Addressing Climate Change in the 110th Congress - by Michael W. Evans Tim Peckinpaugh Akilah Green May 2008
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Addressing Climate Change in the 110th Congress by Michael W. Evans Tim Peckinpaugh Akilah Green May 2008
Addressing Climate Change in the 110th Congress
I. Background Lieberman-Warner Climate Security Act and the various substantive issues that
the bill will likely address, rival legislation introduced in the Senate by Sen.
Events such as Hurricanes Katrina, Rita, and Wilma, combined with continued Jeff Bingaman (D-NM), yet-to-be drafted companion House legislation, and
research performed by many of the world’s most respected climate scien- the Bush Administration’s position on cap-and-trade proposals. Additionally,
tists and climate research groups (and even an Academy Award-winning this paper will discuss the timing and prospects of a comprehensive climate
documentary on the subject by former Vice President Al Gore), have elevated change bill in the 110th Congress.
the call for Congress to find solutions to address global climate change.
Numerous reports and studies suggest that global climate change is, in fact, II. In the Senate
occurring and is largely the result of human activity, primarily the burning of
fossil fuels.1 Burning such fuels for the production of heat and energy has A. The Lieberman-Warner Climate Security Act (S. 2191)
drastically increased the concentration of heat-trapping gases, otherwise Climate change began receiving serious attention in the Senate after Sen.
known as greenhouse gases (“GHGs”), in the atmosphere.2 Barbara Boxer (D-CA), a staunch supporter of mandatory controls on GHG
The extra energy trapped in the atmosphere increases the global temperature, emissions, assumed the position of Chairwoman of the Senate’s Environment
commonly referred to as the “greenhouse effect.” This phenomenon has the and Public Works Committee at the beginning of the 110th Congress.3 In
impact of changing the amount and distribution of rainfall; intensifying severe June 2007, the Committee announced its intention to produce a bipartisan
weather such as heat waves, flooding, hurricanes, and typhoons; melting bill to address climate change. Senators Lieberman and Warner introduced
ancient polar ice caps and mountain glaciers; increasing drought, and, con- the Lieberman-Warner Climate Security Act in October 2007. In November,
sequently, the risk of forest fire and the size of burned areas; and causing sea the bill was approved (4-3) by the Subcommittee on Private Sector and
levels to rise. In the midst of these dangers, a global consensus is develop- Consumer Solutions to Global Warming and Wildlife Protection of the Sen-
ing that the United States should reduce its greenhouse gas emissions ate’s Environment and Public Works Committee and was reported favorably
by 60 to 80 percent by 2050 to contribute to global efforts to stabilize (11-8) to the full Senate from the Environment and Public Works Committee
long-term atmospheric GHG concentrations. on December 5. The vote split largely along party lines, with all of the panel’s
Democrats and Independents voting for the bill and all but one of the
With the Democratic takeover of both chambers of Congress following the panel’s Republicans (Sen. Warner) voting against it. There are currently 11
2006 elections, climate change rose to the top of the agenda, with congres- cosponsors of the bill, four of whom are Republicans.4
sional leaders, including House Speaker Nancy Pelosi (D-CA), declaring that
passing comprehensive legislation to address climate change is no longer 1. The Substance
a question of “if,” but rather a question of “how” and “when.” The Senate’s Based on objectives determined by the November 2007 report of the
Democratic leadership has already accepted the primary legislative Nobel-prize winning United Nations Intergovernmental Panel on Climate
vehicle to address climate change in the Senate, the Lieberman-Warner Change (“IPCC”), the bill is specifically designed to reduce total U.S.
Climate Security Act (S. 2191), introduced in October 2007 by Sens. Joe emissions levels in 2050 to 62 to 66 percent below the 2005 emissions
Lieberman (I-CT) and John Warner (R-VA). This bill passed out of committee in level to reverse the impacts of global climate change while simultaneously
December and is expected to be brought to the floor for debate during the preserving robust economic growth.5 At the core of the bill is a cap-and-
first week of June. In the House, the chairman of the Energy and Commerce trade program that would place a declining cap on U.S. emissions of
Committee, Rep. John Dingell (D-MI), and the chairman of the Committee’s the six primary GHGs.6 Under the program, coal-burning power plants
Energy and Air Quality Subcommittee, Rep. Rick Boucher (D-VA), have an- and industries, natural-gas processing plants and importers, petroleum- or
nounced plans to introduce a companion bill in the coming months. coal-based producers and importers, and facilities that produce or import
The centerpiece of both bills is a “cap-and-trade” program, which begins (for sale) GHGs, collectively referred to as “covered entities,” would be
by creating a limit on the total amount of pollution that can be emitted, also required to gradually reduce their GHG emissions to comply with the
known as a “cap.” The emissions allowed by the cap are divided into permits declining cap.
that give the owner the right to emit certain amounts of pollution into the At the inception of the program, the Environmental Protection Agency
atmosphere. Over time, the size of the cap is reduced to produce the desired (“EPA”) would create all of the emission allowances, which are limited
reductions in pollution. The program allows companies that can easily reduce authorizations by the government that would permit holders to emit
emissions to sell credits to other companies for which such reduction would one ton of pollutant. At the beginning of each calendar year starting in
be difficult, thus creating a market-based approach to regulating GHGs. Cap- 2012, the EPA would divide and distribute at no charge a percentage of
and-trade proposals are touted for providing certainty that the selected level each year’s account to covered facilities within the electric power and
of GHG reductions will occur and economic incentives for industry to find the industrial sectors based on their historic emissions. The percentages would
lowest cost method of achieving the desired emissions reductions. decrease to zero by 2031.
