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US slides towards carbon caps
April 1, 2007
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The US Congress went Democratic in 2007, but the states are still leading the push towards carbon cap and trade. The main line of political force may run from popular concerns over global-warming and “oil Sheiks” through state action, then on through corporate fear to federal action. Such action will come, but when and in what form remains a mystery. Somewhere in the mix there will be caps and there will be trades.
State Caps on Utility Emissions. The most advanced state initiative is RGGI, which now covers 10 states in the North East with a population of 50 million. Two of the states re-joined the group early this year and Maryland joined on April 4. They have developed a model law to implement a carbon cap-and-trade scheme governing utilities and they have all agreed to pass it. The goal is to hold utility emissions constant from 2009–2015, and then reduce them 10% by 2019. States are required to auction at least 25% of the allowances.
California signed an agreement with four other states on Feb 26 in an apparent attempt to start a western version of RGGI. The agreement says they will develop, within eighteen months, a design for a “regional market-based multi-sector mechanism, such as a load-based cap and trade program,” to achieve “significant” reductions in GHGs. In spite of the “multi-sector” claim, state planners seem focused on electric utilities. The intention to be “load-based” is politically driven and as yet undefined. These five states have a slightly larger population than RGGI’s, and three other western states and British Columbia are considering joining in.
The State-to-Federal Strategy. The most important aspect of these initiatives may be the connection between state initiatives and federal legislation. Here’s how it works. In the late 1970’s several states led by California adopted appliance standards. In 1986 appliance manufactures realized that uniform federal standards were preferable to a variety of state standards, and began working for more effective federal regulations. In 1987 the National Appliance Energy Conservation Act was passed and vetoed, then signed by Reagan. This lesson has not been forgotten.
State Tailpipe Limits and the Supreme Court. In 2002 California passed a law mandating a 20% cut in tailpipe GHG emissions of autos and light trucks by 2012 and a 30% reduction by 2016. Since then eleven other states have since adopted California’s standard. However, the Clean Air Act, which requires the Environmental Protection Agency (EPA) to regulate air pollution and preempts the rights of states to do so—except for the state of California, which already had air standards in effect when that Act was passed. Although California can set its own standards, the EPA must first issue a waiver declaring the state’s rules comply with the Clean Air Act. California has been requesting that waiver since 2005.
The Bush administration has been opposed to the California standard and consequently the EPA had refused to consider the waiver, arguing that the authority to set fuel economy standards belonged only to the U.S. Department of Transportation. On Monday, April 2, the Supreme Court eliminated that argument, ruling that the EPA has the authority to establish GHG emissions standards for vehicles. It did not require EPA to approve California’s standards, but on Tuesday the EPA reopened the state’s stalled waiver request.
Since California adopted its standards in 2002, eleven other states have adopted the same standard. Should EPA grant California’s request, in theory, the other 11 states will be allowed to implement that California standard. (Of course, there are complications from various auto-industry law suites.) Fear of these state regulations prompted the Alliance of Automobile Manufacturers to state on April 4 (two days after the Court’s decision) that it “believes that there needs to be a national, federal, economy-wide approach to addressing greenhouse gases.” It went on to explain that it only objected to the auto industry being singled out. This position effectively aligns the auto industry with a number of other large manufacturers advocating a broad-based federal cap and trade program, though they are much less enthusiastic than the other.
The Corporate-Environmental Front. Back on January 22, a group called the United States Climate Action Partnership (US-CAP) proposed cap and trade as the policy Bush should adopt. This group includes Alcoa Aluminum, three of the country’s largest utilities (Duke, PG&E, and FP&L), BP America, Caterpillar, DuPont, General Electric, and Lehman Brothers. No car companies. It also includes four of the largest green organizations including Environmental Defense and Natural Resources Defense Council.
Federal Cap-and-Trade Bills. With the states pushing cap and trade for utilities and business leaning strongly towards a broad-based federal cap-and-trade program, Congress has decided it’s time to look busy. Nancy Pelosi, Speaker of the House, organized a new meta-committee without legislative authority to coordinate the other six House committees which have some authority in this area, and Congressmen started introducing cap-and-trade bills, six in total so far with one more likely on the way.
The oldest bill, reintroduced by Senator Lieberman (independent) on January 12, has three Republican and six Democratic cosponsors, three of which are major presidential candidates, McCain (R), Clinton (D), and Obama (D). This bill would grandfather nearly all allowances. In the other corner, is Waxman’s (D-California) bill with 131 cosponsors in the House, mostly Democratic. It would auction almost all allowances and explicitly does not “allow any grandfathered allowances to result in windfall profits” for those needing allowances.
Both of these bills cover much more than a cap and trade system as does Kerry’s bill. Both Kerry and Waxman have discovered how to let the market set the cap, but have not yet revealed their technique. One bill caps only utility emissions, and it may be the most likely to pass. All bills were named in the tradition of George Orwell’s novel 1984.
Gazing into my Crystal Ball. What happens next? Here is a summary of the most sensible sounding speculations. No broad-based cap-and-trade bill will pass this year, but a number of stop-gap GHG measures (e.g. more ethanol targets and auto efficiency standards) probably will. If enough of these pass, they will get in the way of a broad-based cap-and-trade program.
Something big could be passed in 2009. Democrats may prefer to leave this as an issue for the presidential election, and some ecologists will prefer to wait in hopes of getting stronger legislation under a Democratic president. Republicans will mainly drag their feet, but with fairly strong industry pressure, Bush might sign a broad-but-weak cap and trade bill, or one that grandfathers all rights and provides emitters with sizeable windfall gains. Half the ecology movement would view this the best feasible outcome, especially since Bush’s signature would provide some protection from later recriminations. In any case there will be no operational national carbon market until at least 2010.
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http://zfacts.com/p/832.html | 01/18/12 07:28 GMT
Modified: Sun, 01 Feb 2009 23:38:23 GMT
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