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Wednesday, May 13, 2009

Climate Bill Heading for Markup - Will it Invest in a Clean, Prosperous Energy Economy?

As sweeping climate and clean energy legislation is readied for debate in the House Energy and Commerce Committee, details are emerging on the deals and compromises struck between the bill's architects, Congressmen Henry Waxman (D-CA) and Ed Markey (D-MA) and the group of reluctant swing members of the committee who hail largely from states reliant on coal and heavy industry.

The "breakthrough deal" struck between Waxman, Markey and the swing E&C Committee Dems will enable a full subcommittee markup of the American Clean Energy and Security Act (ACES) beginning Thursday and likely proceeding through next week (markup = votes on a series of amendments on the proposed bill followed vote to pass the bill out of (sub)committee). The deal apparently involves a series of concessions that either incrementally weaken the objectives of the bill or give free greenhouse gas pollution permits to utilities and heavy industry in order to blunt the impact of the proposed cap and trade program on these sectors of the economy.

The concessions reportedly include:

  • Lowering the 2020 greenhouse gas emissions reduction target from 20% below 2005 levels to 17% below 2005 levels. The final 2050 target will reportedly stay the same, at 83% below 2005 levels.

  • Giving away for free between 35 percent and 40 percent of the total pollution permits created by the bill's cap and trade program to electricity and natural gas utilities (local distribution companies) at the outset (perhaps for a decade).

  • Giving away between 10 and 15 percent of the total pollution permits to other heavy industries, including steel, cement and glass manufacturers, to supposedly insulate them from international competition.

  • Giving away between 1 and 5 percent of the total pollution permits to oil refiners

  • Scaling back the renewable electricity standard to require 15 of a utility's electricity comes from renewable sources by 2025, instead of 25 percent as originally posed. An additional five percent gain in energy efficiency would be required as well. If a state's governor decides to do so, the renewable electricity requirement can be cut to 12 percent for utilities in that state, and the energy efficiency target would increase to eight percent. In light of the efficiency measures included in the RES, it's unclear what fate has befallen the separate Energy Efficiency Resource Standard originally proposed in the bill, which required a separate (and additional) 15% cumulative energy efficiency savings by 2020 for electric utilities.

Other changes (concessions) are obviously possible as well. Full details will emerge Thursday when the bill is official introduced to the subcommittee.

What's clear is that the ACES bill will transfer huge sums of money from energy consumers to utilities and heavy industry. A quick back of the envelope calculation gives us a sense of the scale here: the free allocations to utilities and industry will amount to roughly $215 billion to $561 billion in value between 2012 and 2020 alone (assumes 46-60% of allowances allocated for free, as per concessions above, and $10-20 average CO2 price between 2012 and 2020, click here to download Excel spreadsheet with full calculations).

So with hundreds of billions of dollars on the table for entrenched interests of the dirty energy past, where are the investments needed to spark the birth of a new clean, prosperous energy economy?

Will the ACES bill released tomorrow make the investments in clean energy technology President Obama has repeatedly called for (at least $15b/year for clean tech R&D)? Will it make critical investments to spur the deployment of clean energy technologies necessary to complement the carbon price (meager as it will be) established by the bill? Will it make investments needed to bring down capital barriers holding back countless cost-effective energy efficiency opportunities or make the investments necessary to build a modern, 21st century energy infrastructure?

If it doesn't, will climate advocates rally to ensure that these critical investments are made?

The challenge we face is this: pushing back on the wasteful pollution permit giveaways is great (and will certainly feel good), but is unlikely to yield any results. These giveaways were necessary to bring on key votes, and if the bill's champions yank them back, ACES will almost certainly die in committee. So while climate advocates work to push back against the giveaway of hundreds of billions of dollars to polluters and entrenched energy industries, we must zero in on one key opportunity:
To dramatically strengthen ACES and ensure the bill truly spurs the growth of new clean energy technologies and industries, achieves critical emissions reduction targets, and creates millions of new clean energy jobs, the bulk of the remaining auction revenue must be dedicated to investments that accelerate the transition to a clean, prosperous energy economy.
This is perhaps the last, best chance to strengthen the ACES bill. We can't afford to let it slip by.

Originally posted at the Breakthrough Institute

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