Weekly Climate Change Policy Update - October 19

Commentary

This was Lieberman-Warner week as the Senators finally introduced their long-expected legislation.  The bill first will be considered in Senator Lieberman’s subcommittee of the Environment & Public Works Committee.  The subcommittee membership includes a number of Senators who generally have supported more stringent emissions caps, which could account for the fact that the Lieberman-Warner bill has tighter emission limits and less generous allowance allocation provisions than the detailed outline the Senators distributed for comment in August.  On the other hand, the bill carries over a number of elements from the Bingaman-Specter bill, including substantial funding for clean energy technology development and deployment, subsidies for carbon capture and sequestration projects, and trade measures aimed at “uncapped” countries like China and India.  While Senator Barbara Boxer, Chairman of the Environment & Public Works Committee, has pledged to move a bill through her full committee by the end of the year, it is not clear that there is sufficient time or political support to meet this goal. 

Congress

• Senators Lieberman and Warner Release Formal Climate Change Bill.  On Thursday, Senators Joseph Lieberman (I-CT) and John Warner (R-VA) formally introduced “America’s Climate Security Act” (S. 2191), which would cap emissions from the electric power, transportation and manufacturing sectors.  The bill would limit emissions from covered sources to 15 percent below 2005 levels by 2020 and 70 percent below 2005 levels by 2050.  The reductions called for in S. 2191 are more stringent than the emissions cuts the Senators originally recommended in the outline they circulated in August.  In addition, the bill would establish a Carbon Market Efficiency Board that would oversee the carbon trading market and make adjustments to the emissions cap and borrowing terms if the price of emission allowances exceeds expectations.  In addition, the Lieberman-Warner bill sets aside more allowance-based funding for clean energy technology development and deployment than any of the other bills introduced to date.  The Senate Environment and Public Works Subcommittee on the Private Sector and Consumer Solutions to Global Warming and Wildlife Protection, which is chaired by Sen. Lieberman, will hold a legislative hearing on the legislation on October 24 and is expected to mark up the bill during the following week.  For more information on this bill, see the Van Ness Feldman October 19 issue alert.       
• Senators Drop Hold on Energy Bill.  Senators Debbie Stabenow (D-MI), Carl Levin (D-MI) and George Voinovich (R-OH) removed their procedural holds on the energy bill, which may allow for the House and Senate to meet in a formal conference over their two energy bills, unless other Senators place similar holds.  The Senators are opposed to language in the Senate energy bill (H.R. 6) that would raise CAFE standards to 35 mpg for light cars and trucks by 2020.  The Senators said that they will object to a final bill if it contains the CAFE language contained in the Senate bill.  Friday afternoon, Senate Majority Leader Harry Reid (D-NV) moved to formally name conferees.  Sen. John Cornyn (R-TX), speaking for the Republican leadership, objected to the motion, but explained that his objection resulted from being unable to survey all members of the Republican minority.  The issue will come up again early next week, possibly Monday.
• Selected Committee Hearings From the Past Week:
  • The House Science and Technology Subcommittee on Investigations and Oversight held an oversight hearing on global warming and permanently frozen ground (October 17, 2007).
  • The House Select Panel on Energy Independence and Global Warming held a hearing on the impact of global warming and oil dependence on poor communities (October 18, 2007).
  • The House Oversight and Government Reform Committee held an oversight hearing on black carbon and the artic (October 18, 2007). 

