emissions allowances to industry and consumers to soften the blow of higher electricity rates.

Some environmental groups, including Greenpeace, Friends of the Earth, and others say there has been one compromise too many.

“We’re disappointed we can’t support the bill,” says Nick Berning, a spokesman for Friends of the Earth. “There just was not enough in it to reduce pollution while billions were given to big oil, dirty coal.”

Yet others read the compromises as adding political strength, paving the way for tougher future measures.

“This vote showed [that] the nation has reached a major tipping point on energy and climate,” says Kevin Book, managing director of ClearView Energy Partners, an energy research and consulting firm. “Historically, the problem has always been getting this kind of environmental bill through Congress the first time. After that, the laws just ratchet tighter.”

But some business groups criticized the bill. Its "inequitable approach, by itself, will produce additional unemployment," warned the American Petroleum Institute in a statement. "While the bill has laudable environmental and economic goals, its inequitable system of allocations remains intact," API said, "and if enacted would have a disproportionate adverse impact on consumers, businesses, and producers of gasoline, diesel fuel, jet fuel, crude oil and natural gas."

Democrats beat back GOP amendments

Despite an onslaught of Republican amendments, the Democratic bill won broad support from Democrats in various regions of the US – including those from coal-reliant states in the Midwest and the South. The Republican alternative, which proposed more nuclear and hydropower, was handily defeated.

The ACES bill focuses on smokestacks that pump out 85 percent of US greenhouse emissions. It follows a three-way path to shift the nation toward a low-carbon economy: boosting energy efficiency, developing renewable energy sources like solar and wind, and curbing greenhouse-gas emissions (GHGs).

Together these are intended to cut US emissions to 17 percent below 2005 levels by 2020 – a major compromise from the previously suggested 20 percent cut. Still, it would launch America down a 30-year path of continual emissions cuts – reaching 83 percent under 2005 levels by 2050 – to help avoid the worst effects of global warming. The bill is also intended to jump-start a US push into energy-efficient technologies, grow green jobs, and advance national security by shifting the US vehicle fleet toward use of domestic electricity instead of imported oil.

'Cap-and-trade' the key

To do that, the bill’s main mechanism to limit emissions is a market-based “cap-and-trade” system for industrial CO2 emitters. Beginning in 2012, a national “cap” – or total maximum CO2 emissions – would be set and then ratcheted downward annually. Electric utilities, cement and steel plants, and others would need one “allowance” for every ton of CO2 sent up smokestacks. Power plants emit about 2.4 billion tons of CO2 annually – nearly 40 percent of total US greenhouse-gas emissions.

In addition to GHG limits, the bill combines a national renewable energy standard combined with an energy efficiency standard. By 2020, US electric utilities would be required to get 20 percent of their power from a combination of renewable sources (15 percent) and energy efficiency (5 percent).

But in a major compromise, governors would be permitted to petition to increase the energy-efficiency share up to 8 percent, with just 12 percent coming from renewables. Waxman accepted the lesser standard for renewables to win support of Democratic lawmakers from states where coal-fired power plants predominate, Mr. Book says.

Cost has been a major debating point. Rep. Joe Barton (R) of Texas, in a letter to Waxman this week, warned that the bill will “impact every person, every family, and every business” to the tune of “trillions of dollars.”

Others say the cost will be far less. Abatement costs would reach $22 billion in 2015, rising to $31 billion in 2020 and then up to $64 billion in 2030, the Environmental Protection Agency estimated last month. This would slightly curtail average annual US economic growth from 2.71 percent to 2.69 percent. The cost per household is estimated at $98 to $140 per year, the EPA says, although Republican critics say it would be far higher.

The EPA looked at the numbers again this week, concluding that final costs will be reduced by the compromise to achieve a 17 percent (instead of 20 percent) emissions cut by 2020. That change, EPA said in a memorandum, would “likely result in lower allowance prices, a smaller impact on energy bills, and a smaller impact on household consumption” – although it would mean “a somewhat higher use of coal in 2020.”

Costs tied to economic growth

Others note that overall costs will be minuscule relative to the size of the economy. By the time abatement costs reach $64 billion a year in 2030, the US economy will have grown more than $9 trillion – about 150 times the amount spent on CO2 abatement, NRDC economists say.

What happens to the valuable allowances in the cap-and-trade program – worth more than $600 billion, ClearView estimates – is a critical question. President Obama has long proposed auctioning all of the emissions allowances to avoid a windfall for polluters, as occurred in Europe.

But to win enough congressional support, the bill doles out some 85 percent of the allowances for free (with just 15 percent auctioned), ClearView calculates. The point of most free allowances is to blunt the impact of higher energy prices on households and energy-intensive industries.

For instance, in 2012 when the cap kicks in, electric utilities would get 35 percent of allowances – though the bill requires utilities to pass the benefit along to consumers. By 2020, however, the percentage of auctioned allowances would rise to 90 percent.

“The vast majority of these allowances are being distributed for purposes that make sense,” says NRDC’s Mr. Lashof. “The allowances going to electric utilities require those companies to use their value to benefit customers, and the result of that, in our analysis, is that consumer energy bills will actually decline under this bill.”

Indeed, 15 percent of the value of allowances would go to low- and moderate-income households to defray higher energy costs. But energy-intensive industries such as steel, cement, pulp, and paper would also get 2 percent of the allowances to soften the blow from competition by foreign rivals that don't have emissions requirements. Refineries would get 2 percent of allowances.

If the ACES bill passes the House, as Lashof and others predict, all eyes will fall on the Senate, where companion legislation is under way. Whether Republicans will be able to filibuster there is an open question.

“This puts a lot of pressure on the Senate and makes it much more likely that the president will have a climate-energy bill to sign this year,” says Book of ClearView.

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