Weekly Climate Change Policy Update - January 22, 2008

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Commentary

The House of Representatives returned this week from its holiday recess and immediately dove into the issue of climate change.  Reps. John Dingell and Rick Boucher began the process of developing climate legislation, which House Majority Leader Steny Hoyer said could reach the floor by early this summer.  Rep. Dingell clarified that he does not plan to “exempt” the auto industry from any cap-and-trade program, but emphasized that the recent legislative revisions to the CAFE program will result in CO₂ emission reductions from this sector and any cap-and-trade measure must take that into account.  EPA’s denial of California’s request for a Clean Air Act waiver for its vehicle emissions standard continued to draw attention from Congressional leaders and Rep. Henry Waxman prepared to take depositions from top EPA officials regarding the December 19, 2007 announcement that the agency intended to deny California’s waiver request. 

Congress

• Rep. Waxman Plans Depositions of EPA Officials Over Denial of California Waiver.  Rep. Henry Waxman (D-CA), Chairman of the House Oversight and Government Reform Committee, told the Environmental Protection Agency (EPA) this week that he will seek to take depositions from several key officials regarding the agency’s intent to deny the Clean Air Act waiver California requested in order to implement its own vehicle GHG emission standards.  The depositions will be taken as part of the investigation that Rep. Waxman opened in December. (See the “Studies and Reports” section below for information on a Congressional Research Service report on EPA’s plans to deny the waiver.)
• House Climate Change Legislation Plans Begin to Take Shape.  House Majority Leader Steny Hoyer (D-MD) said this week that he expects the Energy and Commerce Committee to bring a climate bill to the House floor for debate as early as this summer.  Energy and Commerce Chairman John Dingell (D-MI) and Energy and Air Quality Subcommittee Chairman Rick Boucher (D-VA) are in the process of developing legislation and are expected to release a series of white papers before introducing legislation this spring.  In an interview this week, Chairman Dingell noted that, despite the momentum behind climate change legislation, passage of such a bill during the presidential campaign season will be difficult. 
• Senate Staff Predicts Springtime Climate Change Floor Debate.  Chelsea Maxwell, Senior Policy Advisor to Senator John Warner (R-VA), said at a transportation and climate policy briefing this week that Senate Majority Leader Harry Reid (D-NV) will likely bring climate change legislation to the floor for debate this spring.  She said that with upcoming presidential and congressional elections, scheduling time for the debate has been particularly challenging.  The Senate Environment and Public Works Committee approved the bill, S.2191, in December. 
• CEQ Chair Does Not Support Cap-and-Trade Proposals.  White House Council on Environmental Quality (CEQ) Chairman James Connaughton testified on climate change this week before House Energy and Commerce Subcommittee on Energy and Air Quality.  He said that, while the Administration has not yet taken an official stance on cap-and-trade proposals, the approach creates challenges for many different sectors of the economy.  Mr. Connaughton stated that a better approach would be to encourage greater reliance on nuclear energy and alternative fuels, and to promote technology designed to improve energy efficiency.  Energy and Commerce Ranking Member Joe Barton (R-TX) said that Republican committee members also would resist a cap-and-trade proposal.  (For further information on Chairman Connaughton’s remarks before the subcommittee, see discussion under “International” below.)
• House Republicans Seek GAO Analysis of U.S. Carbon Offset Market.  House Energy and Commerce Ranking Member Joe Barton (R-TX) and Rep. John Shimkus (R-IL) this week requested that the Government Accountability Office (GAO) investigate the integrity of the domestic voluntary GHG emissions offset market.  The Congressmen noted that while offsets may play a valuable role in reducing emissions, “without transparency and reliable evidence of honesty, they seem poised to betray their purchasers’ good intentions.”  The GAO has said that it is in the initial stages of investigation.  
• Rep. Markey Calls for Polar Bear Decision; Introduces Legislation.  Rep. Edward Markey (D-MA), Chairman of the House Select Committee on Energy Independence and Global Warming, held a hearing this week on the U.S. Fish and Wildlife Service’s (FWS) delay of a final decision on whether to list the polar bear under the Endangered Species Act (ESA).  Extending ESA protection to the polar bear due to growing loss of its polar habitat from global warming could require U.S. power plants to consult with the FWS on whether their emissions are contributing to climate change that is impacting the species and could affect a range of other land use and development actions throughout the U.S.  Chairman Markey urged the FWS to hand down its decision before February 6, 2008 – the date on which the Minerals Management Service is expected to sell oil drilling rights in Alaska’s Chukchi Sea, which is considered critical polar bear habitat.  He also announced at the hearing that he was introducing legislation that would require the U.S. Interior Department to delay the sale of the drilling rights until the polar bear decision is issued. 