Administration

• EPA Vehicle CO₂ Emission Rules Might Follow CA Format.  Paul Argyropoulos, a senior official from EPA’s Office of Transportation and Air Quality (OTAQ) told reporters after the Cellulosic Ethanol Summit in Washington, D.C. that the agency’s upcoming regulations limiting CO₂ emissions from vehicles and fuels likely will follow the format of California’s vehicle GHG emission standards.  EPA’s proposal is not expected to be as stringent, however, as California’s.  Like the California standards, EPA’s proposal will include standards requiring a percentage reduction in vehicle CO₂ emissions and will not include technology-based requirements.  Mr. Argyropoulos said that the agency is relying on its Clean Air Act authority and will not address fuel economy, but added that the National Highway Traffic Safety Administration (NHTSA), which administers the Federal fuel economy program, is assisting EPA in the development of the standards.
• EPA May Grant Temporary Waiver for CA Vehicle GHG Emission Standards.  According to California officials, EPA is considering granting a temporary waiver for the state’s vehicle CO₂ emission standards.  The state officials said that EPA may allow the California standards to remain in place - in California as well as the 12 other states that have adopted the requirements - until the Federal government implements its own regulations on vehicle GHG emissions.  EPA has said that it will decide on California’s request for a waiver by the end of this year, but Gov. Arnold Schwarzenegger (R) has pledged to file a lawsuit if the agency does not decide on the waiver request by October 23.
• FAA Announces Meeting on Alternative Fuels for Commercial Airplanes.  The Federal Aviation Administration (FAA) announced a November 6-7 meeting with industry officials and other interested parties to discuss the development of alternative fuels for commercial airplanes.  The meeting is part of a Bush Administration strategy to create an alternative to the European Union’s (EU) plan to require GHG offsets for all commercial flights in and out of the EU beginning in 2012.  The U.S., Australia, Canada, China, Japan, and South Korea have publicly opposed the EU proposal. 
• Federal Reserve Urges Industry to Prepare for Climate Regulations.  The Chicago branch of the Federal Reserve Bank held a conference in Detroit, Michigan, at which Bill Testa, Vice President of the Chicago branch, told attendees to be prepared for some form of mandatory Federal climate change regulation in the next few years.  Speaking at the conference, U.S. Energy Information Administration Deputy Administrator Howard Gruenspecht called for industry to pay close attention to the details of various climate proposals.

Presidential Politics

• Issue of Climate Change Divides Republican Presidential Candidates.  The New York Times published an article this week on the emergence of climate change as a divisive issue among Republican presidential candidates, which the newspaper contrasted to the 95 to 0 Senate vote in 1997 against joining any international climate treaty that could harm the U.S. economy.  The article noted that Sen. John McCain (R-AZ) has called for a mandatory Federal cap-and-trade program and fuel economy increases, while former Arkansas Gov. Mike Huckabee and Sen. Sam Brownback (R-KS) have cast the issue in moral or religious terms.  Although Rudolph Giuliani and Mitt Romney have not advocated a mandatory cap on GHG emissions, both have supported clean coal and alternative energy development. 

States and Cities

• Kansas Denies Permit for Proposed Coal-Fired Plants Based on CO₂ Emissions.  The Kansas Department of Health and Environment denied a permit for two proposed coal-fired power plants on Thursday after finding that the facilities' CO₂ emissions would threaten public health and the environment.  Sunflower Electric Power had proposed to build two 700-megawatt coal-fired power plants in western Kansas.  Combined, the two facilities would have produced approximately 11 million tons of CO₂ annually.  The permit was opposed by environmental groups, the United Steelworkers Union, and the attorneys general of the states participating in the Northeast Regional Greenhouse Gas Initiative (RGGI).  The denial of the permit by the state agency is the first time that a government agency has rejected a permit for a coal-fired powered plant based on GHG emissions. 
• RGGI Use of Short Tons May Complicate Linkage to Other Programs.  Possible problems with the use of short tons, instead of metric tons, in the Northeast RGGI became apparent last week when Evolution Markets brokered the first trade of carbon offset credits under the program.  Although the RGGI approach is consistent with previous U.S. cap-and-trade programs for conventional pollutants, such as SO₂ and NO_x, the use of short tons may make it difficult to link RGGI to other systems.  The EU Emission Trading Scheme (ETS), along with other international programs and proposed Federal legislation, uses metric tons to quantify CO₂ emissions and credits. 
• New Mexico Proposes GHG Reporting Program.  The New Mexico Environment Department issued a proposed rule that would require power plants, oil and gas refineries, and cement plants in the state to report GHG emissions.  The proposal would require all industries that are required to report emissions of other air pollutants, such as SO₂, NO_x, and particulate matter, to include GHG emissions in reports to the state beginning in 2008.  Smaller facilities, including those emitting less than 100 tons per year of EPA-defined criteria pollutants, would have to report on GHG emissions starting in 2009, with the smallest sources required to begin submitting GHG reports in 2010.  The proposal would phase in the GHGs to be reported, starting with CO₂ and requiring reporting of methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride in later years.  The rule is subject to final approval in late November or early December and is scheduled to go into effect on January 1, 2008.
• Seattle City Council Considering Strict GHG Measurement and Mitigation Requirements.  The Seattle, WA City Council is considering legislation that would require developers of all public and private projects that trigger the state Environmental Policy Act to measure and mitigate direct and indirect GHG emissions.  The bill would affect projects such as highways, skyscrapers, and parking lots with more than 20 spaces.  Another bill before the council would commit the city to reducing its GHG emission by 50 percent by 2024.  Seattle Mayor Greg Nickels has adopted a nonbinding target of reducing emissions by 80 percent by 2050.  His plans call for planting trees, mandating green buildings, and requiring cruise ships to use dockside power.  The City Council will take up the proposals on November 28, 2007.

