Top 5 Climate & Energy Issues for US Business in 2010: Rocky Road or French Silk?
5. Where Will Things Go Internationally?
Coming out of the United Nations Conference of the Parties (COP) in Copenhagen, the role of the COP in international climate negotiations is in flux. Some issues will be negotiated in this forum, yet other issues may move out of this forum. The role of the Copenhagen Accord is uncertain. It remains to be seen what new governance structures will emerge and where different countries will place their political priorities. Relatedly, enhanced China-US bilateral cooperation on reducing emissions and sharing technology promises to be an important prong of the Obama Administration in 2010.
Business Concern: Private sector interests from both climate change risk and opportunity perspectives will need to monitor and understand the direction of international negotiations and cooperation particularly as related to climate finance and post-2012 carbon market design.
4. Fast Action Alternatives & Gigaton Gaps
While both US domestic and international policy direction for “cap & trade” approaches greenhouse gas emissions remains uncertain, other options to reduce emissions are likely to gain increased prominence. Examples of feasible alternative options to reduce carbon in the global atmosphere include:
- Scaled-up deployment of biochar in the agriculture and forestry sectors;
- Reducing emissions in aviation and shipping industries; and
- Replacement of high “Global Warming Potential” fluorochemicals with less greenhouse gas intensive options.
Business Concern: The strategies necessary to move on these and other fast-action alternatives will likely move outside traditional fora for climate policy and regulation, requiring impacted business sectors to shift some of their focus.
3. Fossil Fuel Subsidies and the G20 in Toronto
At the September 2009 Group of 20 summit, global leaders agreed to phase out “inefficient” fossil fuel subsidies over time. The statement reads: “We commit to rationalize and phase out over the medium term inefficient fossil fuel subsidies that encourage wasteful consumption….(t)his reform will not apply to our support for clean energy, renewables and technologies that dramatically reduce greenhouse gas emissions." The agreement expects energy and finance ministers to produce "strategies and timeframes" for eliminating the subsidies and report back this Fall at the next summit to be held in Toronto, Canada.
Business Concern: It can be anticipated that the definitions and timetables for this pledged phase-out will be politically contentious with a view to the US 2010 mid-term elections. It was the Obama Administration that pushed for this language in the previous G20. Key terms such as what is “clean energy” and what is an “inefficient” subsidy will require careful monitoring as phase-out pledges are deliberated upon in domestic budget and policy priorities in Congress.
2. Focusing on the Hard Questions for Renewable Energy
While there rightly tends to be high level focus on setting Federal and State renewable energy portfolio standards/targets, the challenges of scaling up renewable energy are much more complex. Transmission lines in sensitive areas, siting of off-shore wind power, determining the future role of hydro and nuclear sectors, scaling up production and distribution of solar, coordinated federal and state permitting processes, and more stable tax and investment incentives for renewables are just a few of the issues that will be center stage in 2010.
Business Concern: First, at-scale investment in a low carbon economy requires policies that create a long-term, stable and certain regulatory plan. As investors stated at the recent UN Investors Summit on Climate Risk, “What investors need most…is transparency, longevity and certainty.”
1. What Direction on US Climate and Energy Policy?
Reading the tea leaves of what could happen in the US Senate, as opposed to working on implementation of actual results, remains a core function of climate and energy policy analysis. The EPA intends to move forward on the regulation of greenhouse gas emissions from both mobile and stationary sources, but Senator Murkowski (R-AK) is moving to block these actions. “Cap & Trade” legislation appears in dire straits in early 2010, but whether Senators Graham (R-SC), Kerry (D-MA) and Lieberman (I-CT) can put together a bipartisan coalition in the face of other political priorities and a mid-term election remains to be seen. Other alternatives in play include passing an energy & jobs bill that punts on the greenhouse gas emission piece for another day.
Business Concern: Sophisticated and multi-pronged corporate planning will be required in 2010. While many leading companies facing climate regulatory exposure have planned for cap & trade, they must now ensure that they have adequate capacity and attention to engage in looming EPA regulatory and rulemaking approaches under the Clean Air Act.
In summary 2010, promises to be more of a “Rocky Road” and the private sector must stay alert and engaged to maintain a competitive advantage.
Copenhagen Outcomes: Lots of Bark, But The Bite Needs Work
Heading into Copenhagen, I provided a “Fab 5” of necessary outcomes for COP-15 to be a success. The Copenhagen Accord took a number of pragmatic steps on finance, accountability and endorsing market-based approaches to tackling the challenge of global climate change. The Accord will likely play well in the US Senate with a view to getting more support for domestic action through cap-and-trade legislation as it brings China, India, Brazil and South Africa along in bending the curve of business-as-usual emissions. It also establishes accountability procedures for developing countries to report on those obligations through the Conference of the Parties. Additionally, the next commitment period of the Kyoto Protocol, never popular in domestic politics, appears dubious at best. So these issues play well domestically.
However, in the trade-off for these pragmatic steps, the United Nations Conference of the Parties process was left in tatters. While most countries signed on to the Copenhagen Accord, it was done so with a disdain for the process and skepticism for the result. It will be difficult to regain the level of political momentum and multilateral engagement that was achieved in the lead up to Copenhagen through the UN. Science-based targets to reduce emissions backed by a legally binding UN treaty to fulfill all commitments were lost, for now, in that effort.
President Obama is taking a lot of heat for the outcome. Success for the Obama Administration now lies in proving it can actually deliver real action on 1. domestic mitigation, 2. international finance and 3. working positively with China and other emerging economies on real results, thus justifying their tough negotiating position in Copenhagen. Otherwise, the Copenhagen Accord will be seen as all bark and no bite as many critics are already claiming. Whether the bite is real depends on a mixture of Presidential leadership, domestic politics and international pressure.
