Thursday, May 28, 2009

Solar Advocacy Group Says Climate Bill Will Fail to Make Solar Energy Cheap

Originally posted at the Breakthrough Institute

The solar energy advocacy organization VoteSolar issued a pretty clear verdict on whether or not the Waxman-Markey American Clean Energy and Security Act will effectively make solar energy cheap and abundant: "The accurate answer is nuanced, but the short answer is no."

Here's their take on the Renewable Electricity Standard, which Breakthrough digs into in a detailed analysis here:

The Solar Energy Industries Association spent the last six months urging Congress to add solar specific provisions to the draft RES [Renewable Electricity Standard] bills, namely a distributed generation carve-out to support rooftop solar, inclusion of solar hot water among the qualifying technologies and accomodations (sic) for utility-scale solar. The solar set-aside is a policy mechanism in use today in fifteen states, and one that has proven effective in kick-starting robust new solar markets.

Instead, a "REC multiplier" for distributed generation is emerging as the favored solar mechanism in the federal bills under consideration. With a three times multiplier, one megawatt hour of distributed solar would be treated as three megawatts of wind, biomass, geothermal or hydro in the REC market. If past experience at the state level proves anything (think Arizona and New Mexico), the multiplier will do little to encourage distributed solar as there's still little incentive to invest in the early-market, higher-cost energy option. Without a direct carve out to encourage this initial investment in distributed solar, it will take much longer to realize the economies of scale cost reductions projected for this valuable energy resource. A further downside to credit multipliers is that they dilute the goal, an outcome that undermines the original intent of the policy. One megawatt counting as three reduces the total amount of renewable energy in the mix, an outcome that undermines the original intent of the policy.
And here's their take on the cap and trade title of the bill, which Breakthrough has also dissected in several posts here:
The Waxman-Markey energy bill also includes a carbon reduction plan. ...

The climate plan in the Waxman-Markey Discussion Draft is the result of years of negotiations and vetting. More than 300 people have testified at over 40 days of hearings in the E&C Committee alone on this plan over the past two Congresses. Even with all of the coalition building of the last decade, Waxman faces a serious challenge just to move the bill out of the E&C Committee. If the skeptics are wrong and this plan passes through Committee and becomes law, will it help deploy solar? Unlikely.

Much like the RES, the carbon cap and trade will encourage short-term, least-cost implementation mechanisms, ignoring the other tremendous benefits solar offers....

If there is an auction of any allowances by the time the bill is passed into law, the solar community is asking that 5 percent of the auction proceeds be set-aside into a solar technology deployment fund. It remains to be seen whether this provision will be contained in the Waxman-Markey draft. But one thing is certain, giving credits away for free means fewer federal dollars to be invested in efficiency, transmission and renewable energy programs.

The role that solar and renewable energy generation plays in the new carbon market also remains in question. Solar advocates assert that solar generators, whether roof-top solar owners or large-scale concentrating solar power plants, should either receive some portion of the carbon credits allotted, or the overall cap should be lowered to account for renewable energy projects.

Both options are designed to ensure real reduction in overall GHG levels from investment in solar generation. Unless we account for renewable energy generation when implementing the program, carbon-emitting generators could meet their requirements by taking credit for emission reductions from renewable energy projects that are already developed. A situation that amounts to zero progress on carbon reduction.
VoteSolar's conclusion:
[W]e remain skeptical that current versions of either the RES or a carbon cap and trade policy will lead to significant solar deployment. The pending bill has proven that a new, cleaner energy future is a national priority. That in itself is progress. But a "sweeping" federal energy bill that fails to deploy a portfolio of renewable energy options is an underwhelming outcome, ill-equipped to help us meet the challenges at hand.

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Climate Bill's Renewable Electricity Standard Severely Weakened; May Have Little to No Impact

Originally posted at the Breakthrough Institute

Advocates of the Waxman-Markey American Clean Energy and Security Act (H.R. 2454, or "ACES" for short) argue that the bill is far more than just a climate bill. It's a comprehensive piece of clean energy, efficiency and climate legislation, and taken as a whole, they argue, it should be considered transformational -- even if the cap and trade portion of the bill may have been significantly weakened (see Breakthrough's detailed analysis of the ACES cap and trade program here).

The ACES bill does indeed include many provisions to set a new course for our nation's energy policy, including efficiency standards and regulations, authorization for new programs aimed at modernizing the nation's electricity infrastructure and paving the way for plug-in hybrid and electric vehicles, and a national renewable electricity standard. Many of these will move America in the right direction.

But the question remains: will ACES really be transformational? And will it propel American quickly away from business as usual and towards the prosperous clean energy economy and dramatic emissions reductions we need?

Breakthrough's team has taken a close look at the bill's cap and trade provision, and discovered that the combination of offset provisions and a little-known provision called the "strategic reserve pool" could allow U.S. emissions to greatly exceed the supposed emissions "cap" set by the legislation.

Here we examine one of the other major provisions of the ACES bill, the national renewable electricity standard (RES) established by Title I of the bill. Unfortunately, our analysis concludes that the RES has been severely weakened since initially proposed in the discussion draft version of the ACES bill; as it now stands, the RES may barely increase U.S. renewable electricity generation compared to business as usual projections.

The discussion draft version of ACES, originally circulated on March 31st, contained a renewable electricity standard with a nominal target of 25% of U.S. electricity generation from qualifying renewable sources by 2025.

I say nominal target, because several exemptions and specifications mean the 25% standard does not apply to all U.S. electricity generation. An April 2009 U.S. Energy Information Administration (EIA) analysis of the originally 25% by 2025 standard concluded that it would really only require 21% of U.S. electricity generation from renewable sources in 2025, after excluding the small utilities exempted from the requirement (any utility that provides less than 1 billion kWh of electricity sales in a given year) and after excluding electricity served by existing hydropower (as the bill specifies).

Furthermore, the original standard allowed a governor of any state to petition the federal government to reduce the renewable electricity requirement for utilities serving their state by 1/5th (to 20% by 2025) if they instead require utilities to achieve 5% energy efficiency savings as a substitute. If this provision were fully utilized, the renewable electricity requirement could have fallen to 16.8% of total U.S. electricity sales in 2025.

That's where things stood at the end of March. But as the ACES bill moved through backroom negotiations and the Energy and Commerce (E&C) Committee markup process, the renewable electricity standard was severely weakened.

As passed by the E&C Committee, ACES (H.R. 2454) replaces the 25% by 2025 renewable electricity requirement with a combined 20% renewable electricity (RE) and energy efficiency (EE) requirement by 2020 (continuing each year thereafter).

Again, this 20% target is nominal though, and after exempting small utilities and hydropower again, it really applies to just 16.8% of total U.S. electricity sales in 2020. (Actually the exemption is worse than that, since the threshold at which small utilities are exempted was expanded to exempt utilities selling less than 4 billion kWh of electricity each year vs 1 billion kWh in the discussion draft. I am unable to calculate the effect of this expanded small utility exemption however, and continue to rely on the EIA analysis as the basis of my calculations, which factors in the lower 1 billion kWh exemption figure. In short: this is a slightly optimistic analysis when it comes to exemptions.)

Since this is a combined RE and EE standard, up to one quarter of the requirement (i.e. 5 percentage points in 2020) can be met with certified energy efficiency savings instead of renewable electricity generation. This means the renewable electricity requirement is really just 15% by 2020 nominally, and applies to just 12.6% of U.S. electricity sales in 2020 after exemptions.

Furthermore, like the discussion draft version, the new standard allows governors to petition to allow further energy efficiency savings to be substituted for the renewable electricity requirements. If utilized, the renewable electricity requirement would be cut back to 12% by 2020 with an 8% energy efficiency requirement. After again excluding exemptions, the renewable electricity requirement would apply to as little as 10.1% of U.S. electricity generation in that scenario.