The concept behind a cap-and-trade system is simple, but the particulars At the end of each calendar year beginning in 2012 until 2050, each
are complex. Lawmakers plan to spend the coming weeks and months owner or operator of a covered facility would submit to EPA a number
crafting climate change legislation that will reach GHG emission reduction of emission allowances that equals the number of CO2 equivalents of
goals without having an adverse effect on an already fragile economy. In the GHG emitted by that covered facility in the preceding year.7 The owner
process, members of Congress will have to address the concerns of various or operator of any covered facility that fails for any year to submit one or
stakeholders, including industry, environmental groups, organized labor, more emission allowances would be liable for the payment of an excess
religious interests, and state and local governments -- many of whom have
competing interests. This white paper will summarize the provisions of the
Addressing Climate Change in the 110th Congress 2emissions penalty. Essentially, by placing a price on carbon emissions, the A more detailed summary of the bill is included as Appendix A.
bill aims to spur the development and deployment of zero-to-low-carbon
2. Timing and Prospects
emitting energy sources, like solar and wind power and other renewable
and “clean” energy sources. To meet each year’s compliance obligation, Senate Majority Leader Harry Reid (D-NV), having stated that the cap-
entities would be able to buy additional allowances from auction, use and-trade bill is the most important issue left before the Senate this year,
banked allowances saved from previous years, purchase certified offsets,8 has indicated that floor debate will occur in the first week of June, after the
or reduce their GHG emissions. Senate returns from its Memorial Day recess. He has promised to provide
ample time for floor debate if the bill can get the 60 votes needed to
Under the bill, some 19 percent of the total emissions budget would be
proceed. The bill is expected to draw much of its support from Democrats,
distributed free to nonregulated entities as incentives for those entities to
but supporters acknowledge that they will have to attract additional Re-
reduce GHG emissions or sequester carbon dioxide, even though they
publicans and several coal-state Democrats9 without weakening the bill to
are not regulated by the bill. Covered facilities would be able to purchase
the point that it loses the support of senators and environmental organiza-
extra allowances from nonregulated entities that have received allow-
tions that desire steep cuts in emissions.
ances. For instance, S. 2191 would guarantee that 4.5 percent of the
emission allowance account be directed to states, which then must use Senator James Inhofe (R-OK), ranking member of the Environment and
90 percent (of the revenue gained by selling their allowances to covered Public Works Committee and perhaps the most vocal opponent of the
facilities that need to meet their yearly compliance obligation) for a list of legislation, released a white paper in May that discusses what he asserts
eligible activities, including promoting energy efficiency, improving public are the burdensomely high economic costs of the Lieberman-Warner bill.10
transportation, and relocating communities displaced by the impacts of In his paper, he states that the bill would negatively impact the national
climate change. and local economies, cause the loss of millions of American jobs, and
raise the price of heating and electricity for consumers. He also states that
To cover its emissions if the number of free allowances allocated to it is
the proposed cap-and-trade system relies on the faulty assumption that
not sufficient, a covered entity may purchase additional allowances from
the technology necessary to reduce GHGs can be developed, adopted,
the Climate Change Credit Corporation, a non-federal 501(c)(3) entity
and implemented earlier than is realistically possible, thereby forcing busi-
established by the bill. The percentage of allowances to be auctioned off
nesses to unwisely invest in questionable technology.
increases during the life of the program. Thus, as technology and methods
for reducing GHG emissions are developed, it will become even more Many of the bill’s supporters believe there may be too many obstacles to
costly to emit GHGs. Funds generated from the sale of allowances will overcome to get the bill passed through the Senate this year, not the least
depend on the allowance price. The drafters of the bill estimate that in the of which is the cloture vote needed to end the threat of a filibuster – not to
program’s first 18 years, the auction may cumulatively generate $1 trillion mention a presidential veto. While Democrats control the Senate 51-49,11
in funds. The funds would be used to support a range of activities, includ- the bill would need 60 votes to cut off Senate debate and bring the mea-
ing development of zero-to-low-carbon energy technology, workforce sure to a vote. Thus, the measure will need the support of roughly 10 to 12
training, assistance for low-income and rural communities impacted by Republicans to offset possible Democratic defections and still obtain the
climate change, wildlife conservation, and the development of climate required 60 votes needed to end a filibuster. Cap-and-trade supporters
change adaptation plans to support developing countries. will likely look to several other Republicans who voted for similar propos-
als in 2003 and 2005 offered by Sen. Lieberman and Sen. John McCain
The bill would also establish the Carbon Market Efficiency Board,
(R-AZ) as amendments to legislation on the Senate floor.
comprised of seven members appointed by the President whose primary
objective would be to observe the allowance market and implement cost- Senate aides have predicted that between a dozen to 150 amendments
relief measures, if necessary, to avoid significant harm to the economy. will be proposed to the Senate bill. Senator Boxer, with the support of
The board would have the authority to temporarily increase the amount Sen. Reid, has announced her intention to pull the bill if it is in danger
that covered entities may borrow, lengthen the payback period of loans, of being weakened by opponents’ amendments.
lower the interest rate on loans, and/or loosen a given year’s economy-
wide emissions cap by as much as five percent, provided that subsequent 3. The Debate
years’ caps are tightened sufficiently to ensure that the cumulative emis- To bolster support for the bill, the leadership will have to make the bill
sions reductions over the long term remain unchanged. palatable to environmental, industry, labor, and religious groups and state
The bill would also direct the executive branch to intensify its efforts to con- and local governments, and the House and Senate allies of those groups.
vince other nations to start reducing their GHG emissions. If eight years Working out such a compromise will be difficult. Discussions between
after the enactment of the cap-and-trade program it is determined that a congressional staff and these interested parties are expected to intensify
major emitting nation has not taken comparable action to reduce its GHG over the coming weeks. Of the many issues that will arise as the final bill is
emissions, the President would be authorized to require that manufacturers being worked out, the following issues will likely receive the most attention:
of GHG-intensive products, such as steel and aluminum, imported from a. Target Emission Reduction Levels
that nation submit emissions credits of a value equivalent to that of the
credits that the U.S. system effectively requires of domestic manufacturers. Some Democratic senators may try to set the bill’s long-term target
closer to an 80 percent emissions reduction by 2050, instead of the
One key provision in S. 2191 would make clear that states are not 62 to 66 percent target for total U.S. emissions in the current version,
preempted from enacting and enforcing GHG emission reduction require- to reflect the emerging scientific consensus that the United States needs
ments that are more stringent than the federal ones. Additionally, S. 2191 to reduce its total emissions by 80 percent by 2050. Other senators
would direct the Secretary of Energy to create regulations to implement contend that reaching the existing 62 to 66 percent target included in
a national infrastructure for taking CO2 from power plants, through the bill will be unduly burdensome for industry.
pipelines, to injection wells, and then deep underground to remove it
from the atmosphere. The bill would also require annual review of foreign
countries’ GHG control actions in 2018. Finally, the bill would
authorize the President to suspend provisions of the bill in the event of
a national emergency.