Global efforts to reduce greenhouse gas emissions are in a fundamentally different place than they were before Copenhagen. Pledges to reduce or curb emissions are now a global endeavor, not one just for developed nations. At the end of the day, however, the Copenhagen Accord is a bunch of words on paper. Emerging governance structures and actions to ensure fulfillment of the Accord will determine real success. Perhaps, Michael Levi of the Council on Foreign Relations assessed the wake of Copenhagen best: "The climate-treaty process isn't going to die, but the real work of coordinating international efforts to reduce emissions will primarily occur elsewhere." The level of importance for the next COP in Mexico City remains to be seen.
Below the “Fab 5” goals are repeated with accompanying analysis of how they line up with language from the Copenhagen Accord.
1. Aggressive Emission Reduction Goals
Developed countries will need to agree upon on ambitious greenhouse gas (GHG) emission reduction targets. The IPCC suggests that this implies a mid-term goal for 25-40 percent GHG cuts by 2020 based on a 1990 level baseline and 80 percent by 2050. Collective action will need to be supplemented by individual national commitments such as those put forward by the United States and United Kingdom in recent days. Likewise, developing countries will need to agree to taking GHG mitigation actions that are appropriate in their national development contexts ranging from shifting to low carbon power strategies to reducing rates of deforestation. Some observers see a collective goal that recognizes the scientific view that the increase in global average temperature above pre-industrial levels should not exceed two degrees Celsius as a more politically feasible outcome than the target cuts noted above.
Copenhagen Accord: “We agree that deep cuts in global emissions are required according to science, and as documented by the IPCC Fourth Assessment Report with a view to reduce global emissions so as to hold the increase in global temperature below 2 degrees Celsius, and take action to meet this objective consistent with science and on the basis of equity.”
Analysis: As predicted, the tougher decisions about collective commitments to reduce emissions by the above noted 2020 and 2050 targets were left for another day, in favor of a 2 degrees Celsius approach. It is difficult to reconcile the scientific reality with the necessary policy goals set in the Copenhagen Accord. There is now a February 2010 deadline for countries to sign up their individual commitments in an Annex to the Copenhagen Accord. For the first time, both developing and developed countries will put forward such commitments, yet there is doubt they will add up to either the IPCC figures or the 2 degrees goal.
2. Climate Finance Commitments
Countries need to agree upon climate finance mechanisms that will provide “fast start” funds of approximately $10-$12 to developing countries from 2010 to 2012. This is viewed as a down payment of good faith towards future actions by developing countries. The architecture for longer-term, predictable funding for climate adaptation and mitigation – including forestry and technology support will also need to be put into place. However, it is less feasible for specific dollar amounts, governance regimes and sources of funding to be agreed upon in Copenhagen with respect to longer-term climate finance.
Copenhagen Accord: “The collective commitment by developed countries is to provide new and additional resources, including forestry and investments through international institutions, approaching USD 30 billion for the period 2010-2012 with balanced allocation between adaptation and mitigation.”
“In the context of meaningful mitigation actions and transparency on implementation, developed countries commit to a goal of mobilizing jointly USD 100 billion dollars a year by 2020 to address the needs of developing countries.”
“We decide that the Copenhagen Green Climate Fund shall be established as an operating entity of the financial mechanism of the Convention to support projects, programme, policies and other activities in developing countries related to mitigation including REDD-plus, adaptation, capacity building, technology development and transfer.”
Analysis: The Accord went further than I anticipated in terms of setting a 2020 target for $100 billion annually, and came in on target in terms of the “fast start” funds. The challenge will be ensuring that these funds are truly “new and additional,” and words are followed by actions in the implementation of these measures. The Green Fund concept provides an overarching framework and governance structure but will need significant negotiation on the road to a binding legal treaty.
3. Accountability for Commitments
Measurable, Reportable and Verifiable (MRV) national commitments and actions agreed at Copenhagen are a lynchpin of success. If a global agreement will be more than rhetoric, there simply needs to be a standardized methodology to “trust but verify” with a view to equitable burden sharing in the transformation to a global low carbon economy. Countries need to establish common international methodologies to track and report emissions and subsequent measures to reduce emissions.
Copenhagen Agreement: Developed countries: “Delivery of reductions and financing by developed countries will be measured, reported and verified in accordance with existing and any further guidelines adopted by the Conference of the Parties, and will ensure that accounting of such targets and finance is rigorous, robust and transparent.”
Developing countries: Mitigation actions will be subject to “provisions for international consultations and analysis.” Mitigation actions that seek international support will be “record in a registry along with relevant technology, finance and capacity building support” and “subject to international measurement, reporting and verification in accordance with guidelines adopted by the Conference of the Parties.”
Analysis: The fundamental goal of moving towards a more transparent and accountable system for reporting and verifying emission reductions was achieved. The language brings both developed and developing countries along. Through a US political lens, getting China and other emerging economies to agree to this language will assist in efforts to persuade the Senate that all Parties will move towards reductions and thus lessen perceptions of competitive disadvantage.
4. Signals for a Global Carbon Market
Private capital needs to see signals that a process of linking nations in post-Kyoto Protocol market-mechanism efforts that reduce emissions will continue. In order for private capital to continue the evolution of a liquid, cost-effective mitigation market begun under the Clean Development Mechanism and Emissions Trading systems, political signals of this approach must be provided in Copenhagen. This will allow the evolution of so-called flexible mechanisms towards at scale reductions in the most cost-effective manner possible.