The following table summarizes and compares the nominal and real targets of the ACES discussion draft version and the H.R. 2454 version as passed by the House E&E Committee (click to enlarge)...


It is also worth noting that the cost containment provision in the renewable electricity standard have also been weakened/lowered (yes, like all cap and trade regulations, renewable electricity requirements always contain some form of cost containment). The provision, known as an "alternative compliance payment", allows utilities to pay a per megawatt-hour (MWh) fee instead of providing proof of qualifying renewable electricity generation. The alternative compliance payment was cut in half from $50 per MWh in the discussion draft version to $25 per MWh in the new version. That means that if complying with the standard is more expensive than simply generating dirty or non-qualifying electricity and paying the $25 per MWh (2.5 cents per kilowatt-hour) alternative compliance payment, utilities will choose to generate less renewable electricity than the supposedly required by the standard.

We've updated the April EIA analysis of the discussion draft version of the ACES renewable electricity standard to reflect all of the above changes and calculate the effects of the standard now contained in H.R. 2454. We also compare these results with EIA's business as usual estimates of qualifying renewable electricity generation (recently updated to reflect the impacts of the recession and stimulus) to estimate the real impact of the new ACES renewable electricity requirements. As with all of our ACES analysis, all our calculations and assumptions are available for download as a spreadsheet (.xlsx) here, and our results are shown in the graphics below.

We conclude that as it now stands, business as usual renewable electricity generation may exceed the renewable electricity requirement if the discretionary efficiency waivers are fully utilized, and will boost qualifying renewable electricity generation to just 2 percentage points higher than business as usual in 2025 if the efficiency waivers aren't utilized at all. In short, the ACES RES will have between little to no impact on renewable electricity generation through 2025 (little impact in a normal scenario and no impact in the worst-case scenario permitted by the legislation; note that this doesn't even factor in the potential use of alternative compliance payments to further reduce renewable electricity requirements...) See graphics below (and click any to enlarge)...



We also compared the amount of qualifying renewable electricity required by the two version of the renewable electricity standards, and conclude that the H.R. 2454 version of the renewable electricity requirement, as passed by the E&C Committee, is 14% weaker than the originally proposed discussion draft standard in 2020 and 40% weaker in 2025, as illustrated in the graphics below...



It's no wonder neither the American Wind Energy Association or VoteSolar are particularly exuberant about the passage of the ACES bill through the Energy and Commerce Committee.

Here's AWEA's remarks on the renewable electricity standard:
The bill passed by the Committee includes an RES of 20% by 2020, permitting states to allow up to 8% of the standard to be met through energy efficiency improvements. AWEA has indicated that while it hails the recognition of the importance of a national RES, such a low level - less than one-half the level originally proposed by President Obama and in Chairman Markey's original discussion draft -- could severely blunt the signal to the private sector to invest billions of dollars and expand production, manufacturing, and job creation.

And here's VoteSolar:
Nearly any policy action that encourages more renewable energy is A-OK with us. ... However, as currently written, none of the pending RES policies will deploy significant amounts of solar. According to the Department of Energy's analysis of that 25 percent RES by 2025, which again is much stronger than the compromise goals emerging from Committees, the federal RES structure could lead to a 35 percent increase in solar compared to a 678 percent increase in wind. When you're starting at 0.001 percent, 35 percent growth doesn't amount to much.

[Update 5/29/09]: The National Renewable Energy Laboratory completed an analysis [pdf] of the renewable electricity standard being considered in the Senate's Energy and Natural Resources Committee. The provision, sponsored by Senator Jeff Bingaman, Chairman of the ENR Committee, is largely consistent with the provisions in the ACES RES.

Like the ACES RES, the Bingaman RES would implement a 20% nominal renewable electricity requirement, but in 2021 instead of 2020. Other provisions, including exemptions for utilities serving less than 4 billion kWh of load each year and for load served by hydroelectric power, are consistent between the two versions of standards. Also like ACES, up to 25% of the requirement could be met with efficiency savings instead of with renewable electricity. After all of these exemptions, NREL concludes that the Bingaman RES would implement a real effective renewable electricity requirement applying to just 12.1% of total U.S. electricity sales in 2030.

NREL analyzed the effect of the Bingaman RES and ran their own baseline assumptions for business-as-usual estimate of qualifying renewable electricity growth due to existing state renewable electricity standards and federal and state renewable energy deployment incentives. NREL concludes, as our independent analysis of the ACES RES does, that the Bingaman RES would require less renewable electricity generation in 2030 than their business-as-usual forecast - 638 terawatt-hours of qualifying renewables in 2030, vs 699 terawatt-hours in the BAU scenario.

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The Catch-22 of Waxman-Markey: Is Offsetting Inevitable?

The Waxman-Markey American Clean Energy & Security Act (ACES) contains a provision that could allow U.S. global warming pollution to exceed the supposed emissions "cap" by 10 percent -- and "make up" for these additional emissions by purchasing several billion more tons of carbon offsets.

Every climate bill, in the U.S. and abroad, contains provisions limiting how high carbon prices established by the policy can rise. The Waxman-Markey American Clean Energy and Security Act (ACES) is no different. As the Breakthrough Institute previously reported, ACES would allow polluters to purchase up to 2 billion tons per year of relatively cheap carbon "offsets," which could allow emissions in supposedly "capped" U.S. sectors to rise by up to 9% between 2005 and 2030. The EPA predicts that, largely due to the extensive use of offsets, carbon prices will remain less than $20 per ton of CO2 for the next decade.

Many proponents of ACES have argued that U.S. polluters will not utilize the 2 billion tons of authorized carbon offsets each year. The supply of credible offsets is limited, they say, and demand will eventually push their price above the cost of most alternative emission reduction strategies. (For now, let's put aside the fact that those same price pressures -- and the industries and sectors that stand to profit from selling more offsets -- will also be a powerful force for establishing weaker offset certification standards.)

However, even in the case where affordable offsets are unavailable, and emission allowance prices rise, ACES contains an additional cost containment provision that could allow U.S. global warming pollution to exceed the supposed emissions "cap" -- and "make up" for these additional emissions by purchasing several billion more tons of carbon offsets.

If allowance prices rise too much in any given year, this provision, known as the "strategic allowance reserve pool," would allow polluters to delay their emission reductions by purchasing emission allowances from the reserve pool, which would then be "refilled" over time with additional international forestry offsets. Based on our analysis, this provision could allow U.S. emissions to rise 10% above the "cap" in any year after 2016 and introduce up to 9.3 billion additional offset allowances between 2012-2050.

Therein lies a Catch-22 of ACES: if the annual use of up to 2 billion tons of offsets permitted by the bill is limited due to a restricted supply of affordable offsets, the government will pick up the slack by selling reserve allowances, and "refill" the reserve pool with international forestry offset allowances later. Here's how it would work (defined in section 726 of the bill).

The strategic allowance reserve would be established by taking a certain percentage of allowances originally reserved for the future -- 1% of 2012-2019 allowances, 2% of 2020-2029 allowances, and 3% of 2030-2050 allowances -- for a total size of 2.7 billion allowances. Every year throughout the cap and trade program, a certain portion of this reserve account would be available for purchase by polluters as a "safety valve" in case the price of emission allowances rises too high.

How much of the reserve account would be available for purchase, and for what price? The bill defines the reserve auction limit as 5 percent of total emissions allowances allocated for any given year between 2012-2016, and 10 percent thereafter, for a total of 12 billion cumulative allowances. For example, the bill specifies that 5.38 billion allowances are to be allocated in 2017 for "capped" sectors of the economy, which means 538 million reserve allowances could be auctioned in that year (10% of 5.38 billion). In other words, the emissions "cap" could be raised by 10% in any year after 2016.