Addressing Climate Change in the 110th Congress 3b. Allocation of Allowances f. Nuclear Power
In response to industry groups, the drafters of the legislation will have Some Republican lawmakers and nuclear power advocates complain
to determine how to balance the allocation of emission allowances that the bill does not include explicit language supporting the extensive
to various industries and determine whether certain sectors should be buildup of new nuclear plants (which do not emit greenhouse gases)
exempt from having to hold or purchase emission allowances at all. To that they say will be needed if the United States has any hopes of sig-
serve as an incentive for emissions reductions, environmental groups nificantly cutting emissions by mid-century. Many environmental groups
propose increasing the percentage of emission allowances that the object to the building of nuclear plants, citing the potential risks of
government sells at an auction, rather than giving them to industry for nuclear plants and the difficulty of disposing of the high-level radioactive
free. They propose using the revenue to promote clean energy sources, waste they produce. Warner has stated that there will most certainly be
aid low-income consumers, and provide unemployment relief. On the a place for nuclear power incentives in the bill, even if those incen-
other hand, several industry groups are pushing for a greater percent- tives are included by amendment. (See discussion below regarding
age of the allowances to be free to help them meet their compliance Lieberman-Warner amendment to include nuclear subtitle.)
obligation at a lower cost.
4. The Substitute Amendment
c. Cost Containment
On May 21, Sens. Boxer, Warner, and Lieberman released a 157-page
Many stakeholders believe that cost containment measures are needed plan to reduce GHGs through a cap-and-trade proposal as a substitute
to guard against excessively high and volatile allowance prices.12 to S. 2191. While the target emissions reductions goals remain the same,
The need for explicit cost containment measures will be this substitute amendment includes changes intended to make the legisla-
especially important during the initial years of a cap-and-trade tion more politically attractive to coal-state senators, manufacturers, and
program when low-carbon technologies are still being developed other stakeholders so that the legislation may secure the 60 votes needed
and are not yet available to help these companies reduce their to overcome a likely filibuster. However, observers have noted that the
GHG emissions. Environmental groups have generally opposed substitute amendment calls attention to the complexity of a cap-and-trade
limiting the annual rise in prices for emission allowances as a means to program and the degree to which competing stakeholders will be advan-
ease cost concerns, arguing that higher carbon prices would likely be taged or disadvantaged by any cap-and-trade proposal.
needed to force carbon-intensive industries to adopt new technologies
The revised bill includes several new provisions aimed at cost contain-
to reduce their emissions.
ment, one of the central controversies of the bill. While the proposal
The bill does not currently include a safety valve that would limit the does not establish a safety valve, it would establish an “emergency off-
annual rise in the price of emissions credits. Instead, S. 2191 would rely ramp,” whereby additional allowances would be released into the market
on the presidentially-appointed Carbon Market Efficiency Board, which if the costs of allowances rise above a certain price range. The additional
would be authorized to halt escalating carbon prices, to ease eco- allowances would be paid back in the future so that the emissions cap
nomic impacts, although those caps eventually would have to tighten in remains the same over the long term.
future years to ensure that the overall 2050 reduction targets are met.
An estimated $955 billion from the auctioned allowances would be
d. Federal Preemption directed to the Treasury to make the bill “deficit-neutral.” This language
was added to garner the support of fiscally conservative Democrats. The
A tough issue in the debate will be whether federal legislation should
bill also adds language granting the President the discretion to modify the
preempt existing efforts by state and local governments to curb emis-
emission goals included in the bill in order to prevent economic harm and
sions.13 The bill currently would give deference to states that will provide
to accurately account for the time needed to develop new technologies
stronger emissions controls that go above and beyond the federal
to reduce emissions.
cap-and-trade legislation; however, many industries argue that having
separate state approaches would raise compliance costs and translate The substitute amendment also includes approximately $250 billion in
into higher costs for consumer goods and energy. free allowances to coal-reliant states; $300 billion in free allowances to
be distributed to power plants fueled by coal and other fossil fuels; $800
e. Global Initiatives
billion for a “tax relief fund” to help consumers meet higher energy costs;
To encourage other nations to begin reducing their GHG emissions, $900 billion for electricity and gas utilities to pass on as rebates to their
S. 2191 would essentially impose trade restrictions on countries that customers; specified dollar amounts targeted to a variety of industries
refuse to take actions comparable to those taken in the United States, to help them transition to the bill’s emission reduction goals; and speci-
which reflects the belief that developing nations must contribute to the fied dollar amounts for a variety of programs, including agriculture and
effort to combat global climate change. Supporters of this provision forestry, transit, worker training, efficient and renewable energy, carbon
also argue that it would help ensure that U.S. cap-and-trade legislation sequestration, and wildlife conservation programs.
does not harm U.S. competitiveness or result in jobs moving overseas.
Shortly after releasing the substitute amendment, Sens. Warner and Lieber-
To the contrary, others argue that this measure is akin to a unilateral
man drafted a subtitle for the bill that would recognize nuclear power
trade restriction and could prompt retaliation from trading partners. An
as an energy source that does not emit GHGs and that can be safely
alternative suggestion has been to set performance standards on all
operated. The subtitle, which Lieberman and Warner will likely offer as an
energy-intensive goods sold in the United States, whether they are for-
amendment, also recognizes that nuclear power plant construction and
eign or domestic. Another option would be to offer “carrots and sticks”
the manufacturing of nuclear components will create new American jobs.
to developing countries, including giving countries that swiftly adopt
In addition to establishing a nuclear title in the bill, the Lieberman-Warner
emissions caps more generous access to the carbon trading
amendment would aim to increase the number of nuclear engineers and
market. Although disagreements exist among stakeholders, most
improve the financing and purchasing of equipment. Chairwoman Boxer
observers agree that Congress cannot pass a bill that does not address
has not favored including language that would single out nuclear energy,
reducing emissions in developing countries.
although she has suggested that she, Lieberman, and Warner might be
able to agree on an appropriate amendment. This amendment will likely
open the door for the consideration of a myriad of other nuclear
energy amendments.
