Weekly Climate Policy Update - December 7, 2007

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Commentary

Congress

• The Senate Committee on Environment and Public Works approved S. 2191, The Lieberman-Warner Climate Security Act, by an 11 to 8 vote after working through more than forty amendments on Wednesday. Senator Warner was the only Republican to vote in favor of the legislation. The bill aims for a 70 percent reduction from 2005 levels by 2050 of greenhouse gas emissions from power plants, manufacturers, petroleum refiners, natural gas processors, and other sectors of the economy. It includes a cap-and-trade program that would allow for regulated entities to purchase emissions credits from other regulated entities with excess allowances and from emission reduction projects. It is anticipated that the full Senate will debate S.2191 sometime in 2008, but its future beyond that is difficult to predict. Van Ness Feldman is preparing a complete briefing on the markup and a summary of the specifics of the legislation for clients, which is scheduled for release on December 10. On Thursday, the House passed a comprehensive energy package by a vote of 235 to 181. The bill includes:
  • A 40 percent increase in Corporate Average Fuel Economy (CAFE) standards for cars and light trucks to 35 miles per gallon by 2020;
  • A Renewable Electricity Standard (RES) that requires electric utilities to generate 15 percent of their power from renewable sources by 2020;
  • A comprehensive suite of standards and grants to advance appliance and building efficiency;
  • An increase in the Renewable Fuels Standard (RFS) mandating 36 billion gallons of ethanol and other renewable transportation fuels by 2022;
  • $21 billion in tax incentive for hybrid vehicles, ethanol production and renewable energy production; and
  • Repeal of $13.5 billion in tax credits for the five largest oil companies doing business in the United States.

On Friday morning, the Senate failed to invoke cloture, falling 7 votes short of the 60 votes needed to foreclose a threatened filibuster by Republican Senators who object to the tax provisions and the RES. Although there is wide-bipartisan agreement on the CAFE, RFS and efficiency provisions, the bill faces an uncertain future as Democrat and Republican leadership will attempt to find a package that both chambers can pass. As of Friday evening, another cloture vote was expected on Tuesday, December 11.

• Senator Feinstein Introduces Carbon Market Regulation Legislation.  Senator Dianne Feinstein (D-CA) introduced legislation (S. 2423) that establishes federal oversight of the new carbon emissions trading markets that would be established under S.2191.  Specifically, S. 2423 clarifies that the Commodity Futures Trading Commission (CFTC) would have exclusive jurisdiction over CO₂ futures markets and requires the Environmental Protection Agency (EPA) to publish market price data to increase market transparency; monitor trading for manipulation and fraud; and enforce position limits (the total number of emission credits to be held by a company at one time). 
• Democrats Draft Letter in Opposition to Bush Climate Policy.  A group of ten House Democratic committee chairman this week sent a letter outlining their concerns regarding President Bush’s climate change policies to Yvo De Boer, executive director of the U.N. Framework Convention on Climate Change.  The authors of the letter also noted that U.S. laws will be different with a change in Administration.  Mr. De Boer will preside over the U.N. sponsored global warming convention taking place in Bali over the next two weeks.  A group of six Democratic Senators sent a similar letter to President Bush this week, urging him to take the Bali negotiations seriously. 
• Senators Call On SEC to Issue Guidance on Climate Change Risks.  In a letter to Securities and Exchange Commission (SEC) Chairman Christopher Cox, Senator Chris Dodd (D-CT), Chairman of the Senate Committee on Banking, Housing, and Urban Affairs, and Senator Jack Reed (D-RI), Chairman of the Senate Subcommittee on Securities, Investment and Insurance, called on the agency to issue guidance on the information that companies must provide on the material risks they face from climate change and to clarify that companies should assess the potential impacts of climate change on their operations and profits or disclose why such an assessment is not necessary.
• Senate Commerce Committee Moves to Expand Climate Research Efforts.  The Senate Committee on Commerce, Science and Transportation marked up three bills this week that would increase federal research on climate change.  The Committee approved by voice vote the Federal Ocean Acidification Research and Monitoring Act of 2007 (S.1581), the Climate Change Adaptation Act (S. 2355), and the Global Change Research Improvement Act of 2007 (S.2307). 

Administration

• Coalition Petitions EPA To Regulate Aircraft GHG Emissions.  A coalition of environmental groups, along with the attorneys general of California, Connecticut, New Jersey, New Mexico, and the District of Columbia, New York City, the South Coast Air Quality Management District, and the Pennsylvania Department of Environmental Protection, filed a petition with EPA asking the agency to regulate GHG emissions from aircraft.  The groups noted that the Supreme Court has ruled that EPA has broad authority under the Clean Air Act (CAA) to regulate GHG emissions and said that it had a “mandatory duty” to regulate new aircraft, through emission reductions or changes in operation.