As for the price, the reserve allowance auction price would have a floor of twice the EPA price estimate for the average allowance in 2012, rising by 5% plus inflation in 2013 and 2014. Afterward, the price floor would be 1.6 times the average allowance price for the previous three years. The reserve allowances not purchased each year would be put back in the reserve account. EPA predicts an initial allowance price of just $12-20 per ton in 2015, which would set the initial strategic reserve safety valve price at as low as $24 per ton. According to EPA, allowance prices will remain below $20 per ton until after 2020, meaning the safety valve price that triggers the reserve auction could ensure pollution allowance prices stay below $32 per ton for the first decade or more of the cap and trade program ($24*1.6=$32).

The public proceeds from the reserve auction each year would go toward purchasing international offsets from reduced deforestation. These offsets would be converted back into emission allowances and placed in the strategic reserve account (at a 5 offsets to 4 allowances conversion ratio after 2017, as with other international offsets). Interestingly, the legislation specifies that if the reserve account is filled to its original size, any additional allowances from international offsets would be allocated and auctioned as part of the normal allowance auction in a future year, adding even more offsets into the mix.

This first graph represents the impact the strategic allowance reserve could have on emissions in capped U.S. sectors during any year between 2012-2050. It also shows the additional impact on capped sectors if up to 2 billion tons of offset provisions were used in any given year (we aren't predicting this will occur, but showing the real maximum extent of emissions the bill authorizes, in contrast to the "hard emissions cap" it supposedly establishes). BAU is based on a projection by the World Resources Institute:

This second graph represents the impact the strategic allowance reserve could have on total, economy-wide U.S. emissions during any year between 2012-2050. It also shows the additional impact on U.S. emissions if 1.5 billion tons of foreign offsets potentially permitted by the bill are used in any given year:

Finally, these two graphs show the impact of the strategic reserve and full offsets on total U.S. emissions in 2020 and 2030 compared to other levels:

Since there is no limit on how many foreign offsets could be purchased and used to replenish the strategic reserve -- and since the original size of the allowance reserve is 9.3 billion less than the total number of allowances authorized for reserve auction (12 billion minus 2.7 billion) -- this provision could introduce up to 9.3 billion offset allowances to the cap and trade system, in addition to the 2 billion in annual offsets already authorized by the bill. At an average price of $15 per allowance, this would add up to $139 billion in international forest offsets. (Click here to download full spreadsheet analysis.)

In order for these offsets not to be utilized -- and for the emissions "cap" not to exist in name only -- two things must hold true. First, international offsets must be more expensive than emissions reduction opportunities in capped domestic sectors, and second, the cost of these domestic reduction opportunities must not trigger the widespread purchase of the reserve allowances. Otherwise, either private investors or the government will purchase large quantities of international offsets and the total allowable emissions in the supposedly "capped" sectors will be permitted to exceed the emissions "cap."

Whether or not this potentially high demand level for foreign offsets -- and the trading mechanisms inherent to the cap and trade system -- is comparable to the conditions that produced the global financial crisis, is up for debate (Friends of the Earth, at least, is worried). The financial crisis was caused by many factors, but a critical one was the massive global "savings glut" that resulted in extraordinary levels of demand for mortgage-related assets in the US. In this environment, there was little incentive to stop the sale of subprime mortgages.

The design of Waxman-Markey may create a set of conditions around carbon offsets all too similar to the conditions leading up to the financial crisis: an extraordinary level of demand, and very little incentive to stop the production and sale of "subprime" offsets. Remember, as conditions stand now, a well-known Stanford University study on international offsets concluded: "between a third and two thirds of emission offsets under the Clean Development Mechanism (CDM) -- set up under the Kyoto treaty to encourage emissions reductions in developing nations -- do not represent actual emission cuts."

If ACES is established and the U.S. suddenly enters the international offsets markets with an appetite for billions of tons each year, the pressures and motivations at play are arguably stacked in favor of weakened -- not stronger -- standards of integrity for carbon offsets. If and when carbon prices rise, the pressure will be on to mitigate price impacts on consumers, industry and the U.S. economy. At the same time, potential offset providers will see a new multi-billion dollar opportunity to expand their supply of offsets through weaker standards. Standing against these powerful interests will be the environmental community, fighting to convince policymakers to put longer-term environmental interests ahead of short-term energy price pressures and political backlash. Who do we think elected officials will listen to in that scenario?

And finally, what happened to the "hard cap" and "emissions reduction certainty" that cap and trade advocates have long promised?

Read more!

Wednesday, May 27, 2009

EIA: World Energy Use Will Rise 44% By 2030; Developing Nations Demand Abundant, Affordable Energy

Driven largely by strong economic growth in developing nations, world energy consumption will grow 44% between 2006 and 2030, according to updated projections released Wednesday by the U.S. Energy Information Administration.

The EIA reports:

World marketed energy consumption is projected to grow by 44 percent between 2006 and 2030, driven by strong long-term economic growth in the developing nations of the world, according to the reference case projection from the International Energy Outlook 2009 (IEO2009) released today by the Energy Information Administration (EIA).

The current global economic downturn will dampen world energy demand in the near term, as manufacturing and consumer demand for goods and services slows. However, with economic recovery anticipated to begin within the next 12 to 24 months, most nations are expected to see energy consumption growth at rates anticipated prior to the recession. Total world energy use rises from 472 quadrillion British thermal units (Btu) in 2006 to 552 quadrillion Btu in 2015 and then to 678 quadrillion Btu in 2030.
In the decades ahead, the world's rapidly developing nations will clearly demand abundant and affordable energy. The question remains: what will the nations of the world do to ensure that demand is met by clean and cheap energy technologies?

According to the EIA, the report's findings include:
  • The rapid increase in world energy prices from 2003 to 2008, combined with concerns about the environmental consequences of greenhouse gas emissions, has led to renewed interest in the development of alternatives to fossil fuels. Renewable energy is the fastest-growing source of world electricity generation in the IEO2009 reference case, supported by high prices for fossil fuels and by government incentives for the development of alternative energy sources. From 2006 to 2030, world renewable energy use for electricity generation grows by an average of 2.9 percent per year (Figure 1), and the renewable share of world electricity generation increases from 19 percent in 2006 to 21 percent in 2030. Hydropower and wind power are the major sources of incremental renewable electricity supply.

  • Worldwide, industrial energy consumption is expected to grow from 175 quadrillion Btu in 2006 to 246 quadrillion Btu in 2030. Industrial energy demand varies across regions and countries of the world, based on levels and mixes of economic activity and technological development, among other factors. About 94 percent of the world increase in industrial sector energy consumption is projected to occur in the emerging economies, where--driven by rapid economic growth--industrial energy consumption grows at an average annual rate of 2.1 percent in the reference case. The key engines of growth in the projection are the so-called "BRIC" countries (Brazil, Russia, India, and China), which account for more than two-thirds of the developing world's growth in industrial energy use through 2030.

  • In the IEO2009 reference case, which does not include specific policies to limit greenhouse gas emissions, energy-related carbon dioxide emissions are projected to rise from 29.1 billion metric tons in 2005 to 40.4 billion metric tons in 2030--an increase of 39 percent. With strong economic growth and continued heavy reliance on fossil fuels expected, much of the increase in carbon dioxide emissions is projected to occur among the developing nations of the world, especially in Asia (Figure 2).
The full EIA report can be found here.

See also:

  • "Should Major Emitters Focus on the Sun" by Andrew Revkin at Dot Earth; and

  • "IEA Report Confirms Clean and Cheap Energy Needed to Power Global Development" by Jesse Jenkins at the Breakthrough Blog.