Addressing Climate Change in the 110th Congress 4The timing of the release of the substitute, just days before senators In 2007, the Energy and Air Quality Subcommittee held more than a dozen
adjourn for the Memorial Day recess, will provide senators with only two climate change hearings. Based on those hearings, Representatives Dingell
weeks to evaluate the new proposal before it goes to the floor along with and Boucher have concluded that the United States needs to reduce its
S. 2191 in the first week of June. GHG emissions by 60 to 80 percent by 2050 to contribute to global efforts
to address climate change, and an economy-wide cap-and-trade program
B. B
ingaman-Specter “Low Carbon Economy Act” of 2007
will provide the most effective arsenal.
(S. 1766)
Before Dingell and Boucher draft the bill, the Energy and Commerce Com-
Senate Energy and Natural Resources Chairman Bingaman and Sen.
mittee plans to release a series of global warming white papers intended to
Arlen Specter (R-PA) introduced rival legislation, the Low Carbon
address issues raised by federal cap-and-trade legislation and will request
Economy Act of 2007, in July 2007. The bill currently has six cosponsors
comments on each of them. The first three papers have focused on determin-
(three Democrats and three Republicans). While this bill has not been
ing the basic design and key principles of a cap-and-trade system, how to en-
marked up, it is viewed as a moderate alternative to the Lieberman-
gage developing nations in the effort to reduce GHG emissions, and whether
Warner bill. It is possible that, at some point, Sens. Warner, Lieberman,
states should have the authority to regulate GHG emissions or be preempted
Bingaman, and Specter will try to resolve their differences and agree
from doing so by federal regulations. Subsequent white papers will ad-
on a single legislative vehicle.
dress other topics, including but not limited to: cap levels; cost containment
While both bills establish a cap-and-trade program, provide incentives mechanisms; carbon sequestration; offsets and credits; and the distribution of
for carbon capture and the development of zero-to-low-carbon emitting emissions allowances. The Committee intends to hold hearings on several of
technology, and include emissions reduction requirements on foreign the topics raised by the white papers.
trading partners, the bills’ biggest differences center on their emission
A. The Substance
reduction targets and cost containment measures. The Bingaman bill
aims to reduce emissions by covered entities by 60 percent from current In crafting a federal cap-and-trade program, the Committee has recog-
levels by 2050, compared to the 70 percent goal for emissions by cov- nized, in its first white paper, “Scope of a Cap-and-Trade Program,”16
ered entities in the Lieberman-Warner bill,14 and unlike the Lieberman- that there are practical limits to the number and type of entities that can
Warner bill, which established a Carbon Market Efficiency Board be directly regulated by a cap-and-trade program due to the inability to
to prevent market volatility and limit compliance costs for utilities determine emissions from sources within certain sectors and the fact that
and other industrial polluters, S. 1766 would set a $12-per-ton limit some sectors, like the residential sector, have a large number of sources
on how high the price of emissions credits can rise. This cost contain- that each have low emissions, which could render their direct coverage
ment measure, referred to as a “safety valve,” would limit the price of administratively untenable. The paper notes that building codes and
emission allowances that businesses would buy and sell to comply efficiency or other performance standards might be appropriate
with the bill. in addition to or instead of including certain sectors in the cap-and-
trade program.
This bill was designed to draw the support of industry and organized
labor, and has gained the backing of several electric utilities, the Ameri- As of now, the Committee plans to cover electricity generating facilities,
can Federation of Labor and Congress of Industrial Organizations, and refineries, and importers of transportation fuel. The Committee is con-
the United Auto Workers. However, environmentalists have staunchly sidering including some facilities in the industrial sector, but is looking
opposed the safety valve provision which, they argue, would for additional information on the types of emissions, the activities that
provide a disincentive for covered entities to invest in zero-to-low- produce them, and the types of facilities to determine the appropriate
carbon technology. point of regulation and threshold for coverage. The Committee is also
considering how to treat the commercial sector in a cap-and-trade pro-
III. In the House: Dingell-Boucher Climate gram given that, for some commercial buildings, the point of regulation
Change Legislation is downstream (i.e., the emitters) and, for other commercial buildings,
the point of regulation is upstream or midstream (i.e., fuel producers,
House progress on its own cap-and-trade legislation has been slower. This is processors, or providers).17
in part due to negotiations on federal energy legislation, H.R. 6, the Energy
Independence and Security Act (“EISA”),15 which consumed the Energy and In addition to proposing a cap-and-trade program, the Committee’s
Commerce Committee staff for much of the fall of 2007. Now that H.R. 6 has second white paper, “Competitiveness Concerns/Engaging Develop-
become law, the chairman of the Energy and Commerce Committee, Rep. ing Countries,” proposes provisions encouraging developing countries,
Dingell, and the chairman of the Committee’s Energy and Air Quality Sub- such as China and India, to reduce emissions to contribute to the solu-
committee, Rep. Boucher, have announced their goal of passing a manda- tion.18 The Committee notes that limiting GHG emissions in the United
tory, economy-wide, cap-and-trade bill in the House, bringing it to conference States and other developed countries is not sufficient to curb the harmful
with the Senate’s bill, and presenting it to President Bush for his signature effects of climate change unless key developing countries also control
by the end of this year. Dingell and Boucher have not yet set a date for the their GHG emissions. The Committee also states that if the United States
bill’s introduction, and this November’s elections present a relatively short caps its own GHG emissions without corresponding action by compet-
timetable, as the congressional pace tends to slow down as Members begin ing developing nations, American jobs and industry may relocate to
to focus on the campaign trail. Dingell has stated that the bill will have to be those countries where production is cheaper, thereby harming the
on the House floor by the summer to get through Congress this year. American economy.19
Drafting EISA included the input of nearly a dozen committees; however, this Dingell has cautioned that the trade-related provisions must be crafted
year’s global warming legislation will likely reside solely under the jurisdiction in a manner that is reasonably certain to withstand a challenge before
of the Energy and Commerce Committee. The bill would begin in Boucher’s the World Trade Organization (“WTO”), the international body that
subcommittee before going to the full committee and then the House floor. acts to reduce trade barriers.20 Even if cap-and-trade supporters are
Speaker Pelosi, Select Committee on Energy Independence and Global able to draft WTO-compliant provisions to protect U.S. industries from
Warming Chairman Ed Markey (D-MA), and House Oversight and other nations that avoid emissions limits, Dingell has acknowledged that
Government Reform Committee Chairman Henry Waxman (D-CA) are they cannot prevent developing nations from retaliating with tariffs and
expected to further shape any legislation that the Energy and Commerce other actions against U.S. goods.