• EPA Holds First Workshop on Carbon Sequestration.  EPA held the first public workshop on the development of regulations for a national framework for carbon sequestration.  Several hundred people attended the workshop, including officials from the Department of Energy and state governments, environmental groups, water and power utilities, and oil and gas companies.  EPA intends to regulate carbon sequestration as part of its Underground Injection Control Program, under the Safe Drinking Water Act.  The agency plans to issue a proposed rule by the summer of 2008.

States and Cities

• California Adopts 2020 Emissions Limit and GHG Emissions Reporting Rule.  On December 6, substantially in advance of the January 1, 2009 deadline set by A.B. 32, the Global Warming Solutions Act of 2006, the California Air Resources Board (CARB) adopted GHG emissions limits for 2020 and regulations requiring large facilities to report their annual GHG emissions.  The 2020 emissions limit is 427 million metric tons of CO₂.  To reach that level, California must reduce current emissions by 173 million tons.  CARB has taken a number of early actions, including adopting motor vehicle emissions regulations and developing a low-carbon fuel standard, that are expected to reduce current emissions by 66 million tons.  CARB will address the remaining 107 tons in a work plan it will finalize in November 2008.  The mandatory GHG emissions reporting regulations will cover over 800 industrial and commercial facilities, including electricity generators, electricity retailers, power marketers, cogenerations facilities and others, accounting for 94 percent of statewide GHG emissions.
• New Mexico Adopts Regulations Based on California Motor Vehicle GHG Emissions Standards.  The regulations, approved by the New Mexico Environmental Improvement Board, will take effect on January 1, 2008 and apply to new vehicles leased or sold in the state beginning with the model year 2011.  The regulations aim to reduce GHG emissions from new cars and trucks by 22 percent by 2012 and 30 percent by 2016.  Transportation is the fastest growing source of emissions in the state and accounts for 17 percent of GHG emissions.  California must receive a waiver from the Environmental Protection Agency (EPA) before New Mexico can implement the regulations.  An EPA decision on the waiver is expected before the end of the year.
• Washington Agency Rules Power Plant Application Failed to Adequately Address Greenhouse Gas Emissions.  The Washington Energy Facility Site Evaluation Council (EFSEC) denied an application for the construction of an electric power plant under a new state law requiring a greenhouse gas reduction plan.  EFSEC ordered a stay in the application process after finding the plan “insufficient as a matter of law.”  The Washington law establishes performance standards that require new facilities to sequester GHG emissions that exceed an emissions intensity of 1,100 pounds of GHG per megawatt hour and to create a specific sequestration plan for any excess emissions.  The proposed plant, to be located in Kalama, Washington, will be a 793-megawatt electricity generation facility that uses synthetic gas derived from petroleum coke or coal.  The EFSEC decision does not end the application process and the public utility group that filed that application is reviewing its options for the plant. 
• California Agency Endorses 33 Percent Renewable Portfolio Goal by 2020.  The California Energy Commission (CEC) announced the target, which is applicable to both electricity generation and transportation fuels, in its Integrated Energy Policy Report (IEPR).  The IEPR is updated every two years and contains energy policy recommendations for each sector under CEC jurisdiction, including electricity, natural gas, transportation, and land use.  This year’s report focused largely on policies aimed at achieving the state’s GHG reduction targets established by A.B. 32.  In addition to the renewable portfolio goal, the IEPR recommended the full economic development of energy efficiency measures, which some observers expect could entirely offset the state’s projected 1.25 percent annual growth in electricity demand.  In addition, the report proposed a goal of “zero net energy use” for new building construction.
• Maryland Commission Recommends Reducing Statewide GHG Emissions to 90 Percent of 2006 Levels by 2050.  On December 4, the Maryland Climate Change Commission released a draft report containing recommendations for possible legislation and early executive actions to address climate change.  The Commission is scheduled to deliver its final report to Governor Martin O’Malley (D) during the week of December 10.  One of the legislative recommendations is a series of incremental emissions goals that would reduce 2006 emissions 10 percent by 2012, 25 percent by 2020 and 90 percent by 2050.  The draft report also identified over 50 priority policy options for future analysis.  Created by Governor O’Malley in April 2007, the Commission is tasked with creating a Plan of Action on climate change by April 2008 and issuing a report each November 1 on the status of the state’s implementation of the plan. 