  • Originally posted at the Breakthrough Institute

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    Saturday, May 23, 2009

    Joe Romm Tries to Shut Down Climate Bill Debate by Attacking Breakthrough Institute

    Originally posted at the Breakthrough Institute

    Breakthrough Institute spent the past week analyzing the Waxman-Markey climate bill. We released several objective and transparent analyses for the benefit of our readers, exploring the allocation of allowances and the use of offsets in an effort to illuminate some of the weaknesses and strengths of the bill. This analysis was cited by Time Magazine, National Public Radio, Reuters, and the Wall Street Journal.

    Joe Romm
    Joe Romm responded to our analysis on Climate Progress yesterday attacking it as "anti-environmental," "anti-climate-action," and a "disinformation rampage," declaring that Breakthrough Institute should be considered "part of the anti-environmental movement." This follows his recent attacks on Greenpeace, Andrew Revkin, and other reputable environmental and climate advocates, as well as a two-year series of ad-hominem attacks on Michael Shellenberger and Ted Nordhaus.

    For the record, Breakthrough Institute has a long history of advocating progressive climate and energy policy (see our history). In 2003, Michael and Ted co-founded the Apollo Alliance, the first-ever public campaign calling for a $300 billion federal investment in clean energy. In 2005, former Senator Obama introduced a proposal co-written by Breakthrough to raise fuel efficiency standards, "Healthcare for Hybrids." In 2007, the Obama campaign adopted a $150 billion clean energy investment platform based on Breakthrough's recommendations. And in April 2009, the Obama administration adopted Breakthrough's proposal for a National Energy Education Act. Throughout this time we have continually advocated (see our writing page) a national approach on climate change and clean energy capable of achieving the broad transformations we need.

    To support his assertion that Breakthrough's analysis of Waxman-Markey is anti-environmental and anti-climate-action, Romm raises two criticisms. First, he claims we misrepresent the bill's offset provisions. He states, "[the Breakthrough Institute] analysis is devoid of any analysis -- or understanding -- of the offset market... it is clear that the offset provisions in Waxman-Markey do not vitiate the targets. Indeed, I have previously explained why the supply of domestic offsets provision does not undermine the target." This comes after Romm's long effort to "debunk" carbon offsets as a legitimate climate mitigation strategy, coining the term "rip-offsets."

    Breakthrough's analysis is unrelated to the use of domestic offsets, which is clear from a brief reading of our posts. Our findings relate to the use of international offsets and their potential impact on U.S. emissions. Jesse Jenkins states, "the use of international offsets would allow U.S. emissions to continue at up to 1.5 billion tons higher than the emissions reduction path intended by the bill." This analysis can be viewed here and downloaded here, and we encourage our readers to take a look and offer feedback. In order for this scenario not to occur, several contingencies must prove true:

    (1) The opportunities to reduce emissions in "capped" sectors must be more affordable than paying for international offsets; (2) Offsets must not be readily available at the scale permitted by the bill and the cost of reducing emissions in capped sectors does not trigger the release of additional emissions from the strategic reserve pool; (3) Emission reductions must be driven by factors other than the cap and trade mechanism, for example, by the complementary measures contained in the bill, by other policies, or by macroeconomic factors.

    Each of these contingencies is uncertain, complex, and subject to debate. Our analysis intends to reveal an outcome in which these contingencies do not prove true. Romm may claim this exercise is anti-environmental and anti-climate-action, however, given the importance of rapidly reducing U.S. emissions, we are committed to a transparent discussion about the possibilities of the legislation.

    Romm's second criticism regards a carbon pricing scenario contained in Michael and Ted's recent piece in Yale Environment 360. Michael and Ted wrote, "If the price of carbon dioxide is only $5 per ton -- a level Waxman-Markey supporters like the Center for American Progress's Joe Romm says it could reach -- there would be just $3 billion for energy technology and just $250 million for R&D." Romm doesn't deny his prediction that the bill would result in a $5-10 per ton price, however, he attacks this as a misrepresentation because the price will "rise quickly after 2020." In fact, the majority of Breakthrough's analysis assumes an average allowance price of $10 to $15 between 2012-2025, consistent with the EPA (see here and here). However, given the critical nature of large-scale federal investments in clean energy, we believe it is important to consider all scenarios under this bill. (Note: the latest version of the bill, released after Michael and Ted's article went to publication, contains a price floor of $10 for these allowances.)

    We have documented Romm's histrionics and misrepresentations several times, as well as his incorrect views on energy technology. Those readers interested in reviewing this debate can do so here. In this post, Romm also lists some of his previous blogs about Breakthrough and criticizes Michael and Ted's other recent writing. For the benefit of our readers, below we correct Romm's major misrepresentations step-by-step.

    Romm's attempt to shut down serious debate about critical climate legislation -- and his aggressive effort to attack and discredit those attempting to illuminate the bill's weaknesses, including reputable environmental activists and reporters -- should raise questions about his role as a credible and progressive climate advocate. And whether the Center for American Progress continues to tolerate his behavior may have a lasting impact on its credibility as one of the nation's largest progressive think tanks.

    Corrections to Romm's May 22, 2009 post, "Memo to media: Don't be suckered by bad analyses from the Breakthrough Institute the way Time, WSJ, NPR, and The New Republic have been"

    (#1) Romm: "They attacked President Obama's cap-and-trade climate plan as political suicide and doomed to fail, 18 months after endorsing the plan -- heck, they said it was their plan all along."

    Fact: Breakthrough never suggested that Obama's cap and trade plan was political suicide. We said his threat to mandate significant emissions reductions through Clean Air regulations that would drive up energy prices was political suicide. The threat has in fact proven empty, with Obama, Congressional leaders, and regulated industries all agreeing to pass cap and trade legislation that mandates no substantial reductions in carbon emissions for two decades and places severe limits on how much energy prices may rise.

    What Breakthrough said:

    "Still, most greens were heartened after the White House announced plans to regulate carbon dioxide as a pollutant under the Clean Air Act. But the threat to regulate CO2 will ultimately run into the same political constraints that have hamstrung efforts to cap carbon emissions in the U.S. Congress. The Obama administration is unlikely to propose regulations that will significantly increase energy prices in key political battleground states, at least not in his first term. And subsequent administrations are no more likely to propose or stand behind unpopular regulations that will raise energy prices than will the Obama administration. As such, the threat to regulate CO2 will likely prove empty -- a gesture to environmental supporters and the international community that Obama is serious about climate change, but unlikely to result in substantial reductions in U.S. carbon emissions or break the current gridlock in Congress."

    (#2) Romm: "So it is perhaps not surprising that 18 months after I got them to strongly and publicly endorse Obama's cap-and-trade plan, they have launched a series of attacks on it -- attacks based on misrepresentation and misanalysis."

    Fact: Breakthrough endorsed Obama's energy plan, which called for $15 billion annual investments in clean technology, far reaching renewable portfolio and efficiency standards, and a 100% auction with no price caps, not a cap and trade system that gives away the mass majority of allowances for free, allows emissions from regulated sectors of the economy to rise for two decades, guts renewable energy requirements, and includes little public funding for clean energy research and development or deployment.

    What Breakthrough said in 2007:

    "Romm asks if we embrace Obama's plan. Not only do we embrace it, we've been advocating such a plan since 2002. In the run up to the 2004 presidential elections we aggressively lobbied the Kerry campaign for such investments and were repeatedly rebuffed by his environmental policy and political advisers who claimed, similar to Romm, that major public investments weren't a priority.

    Obama's energy plan, like the plan that we outline below, recognizes the need for regulatory standards and a cap on emissions. But these are positions he has long held -- last January he co-sponsored a cap and trade bill in the Senate. What was new about Obama's plan announced Monday was the large public investment. Obama's proposed clean energy investment is not only larger than anything proposed by the other Democratic Presidential candidates, it is much larger than anything lobbied for by the national environmental lobby in Washington. It goes half way toward the at least $300 billion we need to achieve the emissions reductions and clean energy price reductions we need."