Committee produces.
Addressing Climate Change in the 110th Congress 5The Committee is currently considering three broad categories of to make the commercialization and use of new, lower emission technologies
approaches to encouraging developing countries to reduce their emis- more competitive should be weighted to make lower emission power sources
sions: (1) requiring foreign goods imported into the United States to be less expensive relative to higher emission sources. He also asserted that incen-
accompanied by emissions allowances; (2) establishing performance tives should be technology-neutral to prevent the government from favoring
standards on energy-intensive goods (i.e., iron, steel, aluminum, and participants in this emerging market.
paper) sold in the United States; and (3) imposing emission reduction
President Bush has suggested that he may support a cap-and-trade program
conditions on other countries that wish to access and participate in the
that solely covers power plants, but he has not supported any of the existing
carbon market established in the bill.21
legislative proposals.
The House bill will also have to address federal preemption, which
Dingell has stated may be necessary to prevent industry from having to V. Conclusion
comply with multiple regulations and from driving industry and jobs to
With very few major bills left on the congressional agenda for this session,
states with lower environmental standards. In fact, Dingell told reporters,
passing comprehensive climate change legislation will be a top priority in
following a speech at the Energy Information Administration’s annual
the coming months. Chairman Boucher had stated in March that climate
conference in Washington, that allowing the EPA to issue rules that
change legislation has about a “50-50” chance of becoming law this
require states to outline in detail how their local industries should reduce
year. The odds at this point are now even less. Those chances jump to at
GHGs is “a glorious mess.”22 While Dingell believes that a national
least 80 percent in the next Congress because all three remaining major
cap-and-trade program designed by Congress is essential to curb-
presidential contenders, Sens. Barack Obama (D-IL), Hillary Clinton
ing emissions, he believes there also may be a role that states and
(D-NY), and McCain support cap-and-trade legislation, and the Demo-
local governments could play in making a national cap-and-trade
cratic majority is expected to gain seats in both the House and Senate.26
program more efficient.
While several congressional observers argue that President Bush might com-
For instance, the Energy and Commerce Committee’s third white paper,
promise in the face of a congressionally-approved bill in the hopes of staving
“Appropriate Roles for Different Levels of Government,” suggests that
off an even more stringent bill from the next president, the administration’s
states could play a role in monitoring and keeping records of compli-
formal position on mandatory reductions is unchanged. Some Republicans
ance with the program, and this would be more efficient than only
and businesses believe that it is better to tackle the issue with President Bush in
assigning federal inspectors to do so.23 Further, the Committee proposes
office rather than risk facing a new administration that will be more aggres-
that reducing GHG emissions requires a variety of tools, not simply a
sive in curbing GHGs. On the other hand, faced with a good chance that
national, economy-wide cap-and-trade program. Other tools that could
Bush will veto the bill in 2008 or only sign a pared-down version of the bill,
be used include appliance efficiency standards, building codes, land
the House leadership may decide to wait for a change in the presidency in
use decisions, performance standards, public transit, and incentives to
2009 in hopes of getting an even stronger bill.
increase efficiency.24 Committee staff contend that many of these tools
may be more effective and appropriate in the hands of state and Boucher has stated that passing the bill this year will give industry the
local governments. certainty necessary to invest in new coal-powered electricity plants, which
take years and hundreds of millions of dollars to build, and the certainty to
B. Timing and Prospects
more broadly create a new “green economy” that will provide jobs and other
The ideological diversity within the Democratic Caucus makes coming benefits that outweigh the costs of cap-and-trade legislation. Observers also
up with legislation that satisfies all sides a significant challenge. Dingell, note that it may be important to finish a plan before international discussions
whose district is located in southeast Michigan, which has histori- begin in Copenhagen in December 2009 on a follow-up treaty to the current
cally been the hub of the U.S. automotive industry, and Boucher, who Kyoto Protocol.27
represents major coal producers in southwestern Virginia, are generally
At stake, too, are incumbents’ prospects in the November elections. Some
less inclined to support aggressive climate change legislation that will
believe that Democrats will benefit in the November elections by forcing a
adversely affect these industries compared to Speaker Pelosi and many
vote on a cap-and-trade bill this year while others fear that a vote may harm
others in the House Democratic Caucus. Observers are skeptical that
their election prospects, especially if voters believe that such legislation would
a bill will pass the House this year, but if supporters can bring the mea-
negatively affect already volatile fuel prices or harm the economy. Still others
sure to a vote before Dingell’s committee, it may represent significant
argue that there are no guarantees that global warming legislation will get
progress toward eventual passage in 2009.
passed next year, with the economy, Iraq, and health care likely to take top
billing in a new administration.
IV. The Bush Administration
As of this writing, it is unlikely that significant legislation addressing
President Bush, who has long opposed mandatory emissions reductions
climate change will be enacted this year. However, the current legisla-
requirements, announced, in an April 2008 Rose Garden address delivered
tive proposals lay the foundation and frame the debate for enactment
on the subject of climate change, a goal of halting the growth of GHGs by
of a comprehensive climate change bill in the next Congress. Indeed,
2025, when, he says, they will peak, but he has stopped short of specific
the last bill under consideration by Congress this year will probably become
legislative proposals to mandate carbon emissions caps.
the starting point for next year’s climate change debate. Efforts to help
To reach this goal, the administration strongly favors technology incentive pro- shape this year’s cap-and-trade proposals may dictate the specific legislation
grams as opposed to mandatory emissions caps. President Bush has argued that Congress will consider next year. Therefore, engaging this year in the
that for a cap-and-trade program to be effective, the reductions targets must climate change legislative debate could be beneficial in terms of affecting the
be consistent with advances in technology. He said, “The wrong way is to . . . outcome in the next Congress.
demand sudden and drastic emissions cuts that have no chance of being real-
ized and every chance of hurting our economy.”25 He has said that incentives
Addressing Climate Change in the 110th Congress 6Appendix A: Summary of the Lieberman-Warner Climate Security •Satisfy up to 15 percent of a given year’s compliance obligation with
Act (S. 2191) offset allowances generated within the U.S.