Studies and Reports

• Analyst Reports That, Absent Additional Incentives, CCS Will Not Be Viable in U.S. Until Carbon Prices Reach $40 Per Ton.  At a conference this week, a Standard & Poors analyst said that carbon capture and sequestration (CCS) will only become economical when carbon prices hit $40 per ton.  An analyst from New Carbon Finance suggested that current trading regimes in the U.S., including the Regional Greenhouse Gas Initiative (RGGI), are unlikely to result in carbon prices that reach the $40 per ton benchmark.  [VNF comment: The price of carbon is not the only factor affecting the deployment of CCS technology and provisions in pending federal bills are likely to increase incentives for CCS development.  For example, the “The Lieberman-Warner Climate Security Act” includes a set aside of allowances for entities that capture and sequester CO₂.]
• Canadian Study Finds that a Carbon Tax is the Best Option for Addressing Climate Change.  The study, Designing Canada’s Low-Carb Diet: Options for Effective Climate Policy, noted that 20 years of voluntary policies and targets at the federal level have failed to produce meaningful reductions in GHG emissions.  Prepared for the C.D. Howe Institute, the study found that a carbon tax is the most economically efficient approach to reducing emissions.  A tax ensures that the lowest cost emissions reductions would be achieved first.  While economically efficient, a carbon tax would likely be unacceptable politically unless it remains revenue neutral by incorporating corresponding reductions in existing taxes.  The study further reported that cap-and-trade programs generally result in inefficient emission reductions, leading to large expenditures by government and industry with relatively lower reductions in GHG emissions.
• Group Issues Climate Action Plan Calling for 90 Percent Reductions in 2010 U.S. GHG Emissions By 2050.  The group, which is composed of policymakers, academics, and energy experts, released the Presidential Climate Action Plan (Plan) as a guide for the next U.S. president.  The Plan is intended to serve as a climate action agenda for the first 100 days of a new administration and provides more than 300 specific policy recommendations.  The recommendations are aimed at a broad range of policy areas, including energy, economic development, transportation, national security, public health, and natural resources.  Two of the Plan’s most significant recommendations are an increase in motor vehicle fuel economy to 50 miles per gallon by 2020 and the establishment of a nationwide cap-and-trade program for carbon emissions.
• OECD Report Ranks Cities’ Exposure to Rising Sea Levels.  In the first of a series of reports analyzing the impacts of climate change on the urban environment, the Organization for Economic Cooperation and Development (OECD) issued a report on the increased flood risks associated with rising sea levels.  The report, titled Ranking Port Cities with High Exposure and Vulnerability to Climate Extremes, ranks cities’ current and projected exposure to flood risks.  Projections for 2070 found that over 150 million urban residents would face extreme flood risks, more than tripling the number of those currently at risk.  In terms of property value and infrastructure, Miami, Florida led the lists for both current and projected exposure with $400 billion and $3.5 trillion in exposed assets, respectively.  The only other U.S. city to make the list was New York.  The report found that by 2070 eight of the top ten most affected cities would be in Asia, including Guangzhou, Shanghai, Tianjin; and Hong Kong in China; Kolkata ( Calcutta) and Mumbai ( Bombay) in India; Tokyo, Japan; and Bangkok, Thailand.  The 2070 projections assumed a half-meter sea level rise world-wide.

International

• UN Negotiations Begin in Bali; Developing Nations Condition Emission Cuts on Assistance.  The United Nations (UN) discussions on a post-Kyoto climate change regime began this week in Bali at the 13th Conference of the Parties (COP) to the Kyoto Protocol, where negotiators hope to resolve when and how to set new GHG emission reduction targets.  During the discussions, representatives from developing nations indicated that they would consider reducing GHG emissions intensity, or accepting sector-specific reduction targets, if industrialized nations agree to provide financial assistance for technology implementation and adaptation measures.  The UN negotiations will continue until December 14.
• Climate Scientists Call for 50 Percent Emissions Reduction by 2050.  A group of more than 215 leading climate scientists signed a petition calling on world leaders to adopt an agreement to reduce global GHG emissions by 50 percent by 2050.  The group includes a number of the authors of the UN Intergovernmental Panel on Climate Change reports, as well as directors of major U.S. and European climate science research institutions, and winners of several international scientific awards.  The petition is aimed at influencing the UN negotiations in Bali and marks the one of first times that the international scientific community has recommended a specific course of action on climate change.
• U.S. and EU Issue Joint Proposal to Eliminate Climate Technology Trade Barriers.  The United States and the European Union (EU) issued a joint proposal at the World Trade Organization (WTO) that would eliminate tariffs and other trade barriers on technologies that are directly related to climate change and energy security.  The proposal lists 43 technologies, such as solar panels, wind turbines, and refrigeration equipment, for which the U.S. and EU recommend the elimination of tariffs.  Susan Schwab, the U.S. Trade Representative, said that removing such barriers would lower the cost of and expand global access to these technologies.  The proposal is part of the Doha Round of negotiations on trade in environmental goods and services.