    (#3) Romm: "They utterly... missrepresent the findings of the International Energy Agency, McKinsey, and the Stern Review"

    Fact: Breakthrough has repeatedly documented how Romm's views on energy technology stand in opposition to the majority of energy and climate experts. As we wrote last month:

    "Romm has recycled his assertions that no new technological development (beyond very minor improvements to existing technologies) is necessary to tackle the massive global energy and climate challenge. He repeats his efforts to label those who call attention to the scale and urgency of our energy innovation challenge and advocate major investments in energy technology as "climate delayer-equivalents." And Romm does so at the exact same time as he plainly ignores -- one might say, denies -- the wide body of evidence and expert consensus that dramatic innovation to spur both incremental and transformative developments in a whole suite of clean energy technologies is critical if we hope to overcome the climate and energy challenge and preserve a prosperous global society."

    (#4) Romm: "[The Breakthrough Institute] has recently written two attacks on Waxman-Markey, "The Flawed Logic of The Cap-and-Trade Debate," which attacks any effort to significantly raise the price of carbon pollution through a tax or a cap."

    Fact: We endorsed low and sustainable carbon prices in the Yale article, as we have since 2007. We criticized the policy advocacy framework -- such as that which led to Waxman-Markey -- which continues to rely upon the implementation of high carbon prices in the face of overwhelming evidence that no political economy in the world has been willing or able to maintain high carbon prices.

    What Breakthrough said:

    "The problem is that no government in the world so far has been willing to establish and sustain a high price on carbon, whether through taxes or caps... Rather than attempting to establish high carbon prices globally in order to create sufficient incentives for private interests to invest in energy technology innovation, this new framework focuses on establishing very modest and politically sustainable carbon prices in developed economies to fund very large public investments in technology innovation and to help bring competitive technologies to market...

    Far better to accept that the price for carbon won't be high and implement a simple and transparent program to establish a stable and low price. Such an approach is compatible with either a carbon tax or cap-and-auction with hard price caps and floors... It is time that we get serious about how to achieve deep reductions in emissions with the low carbon price we will get rather than the high carbon price we may wish for... the alternative is another decade of attempting to implement policy predicated on high carbon prices without the necessary price signal for those policies to have any chance of succeeding."

    See here for more information about Joe Romm and our ongoing debate.

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    Friday, May 22, 2009

    As Climate Bill Passes Tough Committee, Why Am I So Worried?

    Late Thursday night, the House Energy and Commerce Committee voted 33-25 to pass landmark legislation that promises to address our nation’s urgent energy challenges and help avert potentially catastrophic climate change. The legislation, known as the American Clean Energy and Security Act (or ACES), also presents an unprecedented opportunity to renew our economy and position the United States at the forefront of a burgeoning global market for clean and affordable energy technology.

    Momentum is now behind a serious effort to address climate change, and that is cause for celebration. The bill’s champion’s – notably Henry Waxman, Ed Markey and Jay Inslee and their dogged staff – deserve praise for bringing the bill through some pretty hostile territory in the Energy and Commerce Committee, and for their tireless efforts during the marathon sessions of the past week.

    However, knowing how much is at stake, we must also take a close look at whether or not the bill lives up to its promises.

    In my latest exclusive monthly column at the Energy Collective, I explain why, after spending all week digging through the 1,000 page ACES bill, I'm left worried, very worried. Head over to the Energy Collective and find out why...

    Read more!

    Young Climate Champions vs. Politicians and Old King Coal

    Originally posted by our friends at Campus Progress:

    15 people of all ages, were arrested this morning while obstructing Representative Boucher ’s (D-VA) office. Rick Boucher is the second largest recipient of coal money in congress (preceded only by fellow Democrat and Energy and Resources committee member John Dingell from Michigan) and many of his constituents are getting fed up with him for voting in favor of King Coal and against the economic well-being of his district. This action was the latest chapter in an escalating series of attempts by Virginia Tech students to meet with their legislator about the climate crisis, all attempts that were blatantly ignored by his scheduler. Throughout this time, instead of listening to his constituents, Rick Boucher met with coal lobbyists and negotiated behind closed doors to weaken the American Clean Energy and

    After spending 4 months waiting for a response from Boucher’s scheduler, our friends at the Chesapeake Climate Action Network got fed up and organized an incredibly inspiring sit-in to obstruct Rick Boucher’s office due to his own obstruction of working-class and climate friendly legislation.

    Read more!

    Thursday, May 21, 2009

    Waxman-Markey Could Give 2.5 Times More Money to Foreign Offsets than U.S. Clean Energy

    If all foreign offset provisions in the Waxman-Markey climate bill are used, the cap and trade regime would spend nearly three times more money overseas for carbon offset programs than it would invest in home-grown clean energy industries, technologies, and job creation.

    Last week, our analysis showed that Waxman-Markey would, on average, invest between $6 to 9 billion annually in clean energy technology and energy efficiency between 2012-2025. These funds would be raised by auctioning a cumulative total of 8.4 billion emission allowances. This stands is contrast to the $41 billion in allowances that would be given to polluters each year, and it is far less than the $15 billion President Obama has promised for clean energy R&D.

    But how do these clean energy investments stack up against Waxman-Markey's spending on international offsets? The bill would allow polluting firms in the U.S. to finance emissions reductions overseas instead of reducing their own global warming pollution. The number of U.S. emissions that could be covered by foreign offsets every year is one billion tons, however, if too few domestic offsets are available, this number could rise to 1.5 billion tons. Breakthrough Institute analysis shows this could allow U.S. emissions to rise through 2030.

    If all 1.5 billion foreign offset provisions are used each year between 2012-2025, this adds up to a cumulative total of 21 billion emission allowances. That's 2.5 times times the allowances provided for clean energy during that period (8.4 billion). The table below compare allowances and potential funding under these scenarios, and the graph compares annual funding at an average allowance price of $15.

    Whether or not these foreign emissions offsets would be legitimate -- and whether U.S. dollars would be used honestly and effectively overseas -- is beyond the scope of this post. However, it is worth quoting the famous study released last year by Stanford University on international offsets:

    "between a third and two thirds" of emission offsets under the Clean Development Mechanism (CDM) -- set up under the Kyoto treaty to encourage emissions reductions in developing nations -- do not represent actual emission cuts."

    Click images to magnify:

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    Waxman-Markey Climate Bill's Emissions "Cap" May Let U.S. Emissions Continue to Rise Through 2030

    [Updated 6/18/09 to more clearly explain and depict the potential banking of offsets.]

    At the heart of the nearly thousand page long climate change and clean energy bill being debated in the U.S. House of Representatives this week is a "cap and trade" mechanism aimed at limiting greenhouse gas emissions that contribute to global warming.

    However, a provision in the bill, known as the American Clean Energy and Security Act (H.R. 2454 or "ACES"), allows polluting firms in the U.S. to finance emissions reductions overseas in lieu of reducing their own global warming pollution and may allow American emissions to continue to rise for up to twenty years, according to new analysis from the Breakthrough Institute.

    The provision allows power plants, oil refiners, and other polluters regulated under the bill's cap and trade program to use up to one billion tons of international emissions reductions, or "offsets," to be used instead of reducing their own emissions each year. The bill also allows up to one billion tons of additional offsets each year, sourced from sectors of the U.S. economy that do not fall under the pollution cap, such as forestry and agriculture. If a suitable supply of domestic emissions offsets are unavailable, the limit on the use of international offsets may be raised to 1.5 billion tons annually at the discretion of the Administrator of the U.S. Environmental Protection Agency (EPA).