The Cap-and-Trade Program •Satisfy up to 15 percent of a given year’s compliance obligation with
international allowances, allowances purchased from a foreign GHG
The purpose of S. 2191 is to establish a federal program that will substantially emissions trading market that EPA certifies as having comparable integ-
reduce GHG emissions before 2050 to reverse the impacts of global climate rity to the U.S. market and that exists by virtue of national emissions caps
change while simultaneously preserving robust economic growth. Based on that EPA finds to be of comparable stringency to the caps established
objectives determined by the November 2007 report of the Nobel-prize win- by S. 2191.
ning United Nations Intergovernmental Panel on Climate Change (“IPCC”),
the bill is specifically designed to reduce U.S. emissions levels in 2050 to Non-Covered Entities
62 to 66 percent below the 2005 emissions level.28 At the core of the bill Under the bill, some 19 percent of the total emissions budget would be
is a cap-and-trade program that would place a declining cap on the U.S. distributed for free to nonregulated entities (five percent to U.S. farmers and
emissions of the six primary GHGs.29 Under the program, coal-burning power foresters, 2.5 percent for international forest protection, one percent to coal
plants and industries, natural-gas processing plants and importers, petroleum- mines and landfills, and 10.5 percent to state governments) as incentives for
or coal-based producers and importers, and facilities that produce or import those entities to reduce GHG emissions or sequester carbon dioxide, even
(for sale) GHGs, otherwise known as “covered entities,” would be required to though they are not regulated by the bill. Covered facilities would be able
gradually reduce their GHG emissions to comply with the declining cap. to purchase extra allowances from nonregulated entities that have received
At the inception of the program, the Environmental Protection Agency (“EPA”) allowances. For instance, S. 2191 would guarantee that 4.5 percent of the
would create all of the emission allowances -- limited authorizations by the emission allowance account be directed to states, which then must use 90
government that permit the holders to emit one ton of pollutant -- that would percent (of the revenue gained by selling their allowances to covered facili-
exist over the entire 38-year life of the program.30 For each calendar year ties that need to meet their yearly compliance obligation) for a list of eligible
from 2012 through 2050, the EPA would set the number of emission allow- activities, including promoting energy efficiency, improving public transporta-
ances issued for each year. The size of the 2012 Emission Allowance Ac- tion, and relocating communities displaced by the impacts of climate change.
count (“EAA”) would be 5.775 billion allowances. The number of allowances The list of eligible activities is broad and is meant to allow states to best
in a given year’s account would be 106 million fewer than the number in the address their regional concerns and impacts. States would be able to also
immediately preceding year’s account. Under the bill, in 2050, the size of the access another five percent of the emission allowance account if they adopt
EAA would be 1.732 billion allowances; that would be 70 percent below the climate-friendly policies, such as green building standards. The bill would
number of CO2 equivalent31 GHG emissions by covered facilities in 2005.32 similarly reward farmers and foresters that adopt practices that increase the
storage of CO2 in plants and soils.
Covered Entities
Cap-and-trade legislation would not directly raise taxes, but it could increase
At the beginning of each calendar year starting in 2012, the EPA would di- electricity and gas prices by forcing industry to pay the cost of lowering
vide and distribute at no charge a percentage of each year’s account to cov- emissions. These costs are expected to be passed on to consumers. To offset
ered facilities within the electric power and industrial sectors based on their costs of the program to consumers, the bill would direct the EPA each year to
historic emissions. The percentage of the EAA to fossil fuel-fired electric power allocate nine percent of that year’s account to utilities that have a regulatory
generating facilities would begin at 19 percent in 2012; rural electric coop- or contractual obligation to deliver electricity to retail consumers and two
eratives would begin at 20 percent; energy intensive manufacturing facilities percent of that year’s account to the natural gas local distribution companies
would begin at 10 percent; importers and producers of petroleum-based fuel that have a regulatory or contractual obligation to deliver natural gas to retail
would begin at two percent; and hydrofluorocarbon producers would begin consumers. The revenue gained by selling these allowances to covered facili-
at two percent. The percentages would decrease to zero by 2031. ties would be used to mitigate economic impacts on low- and middle-income
At the end of each calendar year beginning in 2012 until 2050, each owner energy consumers and to promote energy efficiency on the part of energy
or operator of a covered facility would submit to EPA a number of emission consumers. By providing allowances to non-covered entities, the bill intends to
allowances that equals the number of CO2 equivalents of GHG emitted further the goal of reducing GHG emissions while encouraging a fluid trading
by a covered facility in the preceding year.33 The owner or operator of any market by including a large number of participants.
covered facility that fails for any year to submit one or more emission allow- Auctioning Allowances
ances would be liable for the payment of an excess emissions penalty, the
amount of which would be equal to the greater of $200 or three times the The bill directs the EPA to allocate portions of each year’s EAA to the Climate
mean market value of an emission allowance during the calendar year for Change Credit Corporation, a non-federal 501(c)(3) entity established by the
which the emission allowances were due. Essentially, by placing a price on bill that is comprised of five individuals appointed by the President, for annual
carbon emissions, the bill aims to spur the development and deployment of auctioning. A covered entity may purchase additional allowances to cover its
zero-to-low-carbon emitting energy sources, like solar and wind power and emissions if the number of free allowances allocated to it is not sufficient. The
other renewable and “clean” energy sources. percentage of allowances to be auctioned off increases during the life of the
program. The portion in 2012 is 21.5 percent, and the portion rises steadily
To meet each year’s compliance obligation, entities would be able to buy each year and then plateaus at 69.5 percent from 2031 through 2050. Thus,
additional allowances from auction, use banked allowances saved from as technology and methods for reducing GHG emissions are developed, it
previous years, purchase certified offsets,34 or reduce their GHG emissions. will become even more costly to emit GHGs. In 2012, an additional five per-
Specifically, S. 2191 would allow owners and operators of covered cent will be allocated for early auctioning; these allowances will be allocated
facilities to: to owners and operators of covered facilities as a reward for actions taken
•Hold onto or “bank” allowances as long as they wish to maintain their since January 1994 to reduce GHGs. Funds generated from the sale of al-
own reserve of allowances use in future years. lowances will depend on the allowance price. The drafters of the bill estimate
that in the program’s first 18 years, the auction may cumulatively generate
•Satisfy up to 15 percent of a given year’s compliance obligation with $1 trillion in funds.
allowances borrowed from future years. A 10 percent interest rate and a
five-year limit would be placed on each loan. The bill would establish six funds within the Treasury Department and donate
a set percentage of the revenue per fund: Technology Deployment Fund (52
Addressing Climate Change in the 110th Congress 7percent); Low Income Energy Consumers Fund (18 percent); Wildlife Adapta- __________________________________________________________
tion Fund (18 percent); International Adaptation and National Security Fund 1
F ossil fuels are nonrenewable energy sources such as coal, petroleum, or natural gas,
(five percent); Workforce Training Fund (five percent); and Advanced Energy or any fuel derived from them.