Copenhagen Agreement: “We decide to pursue various approaches, including opportunities to use markets, to enhance the cost-effectiveness of, and to promote mitigation actions. Developing countries, especially those with low emitting economies should be provided incentives to continue to develop on a low emission pathway.”
Analysis: Market mechanisms to reduce emissions and contain costs remained alive through the Copenhagen Accord. However, the value of such mechanisms is only as good as the demand created by aggressive emission reduction targets and the rules that ensure environmental integrity of such approaches. Copenhagen did not advance these goals and such mechanisms will largely fall to national approaches and a future legal treaty.
5. Political Agreement With a View to Legal Agreement
There is broad consensus that a political agreement is the likely outcome from Copenhagen but ultimately enforcement requires a legal agreement. Towards this goal, it is anticipated the countries will politically commit to finalizing a more legally binding agreement in 2010. In the US context, this approach allows the Obama Administration to sequence working collaboratively with the Senate on a final energy and climate legislative package prior to promising what cannot be delivered at the international level.
Copenhagen Agreement: “We call for an assessment of the implementation of this Accord to be completed by 2015, including in light of the Convention’s ultimate objective. This would include consideration of strengthening the long-term goal referencing various matters presented by the science, including in relation to temperature rises of 1.5 degrees Celsius.”
Analysis: There is no commitment to move towards a legally binding agreement in 2010, but rather just an assessment of the effectiveness of the Accord in 2015. While nothing prevents the Parties from moving towards a legal treaty by the next COP in Mexico City, it is by no means a certainty.
The Fab 5: Defining Success in Copenhagen
With 5,000 delegates, 6,000 media and 16,000 non-governmental organizations descending upon Copenhagen for the UN Conference of the Parties on Climate Change, there is no shortage of opinion and spin on what “success” looks like. But through all the talk, 5 key elements are necessary for an agreement that will further efforts to address climate change.
1. Aggressive Emission Reduction Goals
Developed countries will need to agree upon on ambitious greenhouse gas (GHG) emission reduction targets. The IPCC suggests that this implies a mid-term goal for 25-40 percent GHG cuts by 2020 based on a 1990 level baseline and 80 percent by 2050. Collective action will need to be supplemented by individual national commitments such as those put forward by the United States and United Kingdom in recent days. Likewise, developing countries will need to agree to taking GHG mitigation actions that are appropriate in their national development contexts ranging from shifting to low carbon power strategies to reducing rates of deforestation. Some observers see a collective goal that recognizes the scientific view that the increase in global average temperature above pre-industrial levels should not exceed two degrees Celsius as a more politically feasible outcome than the target cuts noted above.
2. Climate Finance Commitments
Countries need to agree upon climate finance mechanisms that will provide “fast start” funds of approximately $10-$12 to developing countries from 2010 to 2012. This is viewed as a down payment of good faith towards future actions by developing countries. The architecture for longer-term, predictable funding for climate adaptation and mitigation – including forestry and technology support will also need to be put into place. However, it is less feasible for specific dollar amounts, governance regimes and sources of funding to be agreed upon in Copenhagen with respect to longer-term climate finance.
3. Accountability for Commitments
Measurable, Reportable and Verifiable (MRV) national commitments and actions agreed at Copenhagen are a lynchpin of success. If a global agreement will be more than rhetoric, there simply needs to be a standardized methodology to “trust but verify” with a view to equitable burden sharing in the transformation to a global low carbon economy. Countries need to establish common international methodologies to track and report emissions and subsequent measures to reduce emissions.
4. Signals for a Global Carbon Market
Private capital needs to see signals that a process of linking nations in post-Kyoto Protocol market-mechanism efforts that reduce emissions will continue. In order for private capital to continue the evolution of a liquid, cost-effective mitigation market begun under the Clean Development Mechanism and Emissions Trading systems, political signals of this approach must be provided in Copenhagen. This will allow the evolution of so-called flexible mechanisms towards at scale reductions in the most cost-effective manner possible.
5. Political Agreement With a View to Legal Agreement
There is broad consensus that a political agreement is the likely outcome from Copenhagen but ultimately enforcement requires a legal agreement. Towards this goal, it is anticipated the countries will politically commit to finalizing a more legally binding agreement in 2010. In the US context, this approach allows the Obama Administration to sequence working collaboratively with the Senate on a final energy and climate legislative package prior to promising what cannot be delivered at the international level.
COP-15 Day 2: UK's Gordon Brown Pledges 30% UK GHG Reductions; Developing Countries Shift Focus to Transition Aid
The United States jumpstarted the UN Framework Convention on Climate Change Conference of the Parties (COP-15) with solid commitments by the Obama Administration for reductions in Greenhouse Gas Emissions and funding. On Day Two, the United Kingdom confirmed that it would move well beyond the US commitments in hopes of keeping the pressure on for an accord among the participating parties.
Prime Minister Gordon Brown committed the UK to CO2 reductions of 30 percent (in contrast to the 17 percent commitment by the US). Some British attendees believe that the embattled Brown hopes that the climate change issue (which is a hot button issue for many British voters) could become the political rallying point for turning around his political fortunes.
Various COP-15 participants also indicate that Australia and Canada could be significant players in the end as other countries watch for their positions on the broad boundaries of the proposed accord. For Australia (heavily reliant on coal plants for electricity), the proposed framework could be a significant challenge.
The focus of developing country leaders has shifted noticeably from the broad boundaries for reduced GHG emission trajectories toward the amount of international aid which can be expected over the next 12 years to assist in their transition. While near term expectations appeared to be manageable ($12-15 billion), long-term expectations have increased dramatically.
Meanwhile, tertiary industries, (basically industries other than power plants), from aviation to cattle production have ramped up their focus on just what the US and UK commitments could mean for them. Individual briefings later today will assess these risks.