Administration

• U.S. Trade Rep Opposes International Trade Provision in Lieberman-Warner Climate Bill.  Susan Schwab, the U.S. Trade Representative, said in a speech before the U.S. Chamber of Commerce that policymakers should reject proposals that would impose import taxes or other restrictions on goods from countries with weak global warming policies.  Schwab’s comments appeared targeted at a provision in S.2191 that would direct the President to require importers of energy-intensive goods from countries without emissions caps to submit emission allowances drawn from a special reserve pool.  Trade representatives from China, Brazil and Mexico oppose the provision, characterizing it as imposing trade sanctions.  Senate Finance Committee Chairman Max Baucus (D-MT) said in December that he would hold a hearing on the bill’s trade provisions, but a hearing on the issue has not yet been scheduled.

States and Cities

• CARB Workshop Reviews Options for California Carbon Market.  The California Air Resources Board (CARB) held a scoping workshop to analyze design features for the state’s future GHG emissions trading market.  The January 16 meeting was aimed at analyzing design options for a program to implement AB 32, a state law that requires CARB to create an economy-wide program for reducing state GHG emissions to 80 percent below 1990 levels by 2050.  CARB officials said that the program will likely use a hybrid structure that combines market-based mechanisms for some sectors with command-and-control regulation for others.  The one-day workshop included studies of existing pollution control markets, including the Acid Rain Program under the Clean Air Act, the EU Emissions Trading Scheme (ETS), and the Regional Greenhouse Gas Initiative (RGGI).  One expert identified the timing of regulations as an important issue for the future trading system, noting that providing regulated entities with sufficient lead time allows them to adequately plan for compliance.  CARB is expected to issue its scoping plan recommendations in June of this year.
• Washington Governor Proposes Cap-and-Trade Bill.  The governor of Washington State announced a bill that would authorize the state’s Department of Ecology to implement a future regional GHG cap-and-trade system developed by the Western Climate Initiative (WCI).  The bill would not merely ratify a WCI cap-and-trade system but would grant the state legislature some control over implementation of the system within the state.  The state legislature’s House and Senate must now pass the proposed bill before it will take effect.  Some observers noted that, although the Democratic majorities in the state legislature generally support a cap-and-trade system, the bill may face a challenge from some members who prefer a carbon tax.  As a member of WCI, Washington, which currently emits approximately 100 million tons of GHGs per year, has agreed to cut its annual GHG emissions to 15 percent below 2005 levels by 2020.
• Air Quality District Petitions EPA To Regulate GHG Emissions From Ships.  On January 10, the South Coast Air Quality Management District (SCAQMD) joined the state of California and a number of environmental groups in petitioning the Environmental Protection Agency to regulate GHG emissions from oceangoing ships that dock in U.S. ports.  In the written statement seeking the regulations, SCAQMD stated that oceangoing vessels are responsible for three percent of global GHG emissions.  The petition noted that GHG emissions add to global climate change, which contributes to ozone formation.  EPA has 180 days to respond to formal petitions for rulemaking.  Possible methods of regulating the ships’ emissions include limits on ship speed.
• North Dakota Seeks Revision of Minnesota Carbon Rule.  The North Dakota Industrial Commission (NDIC) petitioned the Minnesota Public Utilities Commission (MPUC) to reconsider its rule requiring utilities to include the cost of CO₂ emissions in their calculations of the cost of electric power for the years 2012 and beyond.  The December 21 rule applies to all utilities producing power for Minnesota customers and requires utilities to use a carbon cost between $4 and $30.  The NDIC’s petition states that the cost of CO₂ should not be included in the calculation because it is too speculative and that the ruling fails to take into consideration North Dakota’s efforts at sequestering CO₂, which will cause the state’s power producers to have different carbon regulatory costs than those in Minnesota.  While the rulemaking is subject to appeal, the MPUC has authority to determine whether or not it will reconsider the decision.
• Arizona Announces Draft Rules Adopting California Vehicle GHG Emission Regulations.  Notwithstanding EPA’s announcement last month that it intends to deny California’s request for a waiver for its vehicle GHG emission standards, the Arizona Department of Environmental Quality (DEQ) announced on January 10 draft rules for adopting California’s Low Emissions Vehicle program.  The regulatory program includes the CO₂ standards that are the subject of California’s waiver request, along with emission standards for other, more traditional pollutants.  If California fails to obtain a Clean Air Act waiver from EPA for the GHG-related portion of its standards, then Arizona and other states will not be permitted to enforce such standards.  The rules would apply to vehicles beginning with the 2011 model year and are intended to reduce Arizona emissions to 2000 levels by 2020.  If passed, the proposed rules would make Arizona the 17th state to adopt the California vehicle emission standards.  Vehicle emissions currently account for approximately 40 percent of Arizona’s annual GHG emissions, which increased 56 percent over the period from 1990 to 2005, the fastest rate of growth in the nation.  The DEQ projects that, absent regulation, Arizona emissions would increase to 140 percent of 1990 emissions by 2020.
• MD Agency Proposes Clean Technology Fund for RGGI Auction Revenues.  On January 14, the Maryland Energy Administration (MEA) proposed the creation of a Strategic Energy Investment Fund that would use revenues from the sale of allowances auctioned for the Regional Greenhouse Gas Initiative to fund energy efficiency and renewable energy programs.  The planed fund would use auction revenues to reduce energy consumption by increasing state-wide energy efficiency, to invest in clean technologies, and to promote a low carbon energy economy within the state.  MEA stated that it is the only Maryland agency with the authority to implement the programs.