Research Fund (two percent). These funds would be distributed to these
programs to fund a range of activities including development of zero-to-low- 2
S ee, e.g., Lenny Bernstein, et al., Climate Change 2007: Synthesis Report, FOURTH
carbon energy technology, workforce training, assistance for low-income and ASSESSMENT REPORT INTERGOVERNMENTAL PANEL ON CLIMATE CHANGE
rural communities impacted by climate change, wildlife conservation, WORKING GROUP 1 (2007). The most recent report from the IPCC, which repre-
and the development of climate change adaptation plans to support sents the work of more than 1,200 scientists, concluded that evidence of global warm-
ing is now “unequivocal,” and that it is more than 90 percent likely caused by human
developing countries.
activities. See also, Leon E. Clarke, James A. Edmonds, Hugh M. Pitcher & Richard G.
Carbon Market Efficiency Board Richels, Scenarios of Greenhouse Gas Emissions and Atmospheric Concentrations,
PRODUCT 2.1, PART A, UNITED STATES CLIMATE CHANGE SCIENCE
The bill would establish the Carbon Market Efficiency Board, comprised of PROGRAM (2007).
seven members appointed by the President whose primary objective would
3
be to observe the allowance market and implement cost-relief measures, if F ormer Chairman of the Senate Committee on Environment and Public Works and
current ranking Republican James M. Inhofe of Oklahoma has been a vocal skeptic
necessary, to avoid significant harm to the economy. The board would have
of the idea of man-made climate change. He has opposed setting mandatory limits
the authority to temporarily increase the amount that covered entities may bor-
on GHG emissions on the grounds that doing so would harm the economy and drive
row, lengthen the payback period of loans, lower the interest rate on loans, up energy prices.
and/or loosen a given year’s economy-wide emissions cap by as much as
five percent, provided that subsequent years’ caps are tightened sufficiently 4
T he Act’s bipartisan cosponsors are Sens. Ben Cardin (D-MD), Bob Casey (D-PA),
to ensure that the cumulative emissions reductions over the long term Norm Coleman (R-MN), Susan Collins (R-ME), Elizabeth Dole (R-NC), Tom Harkin
remain unchanged. (D-IA), Amy Klobuchar (D-MN), Bill Nelson (D-FL), Charles Schumer (D-NY), John
Warner (R-VA), and Ron Wyden (D-OR).
Encouraging the Global Effort 5
ccording to the fourth Assessment Report of the IPCC, stabilizing greenhouse gas
A
The bill would also direct the executive branch to intensify its efforts to con- concentrations in the atmosphere at a level that will prevent dangerous interference
vince other nations to start reducing their GHG emissions. If eight years after with the climate system will require a global effort to reduce anthropogenic GHG
the enactment of the cap-and-trade program it is determined that a major emit- emissions worldwide by 50 to 85 percent below 2000 levels by 2050. The IPCC is
ting nation has not taken comparable action to reduce its GHG emissions, the organized under the auspices of the United Nations and engages the participation
President would be authorized to require that manufacturers of GHG-intensive of more than 2,000 scientists from all around the world. The IPCC was established
to provide decision-makers and others interested in climate change with an objective
products, such as steel and aluminum, imported from that nation submit emis-
source of information about climate change.
sions credits of a value equivalent to that of the credits that the U.S. system
effectively requires of domestic manufacturers. 6
T he six major greenhouse gases are carbon dioxide (CO2); methane (CH4); nitrous
oxide (N2O); hydrofluorocarbons (HFCs); perfluorocarbons (PFCs); and sulfur
Miscellaneous Provisions hexafluoride (SF6).
One key provision in S. 2191 would make clear that states are not preempted 7
It should be noted that, under the bill, owners or operators of covered facilities using
from enacting and enforcing GHG emission reduction requirements that are coal are allowed to discount from their submission requirement the number of metric
at least as stringent as the federal ones. The bill would also require strength- tons of CO2 that they geologically sequester. Owners or operators of other types of
ened energy efficiency standards for residential boilers, space heaters, and covered facilities are not allowed to perform such discounting. Instead they receive an
air conditioners in 2012 and would also provide for new model building emission allowance back from EPA for each metric ton of CO2 that they geologically
efficiency standards by 2010 and a new low-carbon fuel performance sequester, destroy, or use as feedstock in a manner that prevents its release into
standard for the transportation sector beginning in 2011. The bill would direct the atmosphere.
the commission of reports from EPA and the National Academy of Sciences 8
ffset allowances come into being when EPA certifies that a non-covered facility
O
that would include the latest scientific information and data related to climate has done something that either has reduced the number of CO2 equivalents that
change, describe the bill’s performance and other policies in reducing GHG the facility otherwise would have emitted in that calendar year or has increased the
emissions, and make policy recommendations to Congress based on these number of CO2 equivalents that the facility otherwise would have captured from the
findings. Additionally, S. 2191 would direct the President to submit to Con- atmosphere and stored in that calendar year.
gress in 2020 a bill based on recommendations by EPA in 2019. 9
oal-burning power plants are responsible for approximately 40 percent of U.S.
C
he bill would also direct the Secretary of Energy to create regulations to GHG emissions. Many Democrats from coal states have expressed concern about
implement a national infrastructure for taking CO2 from power plants, through how carbon-cutting measures could hurt the industry. However, the bill is supported
pipelines, to injection wells, and then deep underground to remove it from the by Democrat Max Baucus of Montana, a leading producer of coal, whose support is
considered pivotal in garnering the support of coal states. Baucus said he will support
atmosphere, and the bill would require annual review of foreign countries’
the measure as long as it includes provisions to fund research and development for
GHG control actions in 2018. Finally, the bill would authorize the President to clean coal technologies.
suspend provisions of the bill in the event of a national emergency.