EPA Endangerment Finding: Certainty from the United States
So much remains to be resolved as the McKenna Long & Aldridge team heads to Copenhagen this week. There is much speculation regarding what Congress will do to move forward on climate change. Bottom-line positions from the Obama Administration at the Copenhagen negotiations remain to be seen. But one thing is certain: the Environmental Protection Agency (EPA) is moving forward to regulate greenhouse gas emissions (GHG).
Today, EPA Administrator Lisa Jackson announced a finalized endangerment finding on GHG emissions pursuant to Section 202(a) of the Clean Air Act (CAA). This endangerment finding includes two parts. First, EPA found that elevated concentrations of carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hyrdofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulfur hexafluoride (SF6) endanger both public health and the public welfare. Additionally, EPA found that combined emissions of GHGs from new motor vehicle and new motor vehicle engines contribute to GHG air pollution, which endangers both public health and welfare.
These findings do not themselves impose any requirements on industry or other entities. However, this action is a prerequisite to finalizing the EPA’s proposed GHG emissions standards for light-duty vehicles, jointly proposed by EPA and the Department of Transportation’s National Highway Safety Administration on September 15, 2009. This endangerment finding also serves as a prerequisite for a proposed EPA rule to regulate stationary sources that emit 25,000 tons per year or more of CO2 or CO2 equivalent under the Prevention of Significant Deterioration (PSD) program of the CAA. EPA is expected to finalize both the tailpipe emission standards for light-duty trucks and the PSD regulations by March 2010.
The timing is not coincidence, but rather part of a well-coordinated strategy to send international signals of US resolve. The Obama Administration hopes that this finding will buoy efforts to reach a political agreement at U.N. negotiations irrespective of Senate inaction on reducing emissions.
OPIC and the Export-Import Bank After the NEPA Settlement: A Tale of Two Agencies
In early 2009 two US agencies, the Overseas Private Investment Corporation (OPIC) and the Export-Import Bank (Ex-Im), settled a longstanding climate change lawsuit in the 9th Circuit and pledged to reduce emissions in their lending portfolios while increasing support for clean energy. Their approaches to implementing the settlement agreement are taking starkly different paths: OPIC appears to have entered the “age of wisdom,” while Ex-Im remains in the “age of foolishness,” to borrow from Charles Dickens.
In 2002, the city of Boulder, Colorado and the California cities of Oakland, Santa Monica, and Arcata, along with members of Greenpeace and Friends of the Earth, filed a groundbreaking climate change lawsuit (Friends of the Earth, Inc. et al v. Spenelli et al).
The lawsuit alleged that Ex-Im and OPIC violated the National Environmental Policy Act by providing over $32 billion in financing and political risk insurance to greenhouse gas (GHG) intensive fossil fuel projects around the world, without full consideration of their contribution to climate change. From a legal standpoint, the 9th Circuit decision that the plaintiffs had standing provided an important precedent for later climate related legal actions.
The NEPA case dragged on for several years and, once the Obama Administration came into office, it was finally settled with OPIC and Ex-Im both promising to develop new carbon policies and enhance their support for clean energy technologies. For any investment facility, public or private, a solid policy framework involves reducing emissions while increasing investment in clean energy as feasible. Indeed the recent Executive Order from President Obama signals that all federal agencies must move in this direction. Presumably, this includes OPIC and Ex-Im. Further, the G-20 pledge to phase out inefficient fossil fuel subsidies would suggest that OPIC and Ex-Im have obligations in this policy realm as well. However, upon closer review, it is evident that OPIC and Ex-Im are moving in starkly different directions from one another, with Ex-Im putting current Administration policy direction and the spirit of the NEPA case settlement in jeopardy.
OPIC announced a new Greenhouse Gas Initiative, “establishing an annual emissions cap for all new GHG emissions in OPIC supported projects to which the agency provides a commitment. The cap will be equivalent to the emissions from projects committed to by OPIC in fiscal year 2007. If met, the goal will result in a reduction in emissions from 54.7 million tons of CO2eq in OPIC’s current portfolio of OPIC supported projects, to a cap of 44 million tons in 2016.” In addition to the new GHG Initiative, OPIC has begun an aggressive investment focus on renewable energy and efficiency. In the past few years, OPIC has invested over $700 million in low carbon investment funds with companies like Good Energies and the Virgin Green Fund. Between the new GHG Initiative and more aggressive investment focus, OPIC’s GHG emissions are capped and will go down, while positive investments in clean energy are skyrocketing. It’s a great story that the Obama Administration should let people know more about. OPIC is quietly going about its business, turning a healthy profit for US taxpayers, leveraging private sector capital, and mitigating climate change.
Ex-Im on the other hand, has continued on a business as usual path, with record investment applications in GHG intensive projects this fiscal year. If approved, total Ex-Im investment this year will result in annual GHG emissions north of 30.096 million Tons/yr of CO2, according to figures provided by leading environmental organizations. The agency put on a press blitz this week announcing a “new” carbon policy. However, in reality, the “new” is old, generally codifying existing GHG accounting policies in place since 1998 that simply count emissions without any commitment to real reductions. Ex-Im also pledges a $250 million renewable energy facility (less than 2 percent of their overall financing portfolio), yet has created similar facilities in the past while actually distributing very few dollars to projects. Direction from Congress through Ex-Im’s current appropriations bill calls for “not less than 10 percent” of agency resources to go towards renewable and efficiency technologies.