    The extensive use of these international and domestic offsets would effectively allow U.S. firms in capped sectors to continue emitting global warming pollution at levels well above the reductions supposedly driven by the emissions cap. New analysis from the Breakthrough Institute reveals that if fully utilized, the offset provisions in the ACES bill would allow continued business as usual growth in U.S. greenhouse gas emissions until 2030. Emissions in supposedly sectors of the economy supposedly "capped" by ACES could continue to grow at BAU rates until as late as 2037.

    While the bill intends to reduce economy-wide U.S. greenhouse gas emissions 20% below historic 2005 levels by 2020, 42% by 2030 and 83% by 2050, analysis from the Breakthrough Institute illustrate how the use of offsets would actually allow U.S. emissions to continue to grow at business as usual rates for years or even decades ahead.

    The following graphics illustrate the effect of the offset provisions. Click any of them to enlarge.

    The first graphic illustrates total legally permitted emissions in sectors of the economy covered by the ACES cap and trade regulations if offsets are available at the full levels permitted by the legislation (up to 2 billion tons per year). As this graphic illustrates, offsets could create a major oversupply of emissions allowances during the first years or even decades of the cap and trade program. This oversupply would either collapse the market value of emissions allowances or allow significant quantities of emissions permits to be banked for future compliance years (ACES allows unlimited banking of unused allowances) -- or both.


    It's obvious that firms would not opt to increase their emissions above BAU simply because emissions permits are available. However, firms are likely to bank any excess permits in early years for future compliance periods since excess permits implies a slack market and lower prices than would be expected in future compliance years. Rational firms with available capital would therefore opt to purchase excess low-cost offsets and bank them for future years when prices are expected to rise. This second graphic illustrates the potential range of emissions if any excess permits are banked, allowing continued BAU emissions growth as long as supplies of current vintage year permits and banked permits remain adequate.


    As this graphic illustrates, emissions in supposedly capped sectors could continue to grown at business as usual rates through 2030 and beyond. In fact, if offsets are available at the full 2 billion tons legally permitted by the bill, emissions in covered sectors could continue to rise at BAU rates until 2037 before any emissions reductions would be required. We of course note that this is not a projection of likely outcomes under ACES, but it is the maximum emissions scenario that is legally permitted by ACES.

    The next two charts illustrates the range of potential emissions across the entire U.S. economy allowed by the ACES bill if international emissions offsets are utilized at the levels permitted by the legislation (1 billion tons in normal circumstances; up to 1.5 billion tons if domestic offsets are unavailable in significant quantities). Again, the first graphic shows emissions that would be legally allowed if each year's permit supply was fully utilized, while the second graphic shows the total emissions that would occur if excess permits are banked.



    At 1 billion tons of international offsets per year, emissions would be legally permitted to continue growing at BAU rates until 2025. If 1.5 billion tons of international offsets are utilized each year, emissions could continue to grow at business as usual rates until 2030.

    (Compare the above graphics with this analysis from the World Resources Institute, which does not consider the impact of international offsets on U.S. emissions levels.)

    Again, these are not projections, but illustrate the range of potential emissions scenarios that would be legally permitted by ACES. If extensive offsets are utilized, the supposed "cap" on regulated sectors of the economy will essentially be lifted for years or even decades after the start of the cap and trade program. The result will be very little pressure to shift practices in capped sectors as long as affordable offsets are available for purchase.

    This all leads one to wonder: where's the cap in the "cap" and trade program?

    Note: All of these graphics and the underlying calculations and assumptions can be downloaded here as a .xlsx file.

    See Breakthrough Institute's ongoing independent analysis of Waxman-Markey ACES climate bill collected here

    Originally posted at the Breakthrough Institute

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    Wednesday, May 20, 2009

    U.S. Greenhouse Gas Emissions Plunge in 2008 - Record Gas Prices, Economy Major Drivers

    Driven by record-high gas prices in the first half of the year and the economic crisis that hit in the later half of the year, United States greenhouse gas emissions plunged by the largest amount in decades, according to preliminary data released today by the U.S. Energy Information Administration.

    U.S. greenhouse gas emissions, which drive global climate change, fell to 2.8% in 2008 to 5.8 billion metric tons of carbon dioxide equivalent (CO2-e), the lowest level of emissions in any year since 2000. Total U.S. energy consumption also fell 2.2% in 2008, the EIA reports.

    (Sorry for poor image quality, blame the source: the EIA)

    The drop in oil consumption in 2008 was the major driver of lower greenhouse gas emissions, as oil topped record prices throughout most of the year. Emissions from petroleum fell 6% in 2008, down 155 million metric tons CO2-e in 2008. Natural gas emissions rose slightly, inching up 1%, or 13 million metric tons CO2-e. Emissions from the combustion of coal fell 1.1%, by 23 million metric tons CO2-e.

    Electricity generation was down 1% in 2008, leading the the drop in coal combustion, and a decline in electricity-sector emissions of 50 million metric tons CO2-e, a 2.1% drop. Electricity generation from non-carbon emitting sources (wind, solar, hydro, nuclear, etc.) increased by 18.6 billion kilowatt-hours (1.7 percent) in 2008, even as electricity generation overall fell, bringing the non-carbon share of generation up from 27.8% in 2007 to 28.5% in 2008.

    In 2008, transportation CO2 emissions fell 5.2%, the largest annual decline since 1990. In contrast, transportation emissions have risen by 1.1% annually since 1990, as can be seen in the graphic to right.

    Interestingly, emissions fell in 2008 despite an overall growth in economic output (GDP). While GDP plunged at an annual rate of 6.3% in the 4th quarter of 2008, as the economic crisis accelerated, GDP was up by 1.1% overall in 2008.

    Emissions fell despite this economic growth due to an overall "decarbonization" of the economy, a fall in energy intensity and emissions intensity of the economy which has held strong for the past decades (see graphic to right). The EIA reports that energy-related CO2 emissions per unit of GDP dropped 3.8 percent in 2008, enough to outpace the modest economic growth in the year. The emissions intensity of the economy is the product of two factors, energy intensity of the economy (energy/GDP), which includes energy efficiency and productivity factors, and CO2 intensity of the energy supply (CO2/energy), which factors in the mix of energy sources and fuels used. According to the EIA, both factors fell in 2008, with energy per GDP falling 3.3% and CO2 intensity of the energy supply inching down 0.6%.

    For more, check out the preliminary report from the Energy Information Administration here. The full report will be released in "the fall of 2009."

    Read more!

    Tuesday, May 19, 2009

    Update: Waxman-Markey eliminates key offset provision, increasing domestic offset use and lowering allowance prices

    The original discussion draft of Waxman-Markey included a key provision that would have required domestic and international offsets to reduce 1.25 tons of carbon dioxide in order to receive one pollution allowance equivalent to 1 ton of carbon dioxide. In other words, the conversion ratio for offsets to carbon allowances was 1:25 to 1.

    However, the full version of Waxman-Markey (introduced on Friday) eliminates this provision for all domestic offsets and for international offsets between 2012-2017. The impact, according to new EPA analysis (download PDF), will be an 11% increase in domestic offset use and a 7% reduction in the price of all pollution allowances every year. The EPA writes:

    The offsets provisions in H.R. 2454 differ from the provisions in the draft bill. Domestic offsets in the introduced bill have a one-to-one turn-in ratio (i.e., only one ton of offsets needs to be turned in for every ton of covered sector emissions being offset). International offsets have a one-to-one turn-in ratio for the first five years of the policy. After the first five years, five international offsets must be turned in for every four tons of covered emissions being offset...

    As was shown in EPA's modeling of the draft bill, using a one-to-one turn-in ratio for domestic offsets instead of the five-to-four turn-in ratio that was specified in the draft increases the total purchase and use of domestic offsets by 11%... The effect of that change alone is to lower allowance prices by 7% in each year.

    Read more!

