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March 31, 2009

House Ups the Ante on Emissions Bill

New climate legislation from the House of Representatives, which would cut national greenhouse gas emissions 20 percent from 2005 levels by 2020, is more aggressive than similar measures pushed by the Obama Administration.

The bill would establish a cap-and-trade system for carbon dioxide and national standards for renewable energy and energy-efficiency-resources, with the goal of reducing electricity demand by 15 percent by 2020, according to The Washington Post. It would reduce utilities reliance on natural gas 10 percent by 2020, according to The Boston Globe.

The renewable energy standard would require the nation, by 2025, to meet 25 percent of its energy needs through wind, solar and other renewables.

“The American Clean Energy and Security Act” is co-sponsored by House Energy and Commerce Committee Chairman Henry Waxman (D-Calif.) and Edward J. Markey (D-Mass.), who chairs the panel’s Energy and Environment Subcommittee.

The emissions reduction targets are largely reflective of those outlined by business and environmental group coalition U.S. Climate Action Partnership. The goal is to slash national greenhouse gas emissions by 85 percent by 2050, when compared to 2005 levels.

The bill does not address what portion of pollution allowances would be auctioned off, and where and how such monies would be spent. Those aspects are expected to be debated in coming weeks.

From a business perspective, successful adoption of cap-and-trade allowances needs the influence of market forces, along with proper government regulation, said Ken Irvin, partner at Washington, D.C., law firm McDermott, Will & Emery.

“Cap and trade legislation we hope would lead to the same sort of success as when the government marketed off spectrum for cellular bandwidth,” said Irvin, who specializes in energy marketing and trading.

The allocation of auctions and allowances will require significant debate, he said.

“I’ve seen a proposal to give away allowances to certain industries that have been impacted by foreign competition. This is very complex,” he said. “Selling them off now has a coercive effect, and it would make it so that consumers will have to pay for some of these effects. End-users are going to have to pay for capping GHG emissions as those costs pass through the supply chain.”

Some companies, such as those selling concrete mix, may elect to add surcharges to their products, he said.

According to the Boston Globe, the bill features four titles:

• A clean energy title to promote renewable energy, carbon capture and sequestration technologies, clean electric vehicles, low-carbon fuels, a smart grid and electricity transmission;
• An energy efficiency title would boost energy efficiency across the economy, from buildings to appliances, transportation, and industry;
• A global warming title would limit emissions of heat-trapping pollutants; and
• A transitioning title to protect U.S. consumers and industry during the transition to a clean energy economy, as well as to promote green jobs.

Waxman has indicated he would like to have the bill voted on in committee by Memorial Day.

The Senate Energy and Natural Resources Committee began marking up its energy legislation March 31, but the powerful committee is waiting until after the Congressional recess to address controversial items, including a nationwide renewable power mandate, according to the New York Times. Some in the Senate do not favor including energy measures within larger climate legislation.

The way Congress tackles mandatory carbon credits is bound to affect the carbon market at large, Irvin said. The measures may encourage companies to put in place emissions compliance standards that exceed their own standards, so they can sell their extra credits.

“Volunteering to go below what is mandated for you essentially puts money back in the corporation’s pockets. It will reward good behavior. If the government gives credits away in the first place, that will affect the market,” he said.

Another concern is the impact any federal initiative will have on existing auctions like the Northeasts Regional Greenhouse Gas Initiative (RGGI), he said. “If the federal program renders your RGGI efforts moot, are you out the money?”

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