The Chair of the White House Council on Environmental Quality, Nancy Sutley, provided a guarded review of Ex-Im’s carbon policy, stating CEQ’s intent to work closely with Ex-Im on implementation, enhanced transparency, and environmental stewardship. CEQ stopped short of endorsing Ex-Im’s endeavor. It remains to be seen if the Ex-Im initiative will fulfill the goals laid out by President Obama and indeed the citizens who originally filed suit against this government agency. As with Dickens, it remains to be seen if Ex-Im is in the spring of hope or despair.
Climate Week In New York: Hope Over Pessimism?
As President Obama spoke at the United Nations today and now heads to the G-20, international skepticism is obvious. The United States still has not taken definitive action to reduce greenhouse gas emissions. The lack of movement in the Senate on a climate bill is now cited as the primary reason that the US cannot make the level of concrete commitments necessary to forge a global agreement. This lack of Senate action does not bode well for Obama to position the US as a global leader on climate change. As Politico reported yesterday, the European Union’s ambassador to the US, John Bruton, is not happy about Senate delay stating that “(i)f this were to happen, it would open the United States to the charge that it does not take its international commitments seriously, and that these commitments will always take second place to domestic politics. I submit that asking an international Conference to sit around looking out the window for months, while one chamber of the legislature of one country deals with its other business, is simply not a realistic political position.”
Yet despite the growing gloom in climate policy circles, signs of optimism are there.
First, President Obama signaled some willingness to get out ahead of the Senate. In his speech at the UN Climate Change Summit today he indicated that the US will be “slashing our emissions to reach the targets we set for 2020 and our long-term goal for 2050." While the President still faces the Senate as well as international expectations on the specifics of this goal, the US does appear at least open to an outcome in Copenhagen that includes mid-range targets.
President Obama also expressed a desire to phase out fossil fuel subsidies in the context of the upcoming G-20 negotiation. In a recent New York Times article, Steve Kretzmann of NGO Oil Change International noted that "If the Obama administration is serious about eliminating all fossil fuel subsidies, that is wonderful and would go a long way toward correcting what Nicholas Stern called the greatest market failure of all time, which is climate change.” The details of how these subsidies are defined and what the President could agree upon internationally without requiring domestic political action remains to be seen. Nevertheless, these statements at the UN do suggest some willingness of the Administration to demonstrate positive leadership on the international stage with a view to working with Congress on the details.
With China also making a suite of commitments in New York this week, the pressure for US action continues to grow and the rationales for inaction continue to diminish.
Health Care Legislation > Climate Change Legislation > Copenhagen Agreement on Emission Limits
President Obama's address on health care reform to joint session of Congress, as well as the rancorous reactions by some Republicans, leads me to the following inescapable conclusion: the chances of Congress passing climate change legislation in 2009 just got a lot dimmer. The President has essentially thrown down the gauntlet and staked his reputation -- indeed perhaps even his presidency -- on succeeding in passing comprehensive health care reform. We can expect a full court press by the White House to get a bill passed and signed into law. And given the obvious level of rancor and opposition, you can expect this to be an all-out brawl. That means that few resources will be diverted from this battle to pass climate change legislation. Senate leaders have already laid the groundwork for a hiatus on climate change legislation. Environment and Public Works Chairwoman Barbara Boxer (D-Calif.) had been slated to introduce the bill after returning from the August recess. In a joint statement with Foreign Relations Chairman John Kerry (D-Mass.), she said the bill is now expected “later in September.”
The senators cited several reasons why the bill is taking longer than expected, including the battle over health care legislation, which is expected to last well into the fall. Members of the Senate Finance Committee are deeply involved in health care talks but will also share jurisdiction over the climate change bill.
“Because of Senator Kennedy’s recent passing, Senator Kerry’s August hip surgery, and the intensive work on health care legislation particularly on the Finance Committee where Senator Kerry serves, Majority Leader Reid has agreed to provide some additional time to work on the final details of our bill, and to reach out to colleagues and important stakeholders,” the senators said.
Given that President Obama has now committed himself to getting health care passed this year, and the White House signaling financial regulation reform to be next in line for Congress after that, the earliest a floor vote on climate legislation could happen is November. In the interim, it remains to be seen how much prioritization towards that vote will be provided by Obama. Thus, rather than fail, it is quite likely the Obama administration will seek to have the debate put off until 2010.
In fact, as I've been writing this post, Inside EPA reports ("Senators Offer No Firm Plan For Passing Cap-And-Trade This Year")...
Senate leaders have set no firm deadline for committees to finish work on climate change legislation, Senate Environment & Public Works Committee Chairwoman Barbara Boxer (D-CA) said September 9, a revelation that comes amid increasing talk that the chamber may be unable or unwilling to act on a controversial cap-and-trade plan before the end of the year given the host of other competing concerns vying for lawmakers’ attention, such as health care and pending foreign policy concerns.
What does this mean for the December meeting of the Conference of Parties in Copenhagen? Everyone should focus on Plan B. Without a US commitment to reducing greenhouse gas emissions, it is difficult to imagine a scenario in which India and China would agree to their own nationally appropriate GHG reduction commitments. And without China and India, a global agreement is not possible. Thus, the delegations meeting in Copenhagen should quickly consider other approaches that might make meaningful inroads into climate change. For example, a framework for negotiating mid-term emission limits within various sectors could be an outcome of this round, coupled with broad agreements aimed at reducing deforestation, reducing emission of black carbon, and carbon sequestration via conversion of crop stubble and dying trees to biochar. These techniques -- which have been discussed at length in prior postings -- would do more to reverse climate change than even the strongest emission limits could achieve. (“Why we need fast regulatory actions to complement cuts in CO2 emissions,” Durwood Zaelke, April 21, 2009). They will be needed regardless of whether emission limits are adopted. I say focus on developing Plan B.