    You Can't Build a New Foundation With Dirty Energy

    This is a guest post by Billy Parish, founder and former director of the Energy Action Coalition and current Ashoka Fellow

    Building a new foundation requires a lot of heavy machinery. Bulldozers to clear the land, extractors to dig the foundation, concrete-mixers to pour the cement, and trucks to haul the raw materials. So perhaps it's appropriate that Jim Owens, the CEO of Caterpillar will be at the White House tomorrow for the first meeting of the President’s Economic Recovery Advisory Board (PERAB). The group includes some of America’s leading thinkers, business executives, and academics, including the CEOs of GE, UBS, and Google. (full list here)

    The Board was created by President Obama in February to provide an outside-the-Beltway perspective on how we can recover from the financial crisis and build a new foundation for the American economy. "New Foundation" is emerging as the catch-all phrase to describe Obama's domestic policy agenda, similar to FDR's "New Deal" or Johnson's "Great Society" as a recent New York Times article points out. It's a good term, capturing both the shaky and unsustainable foundation of our past economic growth and framing out the kind of economy we need to build for the long-term. We are well past the time for patchwork solutions. We must rebuild and we must rebuild the right way.

    Obama said as much in his "New Foundation Speech" at Georgetown University on April 14th, when he named renewable energy the third of five pillars necessary to rebuild the American economy. A clean energy economy "can create millions of new jobs and new industries. We all know that the country that harnesses this energy will lead the 21st century." However, as the President acknowledged, "we have allowed other countries to outpace us on this race to the future.”

    It is no secret that the United States has fallen behind in the most importation economic competition of the 21st century. A lack of national standards, an absence of strong climate and energy policy, and never-ending subsidies to the fossil fuel industry, have hindered America's ability to compete with other countries for top talent and investment capital. It's gotten to the point, that "if you list today’s top 30 companies in solar, wind and advanced batteries, American companies hold only 6 spots.” As John Doerr, a venture capitalist at Kleiner Perkins Caufield & Byers and member of PERAB, testified before Congress earlier this year, “That fact should worry us all.”

    We face serious competition from a number of nations, including Spain, Israel, Germany, and Japan, but China is and will be our primary competitor for clean tech supremacy. China is already the leading alternative energy producer in the world, investing $12.6 million every day in alternative energy. According to a recent report by The Center for American Progress, the US plans to invest half as much stimulus money as China in “renewable energy, low-carbon vehicles, high-speed rail, an advanced electric grid, efficiency improvements, and other water-treatment and pollution controls." We are far behind and only falling further. While China's government and businesses are seizing a historic economic opportunity to expand their market share and move into high value businesses, we are fighting amongst ourselves in Congress and worrying about how to keep the fossil fuel industry happy.

    The Waxman-Markey Act recently introduced in the House could be the right start, but it currently falls far short of what we need. An analysis by the Breakthrough Institute found that of the $1 trillion in cap and trade revenue between 2012-2025, only 12% of this value, or $9 billion a year will be invested in clean technology. "This $9 billion is far less than what Obama promised ($15 billion) and far less than the $30 billion that three dozen energy scientists and experts, including several Nobel laureates, called for in a sign-on letter during the fall of 2007." In addition, 57.3% of allowances would be freely distributed to polluting industries, which "stands in contrast to Obama's previous calls for a 100% auction, which was included in his final budget proposal." So while the fossil fuel industry is doing everything it can to water down legislation, what it is really doing is weakening our economic future.

    The good news is that many in the business community, including some high profile members of PERAB, realize this and are fighting to build a new foundation with clean energy. The CEOs of large corporations are speaking out in favor of climate and energy legislation (Check out the 9 principles of BICEP: Business for Innovative Climate and Energy Policy). Smart business leaders like Google CEO Eric Schmidt know that "if you invest in the right way you can make money by doing this.” They know that it is in America's best interest to pass strong climate and energy legislation. As Jeff Immelt, the CEO of GE says, "businesses expect a price on carbon, and investors want clarity and certainty." Let's be happy that both Schmidt and Immelt are on Obama's Recovery Board.

    But perhaps more importantly, small businesses across the country are already hard at work building the the new economy. And they're not sitting by quietly as the US Chamber of Commerce undermines America's long-term competitiveness. Just last week, 10,000 small-business leaders petitioned the Chamber of Commerce to "stop lobbying against the clean energy jobs bill."

    All of this is important, but nothing will help more than presidential leadership. We are blessed with the greatest communicator in the White House since at least Ronald Reagan. A man who understands and values science. When it comes to energy and climate change, we need a President who will lead the movement and not just wait for the movement to come to him.

    A clean energy economy can be more than a pillar to our economic recovery. It can be the cornerstone of our New Foundation.

    This entry is cross-posted at The Huffington Post.

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    Clean Energy Climate Bill Gives Coal a Competitive Future

    I'm very happy to cross-post this excellent piece from David Sassoon at SolveClimate routinely serves up excellent climate news and analysis from their growing reporting team, and I highly recommend the site to all of my WattHead readers. - Jesse Jenkins, founder and chief editor.

    America's future climate law began working its way through Congress this week, rewritten with new details and changes that were negotiated to give the coal industry generous incentives and the regulatory certainty to compete for a place in the nation's energy future.

    Here's how Rep. Rick Boucher of Virginia, a lead negotiator for coal state Democrats on the House Energy and Commerce Committee, described the deal they worked out:

    "I’ve been working extensively to fashion a controlled program that Congress can adopt which will preserve coal jobs, create the opportunity for increasing coal production and keep electricity rates in regions like Southwest Virginia affordable. The compromise that I have reached with Chairman Waxman achieves those goals."

    Boucher and fellow coal state Democrats cut those deals with the bill’s authors, Reps. Henry Waxman and Ed Markey, with President Obama – a "clean coal" supporter – giving them a free hand to arrive at the formula that would secure the votes needed for passage.

    Although the president called for a polluter-pays 100% auction of carbon allowances when he asked Congress for a climate law, the now 932-page American Clean Energy and Security Act of 2009 does the precise opposite: It contains a formula that gives most of the allowances to polluters for free – with about a third of them going to the coal-dominated power industry at no cost.

    The free allocations were one major reason that Greenpeace withdrew support for the bill within hours of its introduction, but most of those in the climate community who have weighed in so far have been willing to swallow compromises that would have been unthinkable in January. Al Gore's support for the bill remains undiminished. Paul Krugman at The New York Times summed up the prevailing attitude best:

    The legislation now on the table isn’t the bill we’d ideally want, but it’s the bill we can get — and it’s vastly better than no bill at all.

    As climate actors start wading further into the details of the bill's provisions, however, they may find themselves hard pressed to justify passive acquiescence while enduring the certain further weakening of the bill on the Senate floor.

    Ground zero of the contention centers around coal, an embattled industry which emerged from the negotiations with a surprisingly good deal. The bill contains performance standards for new coal plants that are weaker than those in the original Waxman-Markey discussion draft, funnels billions in funds and incentives to the development of "clean coal," and strips EPA of authority to proceed with development of regulations for smokestack CO2 produced by the industry.

    Further, although the bill imposes a gradual economy-wide emissions cap, the penalty for non-compliance or failure to achieve target reductions would amount to no more than a slap on the wrist, given the low price permits are expected to fetch on the market for some time.

    Mainstream environmental groups, however, are focused on what they would get in exchange — the holy grail of their climate campaign — the establishment of an economy-wide cap-and-trade system whose efficacy they believe can be increased over time. The bill also legislates valuable and groundbreaking support for clean energy, energy efficiency and green jobs, using federal law to erect economic pillars vital for eventually transitioning to a clean energy economy.

    They seem satisfied even though the new bill also reduced the proposed national standard on renewable energy from 25% to 20%, compared to the first draft, diminishing its potential competitive pressure on coal.