Studies and Reports

• Climate Change Science Program Report Analyzed Effects of Climate Change on the Energy Sector.  A report released this week by the Bush Administration’s Climate Change Science Program evaluated the impacts of climate change on the energy sector.  The report noted that while changes will vary by region, electricity demand will increase for air conditioning while heating needs could decrease, water will become increasingly scarce for power plant cooling and hydroelectricity generation, and the Gulf Coast could be affected by increasing storm intensity and rising waters.  According to the principal author, the report, based on a survey of available literature, is “cautionary, but not at this stage alarming.”  The report noted that further study of the impacts of climate change on the energy sector is needed. 
• Study of Climate Change Impacts on U.S. Indicates that Cost will Outweigh Benefits.  The University of Maryland’s Center for Integrative Environmental Research released a report on the economic impact of climate change on the U.S.  While the study did not predict a total cost of climate change impacts, citing uncertainty in predicting “hidden costs,” the report identified a range of costs that could result from climate change.  The report focused on individual sectors in different geographical regions, and noted that the mid-Atlantic and Northeast regions were most vulnerable to disruption because of storm surges and rising sea levels.  
• International Energy Agency Calls for Improvements in Energy Efficiency.  The International Energy Agency (IEA) released a report on the need for greater energy efficiency to combat climate change.  The IEA report highlighted eight cases across five IEA countries, and found that a major obstacle to energy efficiency is split incentives, where two parties have different goals and different information.  The report cited the misaligned incentives of the landlord-tenant situation as an example, where the landlord provides appliances but the tenant pays the electricity costs.  The IEA recommends that governments design policy packages to address specific domestic issues, such as regulating appliance and building efficiency, improving energy efficiency information, and more closely aligning energy users with those who pay energy costs.
• North American Electric Reliability Corp. Predicts that Electricity Demand will Exceed Projected Generation.  The North American Electric Reliability Corp. (NERC) released its annual long-term reliability assessment and warned about a gap between projected electricity demand and supply.  NERC predicts that summer U.S. demand will increase by 17.7%, while power projects that are built, under construction, or ready to meet demand will increase supply only by 12.7%.  The organization, which is responsible for overseeing the reliability of the U.S. electric grid, cautioned that the electrical grid, which was already under stress, is facing increasing strain.  NERC also emphasized that the continued development of renewable resources will require greater and new types of transmission infrastructure to ensure reliability.

International

• World Bank Announces Carbon Finance Initiatives.  The World Bank announced the establishment of two carbon finance programs – a Carbon Partnership Facility and a Forest Carbon Partnership Facility – under its Investment Framework for Clean Energy and Development.  The Carbon Partnership will fund emission reduction efforts in the transportation and power sectors in developing nations.  The Forest Carbon Partnership will oversee two funds.  The first, the Readiness Fund, will assist developing nations in estimating the amount of CO₂ currently stored in their forests.  The second, the Carbon Fund, will support emission reduction projects.  Approximately 20 countries have expressed interest in participating in the Forest Carbon Partnership.
• Canadian PM Announces that Country Will Be Unable to Comply with Kyoto Emissions Reduction Target, but Will Implement Mandatory Targets.  The Prime Minister of Canada, Stephen Harper, delivered a speech on Tuesday and confirmed that Canada will not be able to meet its emissions reduction target of 6% below 1990 levels under the Kyoto Protocol.  The Kyoto compliance period begins in 2008, and Canada’s 2005 emissions were 33% above the country’s Kyoto target.  The increase in Canadian emissions over the last 10 years has made it “widely understood” that the target would not be met.  Prime Minister Howard emphasized in his speech that Canada would implement an emissions trading plan and that mandatory targets for all major industry sectors are on the legislative agenda for the upcoming year.
• 2005 CO₂ Emissions in China Exceed U.S. Predictions.  The U.S. Energy Information Administration (EIA) released information indicating that the actual CO₂ emissions in China for 2005 were 850 million metric tons more than EIA predicted in the year 2000.  The increased CO₂ emissions were largely attributable to greater than expected electricity generation, which at 2.5 trillion MWh exceeded the EIA prediction by 1 trillion MWh and the Chinese government’s own prediction by 0.5 trillion MWh.