10
hite Paper, The Economics of America’s Climate Security Act of 2007: (S. 2191,
W
Lieberman-Warner Climate Bill), PREPARED BY SENATOR JAMES M. INHOFE,
RANKING MEMBER, UNITED STATES SENATE COMMITTEE ON ENVIRON-
MENT AND PUBLIC WORKS (May 2008).
11
hile Democrats control the Senate 51-49, technically there are 49 Democratic
W
senators and two Independent senators, Joe Lieberman (CT) and Bernie Sanders
(VT), who caucus with the Democrats to create the majority.
12
cost analysis released by the EPA on March 14, 2008, found that implementation
A
of the Lieberman-Warner bill to limit greenhouse gas emissions through a cap-and-
trade system would cause an increase in energy prices and lead to slower economic
growth. See ENVIRONMENTAL PROTECTION AGENCY, EPA ANALYSIS OF THE
Addressing Climate Change in the 110th Congress 8LIEBERMAN-WARNER CLIMATE SECURITY ACT OF 2008: S. 2191 IN 110TH developed countries to reduce emissions by at least five percent below 1990 levels
CONGRESS (2008). The report offers a range of possible economic effects of by 2012. The treaty was ratified by 174 nations – but not the United States – and
implementing the cap-and-trade bill. The Congressional Budget Office concluded went into effect in 2005. Kyoto signatories are collectively projected to be in compli-
in an April 10 report that while S. 2191 would increase federal revenues by $1.21 ance with the treaty, while U.S. emissions, on the other hand, are already 16 percent
trillion between 2009 and 2018 and revenues would exceed new direct spending higher than 1990 levels. The current Bush administration has focused its U.S. climate
by $78 billion, the bill would cost the private sector more than $90 billion each year change policy solely on voluntary initiatives to reduce the growth in GHG emissions.
between 2012 and 2016 and more in subsequent years. 28
ccording to the fourth Assessment Report of the IPCC, stabilizing greenhouse gas
A
13
ixteen states have adopted overarching GHG emissions reduction targets. States
S concentrations in the atmosphere at a level that will prevent dangerous interference
are also entering into regional partnerships to address climate change, such as the with the climate system will require a global effort to reduce anthropogenic GHG
Western Climate Initiative and the Midwestern Regional Greenhouse Gas emissions worldwide by 50 to 85 percent below 2000 levels by 2050. The IPCC is
Reduction Accord. organized under the auspices of the United Nations and engages the participation
of more than 2,000 scientists from all around the world. The IPCC was established
14
T he Lieberman-Warner bill has a 62-66 percent emission reduction goal for total U.S. to provide decision-makers and others interested in climate change with an objective
emissions and a 70 percent emission reduction goal for covered entities. source of information about climate change.
15
E ISA, which became public law (P.L. 110-140) in December 2007, set nationwide 29
T he six major greenhouse gases are carbon dioxide (CO2); methane (CH4); nitrous
fuel economy standards. oxide (N2O); hydrofluorocarbons (HFCs); perfluorocarbons (PFCs); and sulfur
16
limate Change Legislation Design White Paper, Scope of a Cap-and-Trade
C hexafluoride (SF6).
Program, p. 9, PREPARED BY THE COMMITTEE ON ENERGY AND COMMERCE 30
E ach emission allowance will have a unique serial number that will include the calen-
STAFF (October 2007). dar year for which it was created.
17
Id. at 22. 31
CO2 equivalent is the quantity of a greenhouse gas that the EPA determines makes
A
18
limate Change Legislation Design White Paper, Competitiveness Concerns/Engag-
C the same contribution to global warming as one metric ton of CO2.
ing Developing Countries, p. 1, PREPARED BY THE COMMITTEE ON ENERGY 32
ccording to the Senate Environment and Public Works Committee, the bill places
A
AND COMMERCE STAFF (January 2008). a separate declining cap on the consumption and importation of HFC consumption
19
Id. into the United States. The first capped year is 2010, and the 2040 cap is 70 per-
cent below the 2010 cap. HFCs are 14,800 times more potent than CO2. Because
20
Id. at 12. of this high greenhouse warming potential, one ton of HFCs in the same trading
system as CO2 would cost several thousand times more than a ton of CO2. This high
21
Id. at 8.
cost could force companies to close their HFC facilities. Thus, the bill does not allow
22
P rospect of EPA regulations a “glorious mess”, GREENWIRE, E&E Publishing, HFC allowances to be traded with emissions allowances. The separate market for
April 4, 2008. HFCs ensures that emissions of this gas will be reduced in a way to minimize disrup-
tion to the industry and maximize efficiency gains in appliances. The proceeds of the
23
limate Change Legislation Design White Paper, Appropriate Roles for Different
C auction will be used to support programs that will reduce the use of substances that
Levels of Government, p. 18, PREPARED BY THE COMMITTEE ON ENERGY AND have significant ozone depletion and global warming potential.
COMMERCE STAFF (February 2008).
33
It should be noted that, under the bill, owners or operators of covered facilities using
24
Id. coal are allowed to discount from their submission requirement the number of metric
25
P resident Bush Discusses Climate Change, OFFICE OF THE PRESS SECRETARY tons of CO2 that they geologically sequester. Owners or operators of other types of
(April 16, 2008). covered facilities are not allowed to perform such discounting. Instead they receive
an emission allowance back from EPA for each metric ton of CO2 that they geologi-
26
arren Good, Climate Change Given a 50-50 Chance of Passage This Year,
D cally sequester, destroy, or use as feedstock in a matter that prevents its release into
CONGRESSDAILY, March 11, 2008. Democrats are expected to gain up to six or the atmosphere.
seven Senate seats to add to their 51-49 majority for the 111th Congress in 2009.
34
ffset allowances come into being when EPA certifies that a non-covered facility
O
27
In 1992, the United Nations Framework Convention on Climate Change treaty was has done something that either has reduced the number of CO2 equivalents that
developed to prevent dangerous anthropogenic interference with the climate system. the facility otherwise would have emitted in that calendar year or has increased the
The treaty was ratified by Congress and signed by President George H.W. Bush. The number of CO2 equivalents that the facility otherwise would have captured from the
resulting negotiations led to the development of a treaty for mandatory greenhouse- atmosphere and stored in that calendar year.
gas reductions by developed countries (but not developing countries such as China
or India) that was completed in 1997 in Kyoto, Japan. The Kyoto Protocol calls for
Addressing Climate Change in the 110th Congress 9You can also read