Swing Votes in the Senate on Climate Change
As the Senate prepares to consider energy and climate legislation this Fall, the vote counting begins again on cap & trade. Assuming a cap & trade bill moves forward, 60 votes are necessary for a procedural vote (cloture) to cut off debate on a motion to proceed on a floor vote. Reaching this filibuster proof 60 vote count threshold remains a steep hill to climb despite 59-60 Democratic votes in the Senate. Climate positions don’t fall along party lines. Further, the challenge has just grown harder with Senator Kennedy’s death and no replacement likely until January 2010.
Climate Change Insights takes a look at three swing Senate votes that are indicative of the political landscape and substantive policy issues in play. There are different accounts of how various Senators might vote but it is fair to say that the following 3 Senators are representative of the key issues under consideration: the level of ambition for greenhouse gas (GHG) reduction targets, industry specific allowances, protections and incentives, a priori limits on the price of carbon and pure politics.
Senator Evan Bayh (D-Indiana). Indiana is among the highest energy consumption per capita States and is responsible for approximately 5 percent of US annual GHG emissions. Almost all of Indiana’s electricity generation comes from coal. As one of the nation’s top corn-producing States, Indiana has significant ethanol production potential, and the state has immense wind energy opportunities. Energy and steel industries are among Mr. Bayh’s top campaign contributors and he is facing a tight re-election campaign in the fall of 2010. The BP Products refinery in Whiting has the largest processing capacity of any refinery outside of the Gulf Coast region. Senator Bayh is weighing these considerations deliberatively. A suite of cost-containment provisions for regulated industries, clean energy incentives for emerging technologies and international competitiveness protections that have direct benefit to Indiana are considerations, as are political prospects in a conservative State.
Senator George Voinovich (R-Ohio). Energy consumption in Ohio’s industrial sector ranks among the highest in the Nation. Ohioans are still haunted by a 2003 transmission failure that led to the largest blackout in North American history, affecting over 50 million people. Coal fuels about nine-tenths of net electricity generation in Ohio. Senator Voinovich is set to retire in 2010. On climate change, Voinovich has stated, “There is a lot of work to be done, but it’s still open…I think there is a possibility in getting something done that is meaningful.” In the past few years, Voinovich has introduced and supports energy bills that focus on incentives for clean energy technology deployment both domestically and internationally including the "Incentives-Based Climate Policy Act," and the “21st Century Energy Technology Deployment Act.” He is on record saying that there is “too much crap” in the House-passed “American Clean Energy Security Act” (Waxman-Markey), his main concern being the 2020 greenhouse reduction targets under the bill are too ambitious.
Ohio’s current unemployment rate (11.1%) is higher than the national average (9.7%) as of July 2009. There is significant angst in the State of losing jobs overseas due to issues such as lower labor and environmental standards. Accordingly, one can anticipate Voinovich desiring price controls on the cost of carbon and protections against overseas industries that don’t take sectoral or economy-wide carbon cap.
Senator Arlen Specter (D-PA). Pennsylvania ranks second in the Nation in nuclear power generating capacity, is a major coal production State and sells approximately 50 percent of its coal to other States. Pennsylvania is also the leading petroleum refining State in the Northeast. At an August meeting of Netroots Nation, Senator Specter hinted that he “expected” to vote for cloture on a climate bill and stated that he joined the Senate Environment & Public Works Committee after switching to the Democratic Party with a view to shaping the climate legislation and he “expects a strong bill.” In the past Specter co-sponsored with Sen. Jeff Bingaman, the “Low-Carbon Economy Act,” which had weaker GHG emission targets than Waxman-Markey and established so-called “automatic off ramps” allowing the US to weaken its targets if key developing countries don’t adopt their own caps.
Therein lies the conundrum of getting a robust climate change bill through the Senate and signed into law. The route to political success relies upon GHG targets that may not match the level of ambition required by science, a further expansion of allowances to regulated entities, and trade protectionist measures as a stick for developing country commitments. Such provisions are a long way from the Obama Administration goals of science driving policy, 100 percent auction of allowances and emphasizing bilateral clean tech cooperation with China. Yet, it appears to be the only pathway to move the issue forward in the Senate this political season.
Why the Tariff Provisions in the American Clean Energy & Security Act (ACESA) Will Survive
I previously wrote that the Obama Administration should back off its opposition to language in Waxman-Markey that imposes a tariff on imports from countries that do not require equivalent levels of GHG emissions reductions. This tariff provision is the only effective way to discourage US businesses from moving production overseas to countries with less stringent climate change laws, thereby defeating the goals of cap-and-trade by emitting over there what they cannot emit here. Opponents to the tariff provision claim that the bill's generous allocation of free emission allowances compensates firms for this disparity and thereby levels the playing field so that competitors in foreign countries lacking carbon emission controls do not enjoy a competitive advantage over carbon-capped US businesses.
That explanation, however, doesn't really wash. A large percentage of the allocations are to be doled out to electricity distributors that cannot move operations offshore and do not face foreign competition here. This allocation to the electricity wholesalers has nothing to do with leveling the playing field with competitors in foreign countries that do not control GHG emissions. It has to do with easing transition to a carbon constrained economy, deferring the impact so that industry can survive the move to a low-carbon economy.
Apparently, 10 Senate Democrats agree -- they have sent President Obama a letter stating that a "longer-term border adjustment mechanism is a vital part of this package to prevent the relocation of carbon emissions and industries" to countries that do not likewise cap GHG emissions. The legislation will not pass without them. I'm betting the tariff provision survives.
Climate versus Growth?
The Obama Administration says it is laying the groundwork for a long, green, economic recovery. But plenty of people argue that the recovery part and the green part contradict each other.