    All sides are now wading through the details of the massive bill, spinning messages and planning strategies for the political battle that is likely to continue for the duration of the year. It is unlikely that the parameters of coal's good deal will substantially change during this week's committee mark-up, but in the coming months, the future of coal will be a major topic of concern.

    The continued growth and survival of coal brings three strikes against the bill in every climate campaigners handbook: It's the source of the lion's share of global CO2 emissions, it creates a weak negotiating position when across the table from China, and it fails to show the kind of leadership the world will want to see from the U.S. in Copenhagen.

    Weakened Standards and Large Bonuses

    The discussion draft of the Waxman-Markey bill contained performance standards for new coal plants that had some real bite. For starters, the draft stipulated that after January 1, 2015, no coal plants that emitted more than 1,100 pounds of CO2 per megawatt-hour would be permitted for construction. That's a natural gas standard of performance, something that no coal plant can currently do, so it looked as if after 2015, no coal plants could be built unless they could capture and store their emissions. But the current bill has relaxed the standard in both definition and start date (see page 91).

    Utilities may build coal plants permitted between now and 2020, as long as by 2025, these plants "achieve an emission limit that is a 50 percent reduction in emissions of the carbon dioxide produced by the unit." The language stipulating specific rate of emissions per megawatt-hour has been removed.

    At the heart of the standard is the assumption that carbon capture and sequestration technology will be available for commercial deployment so that industry can comply. The bill is silent on what happens if CCS technology is not ready or proves unworkable.

    It is possible that these new coal plants would be permitted to continue operations through a relaxation of the legal standard, since EPA even now cannot enforce a technology standard that cannot be met. Companies in the UK are already negotiating for an opt-out clause there if CCS is not ready in time.

    Utilities in violation in any case would not be shut down, but would face penalties — set by the bill at two times the "fair market value of emissions allowances" (see page 427). The EPA estimates that a permit for a ton of CO2 would sell for only about $15 in 2020. That makes it possible for industry to plan to pay for non-compliance as the penalties would be relatively cheap, especially when compared to penalties under the acid rain cap and trade program, which are $2,000 per ton of pollutant in excess of allowance.

    If the coal plants succeed in capturing and sequestering CO2 on the other hand, the owners stand to reap huge profits. First, the bill reserves 2% to 5% of allocations to pay for the development of CCS, which would amount to tens of billions of dollars of federal support for industry out of the gate, supplemented by an additional $1 billion annually made available through a small ratepayer levy.

    The bill also provides enormous bonus allowances for the first movers of CCs technology potentially worth tens of billions of dollars. For every ton of CO2 that it sequestered, a utility would receive a bonus allowance many times more generous than the open carbon market would provide, from a minimum of $50 a ton to a maximum of $90 a ton for every ton of carbon sequestered.

    EPA to Lose Primary Authority over CO2

    In March 2008, Lisa Heinzerling of Georgetown Law School testified before Congress to explain the implications of Massachusetts v. EPA, the landmark case decided by the U.S. Supreme Court. In no uncertain terms, Heinzerling, an expert on the Clean Air Act who now works as an advisor to EPA Administrator Lisa Jackson, testified that the agency must regulate CO2 from power plants as a result of the decision.

    It was a prospect that sent shivers through the fossil fuel industry, fearful of an uncertain and protracted regulatory process. The Waxman-Markey bill, through amendments to the Clean Air Act, imposes limitations on the authority of EPA to proceed. The bill devotes an entire title, Title VII, to the amendments (see page 590), which prohibits any greenhouse gas, including CO2, from being listed as a "criteria pollutant" or a "hazardous air pollutant" on the basis of their effect on climate change.

    The bill also does not permit greenhouse gases to trigger New Source Review, nor affect the granting of a permit to operate under Title V of the Clean Air Act.

    In short, the legislation rewrites the law so that the impact of Massachusetts v. EPA is narrowed in scope and Congress takes the lead on GHG regulation. With coal state lawmakers controlling the swing votes, however, some groups like Greenpeace would rather see EPA in charge of setting the rules on climate protection.

    Kansas and New Hampshire

    In recent years, the utility industry has had an almost impossible time proceeding with construction of new coal plants. Sierra Club's Beyond Coal campaign has halted close to 100 projects, forcing industry to look to extending the life of its aging fleet of existing plants, which on average are close to 40 years old.

    A look at circumstances in two cases — one in Kansas and one New Hampshire — shows how a proposed new plant and the upgrading of an aging plant, respectively, would proceed even if Waxman-Markey is signed into law. The long time horizon before the law begins to bite in 2025 — when allowance auctions begin and performance deadlines hit — means the regulations have little chance to impact the behavior of corporations, which can barely contemplate a decade of strategic planning.

    Evidence of this comes recently from Kansas, where the new governor recently signed a surprise deal with Sunflower Electric to allow construction of a new coal plant that would send 75% of its electricity to customers out of state. The deal signaled a reversal of two years of effort championed by former Gov. Kathleen Sebelius, now Obama's Health Secretary.

    The utility said it planned to break ground on construction within 10 months, fully aware of pending federal legislation that would impose a price on carbon and emissions standards on new plants eventually. There are no plans to make the plant ready for a CCS retrofit.

    Similarly in New Hampshire, PSNH’s Merrimack Station, the largest single source polluter in the state, is moving ahead with a massive upgrade despite the opposition from leading local businesses, including Stonyfield Farms and Timberland.

    The nearly half-billion dollars worth of upgrades won’t do anything to reduce the plant’s carbon emissions, but will allow the utility to reap an extra $20 million to $25 million a year from ratepayers. The state legislature, under the influence of the utility lobby, is turning a blind eye to the survival strategy of a dinosaur responsible for close to half of the CO2 emissions in the state.

    Waxman-Markey is silent on the regulation of aging plants like these, presuming the carbon cap embedded in the bill will force needed changes through market mechanisms. PSNH, undeterred by the pending federal legislation, is already proceeding with construction on the half billion dollar upgrade.

    There is some optimism within the climate community that market forces unleashed by the cap-and-trade program will put sufficient pressure on coal to force plants to close or diminish new construction in the coming decade. But the satisfaction within industry at the currently negotiated outcome is causing concern among others that the cap is far too weak to have an effect for decades.

    It calls for a 4% reduction in U.S. emissions below 1990 levels by 2020, which is far below the EU target of a 20% reduction. The market signal may be barely audible. Indeed, one industrial Fortune 100 company with a carbon-intensive product line has been advised by three separate teams of consultants about the impact of a carbon price upon its business. Independently, the consultants reported that the impact in 2020 would be negligible, according to a company executive not authorized to speak publicly.

    And even after 2020, one watchdog group was skeptical of success in ever making polluters pay. In a statement released today, Public Citizen had this to say:

    We should not assume that a future Congress will hold fast to today's pledge to hold polluters accountable in 20 years. In fact, using history as a guide, these polluters will simply ramp up their lobbying and influence-peddling in an effort to again stall the day of reckoning when their greenhouse gas emissions carry a price.

    Climate advocates still have time to reassess where this legislation is headed. For now, official statements are supportive, though laced with carefully wrought caveats about the need for strengthening its climate protection mechanisms. The 932 pages have been publicly available for only a few days, and the first order of business is getting the bill out of committee and onto the House floor.

    It remains to be seen how hard lawmakers will allow themselves to be pressed to dial back the generous cards being handed to coal-fired power generation in particular, and the massive bet they are making on a future in which greenhouse gases will kept out of the atmosphere and instead buried underground.

    No one can dispute that politics has trumped science in the design of this law — at least considering the gradual pace of emissions reductions contemplated for the next decade or two. And there is great concern that this climate bill in Copenhagen will look like too little too late from an administration that has promised global leadership on climate change.

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