One piece of evidence to support the pessimists emerged from Washington last week. Inside EPA reports that the administration environmental champions are not getting their way when it comes to the ongoing restructuring of Chrysler and General Motors.
Environmentalists are noting that neither Chrysler's bankruptcy announcement nor GM's most recent shareholder prospectus mention or endorse some of the administration's major environmental initiatives that impact the auto industry:
- EPA's pending GHG limit on the transportation sector
- National Highway Traffic Safety Administration's pending rule to tighten CAFE standards, or
- EPA's reconsideration of California's request to regulate tailpipe emissions.
As I've indicated before, I tend to be more sanguine about the prospects of melding a green economy and a recovery for the auto industry.
Detroit should take the initiative and leverage the administration's environmental inclinations to the hilt, recommending newer, bolder green innovations in exchange for additional support. For its part, the administration should hold the line and make sure that any auto industry that rises from the ashes because of taxpayer support is an environmentally sensitive industry as well.
Climate Legislation Made Easy
Democrats in Congress released their most recent climate change bill yesterday.
The so-called Waxman-Markey discussion draft attempts to satisfy all constituencies:
The US Climate Partnership -- the powerful coalition of utilities, car makers, manufacturers and environmental organizations -- got its vision of a cap-and-trade scheme adopted. That means the environmentalists are pleased with strong GHG emission reduction targets (80 percent below 2005 levels by 2050). Meanwhile, heavy industrials (iron and steel, aluminum, cement, glass, chemicals and paper) will benefit from a 15 percent reserve of the system's emission allowances -- a structure designed to keep down allowance prices (and thus the cost of compliance) for businesses most vulnerable to international competition.
The renewable industry got a renewable portfolio standard, which would force utilities to provide at least 25 percent of their energy from renewable sources by 2025. The coal industry also came out with $10 billion to fund carbon capture and sequestration research. (That's on top of the billions already provided under the recently enacted stimulus plan.)
As critics have already noted, the bill fails to take on the make-or-break issues. For starters, it skips the thorny question of how to distribute allowances. The Obama administration wants to auction all of the pollution allowances while businesses are pushing to distribute some allowances for free.
Avoiding that issue allowed the bill to avoid another tricky one: where should any auction money go.
Critics will see these omissions as a fatal flaw -- akin to introducing a carbon tax proposal without a specific tax percentage.
I see this as a master stroke. The best chance for passing a cap-and-trade bill is to get the key adversaries -- environmentalists, vulnerable industries and coal -- to the negotiating table. Or at least to agree on the shape of that table. Then they can have a debate about these key issues out in the open.
Waxman and Markey have done just that. And set the stage to actually pass ambitious climate legislation this year.
A Carbon Rule is Not a Carbon Law
EPA announced a proposed rule on Tuesday to create a national registry for greenhouse gas emissions reporting.
This step is crucial to any effort to enact a law pricing GHG emissions, be it a cap-and-trade system or a carbon tax. The rule would mandate annual reporting from suppliers of fossil fuels or industrial greenhouse gases, manufacturers of vehicles and engines, as well as any other facilities that emit 25,000 metric tons or more per year of GHG emissions.
Of course, this wasn’t news to us. We wrote about the rule and the 25,000 metric ton threshold last month.
While this step is important, far more difficult ones lie ahead. This week’s action simply required the Obama Administration to push a draft rule that had languished under its predecessor’s watch.
Now comes the hard part. The Administration must sell its larger vision for legislating carbon regulation in the halls of Congress and in the court of public opinion.
And the last week hasn’t been so encouraging.
Late last week Senator Jeff Bingaman, who chairs the Energy and Natural Resources Committee, called Obama’s vision of a 100 percent auction model (where a regulated party must purchase all allowances required to cover its GHG emissions, as opposed to initially receiving some allowances free under grandfathering provisions) “unlikely.”
This week, investor Warren Buffet, an Obama economic advisor, reiterated his concerns about embracing a cap-and-trade system at all. And finally, carbon tax advocates have not yet surrendered. Rep. John Larson (D-CT) is said to be close to introducing carbon tax legislation. The House Ways & Means Committee Chairman, Rep. Charles Rangel (D-NY) is also expected to push for a carbon tax.
Cap-and-trade proponents should savor the coming of the national GHG registry. It may be the best news they have for a while.
A Glimpse from the Bright Side
I am at the RETECH conference in Las Vegas, which captures all of the challenges facing green technology in these heart-in-the-throat times -- and the opportunities as well.
Many of the large companies that enjoyed such significant profiles at gatherings like this in the recent past were absent. Instead, when I participated in a panel, the room was packed with hopeful green technology entrepreneurs. It reminded me of Tom Friedman's admonition that the US needs thousands of inventive minds working on green technology at thousands of workbenches to put the United States back on track. This moment clearly belongs to those who are willing to start out with less.
Our discussion yesterday, chaired by Obama transition figure Howard Learner, explored how a variety of high profile initiatives -- from the recent stimulus package (the American Reinvestment and Recovery Act or ARRA) to a proposed renewable electricity standard to cap-and-trade legislation -- will affect green technology development. There was general agreement that a virtuous cycle is developing: the stimulus package should help pave the way for cap-and-trade because it will help build the constituency for it. Meanwhile, energy efficiency investments will provide a bit of momentum toward GHG reductions in the near future.
More than a plank in a shipwreck, ARRA will make available specific tens of billions of dollars at the very time green technology might have faltered. We spent a great deal of time talking with car battery innovators, solar installers, wind energy project developers, fuel cell companies, energy efficiency retrofit and system designers, and others who have carved out a niche in the green creativity space that more than justifies Friedman's hopes for a sustainability-powered era for US technology.
Yet, we also explored the dark side of this improving picture. Plowing so much money into “shovel-ready” projects so quickly will inevitably benefit some not-so-green projects. Those stimulus expenditures will help entrench an infrastructure that has to be greened all over in the future.
But for now, the bright side seems, here in Las Vegas, to be ascendant.
How Will Obama Cut the Deficit? He's Thinking Carbon.
With the President’s stimulus enacted and more crisis-related spending on the horizon, everyone wants to know how the Obama administration can actually make good on the goal, articulated Monday, to cut the size of the budget deficit in half by the end of the President’s first term. When the 2010 budget is released today, it will make clear that the administration hopes a major source of revenue will be from a proposed carbon cap-and-trade system. But that may not be as easy as it looks.
Many observers focus on the costs of cap-and-trade to the economy. Less appreciated is the revenue that could be generated if the government chooses to auction off pollution permits in such a system. The Washington Times reported the administration expects $300 billion to come in by 2022 from cap-and-trade revenues. Obama wants to put this money to drawing down the deficit.
But Congress will need to go along with his plan and therein lies the wrinkle.
As Andrew Revkin noted last night, lobbying activity around climate change is booming: he cites a report from the Center for Public Integrity that says in 2008 “more than 770 companies and interest groups hired an estimated 2,340 lobbyists to influence federal policy on climate change.” Without question those number are rising this year as well. Many of those lobbyists are no doubt arm-twisting Congress people to get a piece of that money.
Can the Obama team can manage to push through such ambitious legislation without divvying up some of the spoils? We’ll find out.
How the EPA Forced Congress' Hand
Last week, word surfaced that the EPA would act to regulate greenhouse gas emissions. At first glance, this news might seem like evidence that the Obama Administration would prefer to rely on the Clean Air Act (CAA) to fight climate change as opposed to getting new legislation through Congress. In fact, the news likely means the opposite. Here's why.
The first step toward regulation of carbon dioxide under the CAA is for EPA to declare that these emissions pose a danger to public health and welfare. That’s called an endangerment finding. The agency could have made this finding-- should have done it--long ago. Now, it’s likely to happen on April 2, 2009, the second anniversary of the Supreme Court ruling that explicitly gave EPA the power to regulate CO2 as a CAA pollutant.
EPA Administrator Lisa Jackson told The New York Times that she doesn’t want to spin “a doomsday scenario," but here’s the problem. It’s easy for the EPA to issue an endangerment finding, but what happens next is tricky.
The Clean Air Act was constructed to control emissions, not fossil fuel sources, so the EPA will have a hard time tackling the root of the GHG problems. There’s no real way to go upstream. Also CAA was drafted to address localized pollution and it isn’t well suited to control a global pollutant.
So the agency faces a tough choice: either squeeze carbon dioxide into ill-fitting CAA regulatory programs or face a raft of legal challenges by environmental organizations for not doing it.
Neither option will sit well with Congress, which is under increasing pressure to fight climate change. The evidence of global warming’s seriousness continues to pile up as does the need for the United States to show leadership to credibly prod China and India to action. So when the EPA makes the endangerment finding, Congress will need to take charge. And the Obama Administration knows it.
Coming Soon...National GHG Reporting
Greenhouse gas reporting is a crucial step in setting a price on carbon emissions, since it would be very hard to implement a cap-and-trade system or even a carbon tax effectively without some transparency about how much carbon is being emitted from where. For the first time, large emitters across the economy will have to conduct greenhouse gas inventories and report them to the federal government.
The Bush administration missed a preliminary September deadline submitting rules, putting it in danger of missing a final deadline of this coming June. With the Obama administration, this rulemaking appears to be a priority and there’s reason to believe the agency can complete its work this spring in time to start collecting data in 2010.
According to a source quoted by InsideEPA.com (subscription required) the proposed rule would mandate reporting for any facility releasing 25,000 tons of CO2e on an annual basis.
California 1, US 0
The Obama Administration has taken the first steps toward withdrawing EPA’s objections to a California's effort to implement tough emission standards for automobiles. Could that be bad news for those hungry for federal action on transportation emissions?
At first glance, the news seems to be a win for federal leadership, since the lifting of the roadblock in Washington makes California's efforts possible. But the roadblock's removal could soon be seen as a victory for the states. And that could end up leaving Washington's aspirations to lead the regulation of emissions from cars in the dust.
For years, the Bush administration rebuffed California's effort to regulate carbon emissions from cars, officially a waiver of a Clean Air Act allowing the state to regulate greenhouse gases (GHGs) in automobiles. The automobile industry has objected strongly to state-based regulation efforts, stating that different standards in different states are confusing and expensive. In practice, state standard-making forces the industry to design cars to meet all standards, which means the decision is up to the strictest state with a market that the autos can't ignore. Enter the California Air Resources Board.
If Congressional action doesn't follow an Obama decision in due course, we'll all be looking to the states led by bellwether California for emission standards for the auto industry. And how might the auto manufacturers best proceed to get the best deal from Congress in the Obama era? Consensus solutions and public-private collaboration to break policy deadlock are the new watchwords. The auto manufacturers might take a page from the many highly diverse multi-stakeholder groups that have sprung up recently to address everything from climate legislation to chemical testing and production.
The manufacturers might be well advised at this point to ask key state and federal agencies, labor unions, fleet purchasers, non-governmental environmental and consumer organizations, and other potential legislative “deal-breakers” to join with them in fashioning a single omnibus vehicle performance standard for mileage, emissions, air-conditioning refrigerant, electrification, and other green elements. This might be the best path to a uniform federal approach to autos in climate legislation.