Industry

• U.S. Companies, Local Governments Agree to Voluntary Reporting Under The Climate Registry.  The Climate Registry, a nonprofit group currently comprised of 40 U.S. states and five Canadian provinces, announced that several U.S. companies including Shell Oil, Duke Energy, Alliant Energy Corp, and several cities have agreed to voluntarily report their GHG emissions under GHG reporting guidelines to be developed by the registry.  The guidelines, which are currently in draft form and will be finalized by the registry’s governing board, will establish reporting requirements and methodologies for quantifying GHG emissions and will be based on standards developed by the World Resources Institute and World Business Council on Sustainable Development.  The Climate Registry announced on January 17 that it will amend its draft guidelines to clarify certain provisions and fix technical issues.  The Climate Registry will hold several workshops in February to address additional issues, including transitional reporting, the release of data to the public, and calculations for de minimis emissions.  (For further information on The Climate Registry, see discussion under “International” below.)
• Energy Industry Trade Groups Raise Concerns About Details of Climate Change Legislation.  Leaders of several trade groups representing the energy industry met this week at a forum sponsored by the U.S. Energy Association to discuss climate change legislation.  The presidents of the Edison Electric Institute, American Petroleum Institute, American Gas Association, amongst others, raised concerns about climate change legislation and signaled a desire to seriously engage legislators on the structure of any future climate change program.

Studies and Reports

• EPA Models Show Increased Energy Costs Due to Bingaman-Specter Bill.  EPA released a study of the impacts of the Low Carbon Economy Act (S. 1766) sponsored by Senators Bingaman (D-NM) and Specter (R-PA).  The EPA analysis shows that consumers would face higher energy costs, such as an increase in gas prices of 22 cents per gallon and a 19 percent increase in electricity prices by 2030.  While GDP would grow each year, GDP from 2012-2030 would be from $124 billion (0.5 percent) to $370 billion (1.4 percent) less than under a scenario without GHG constraints.  The EPA study also indicated that U.S. GHG emissions would not decline without development and deployment of carbon capture and nuclear technologies; if those technologies were in use, however, GHG reductions of 25 percent could be achieved by 2030.  The EPA analysis of the legislation echoes the findings of a similar analysis released last week by the Energy Information Administration.  EPA expects to complete an analysis of S. 2191, offered by Senators Lieberman (I-CT) and Warner (R-VA), by mid-February.
• CRS Report Finds Little Legal Support for Denial of California Waiver.  A Congressional Research Service (CRS) report found that there is little support for EPA Administrator Stephen Johnson’s announcement that he plans to deny California’s request for a waiver for its vehicle GHG standards.  CRS concluded that California had sound legal arguments demonstrating that “compelling and extraordinary” conditions exist in the state that warrant the adoption of the standards.  The report said that there is only “tenuous” support for Administrator Johnson’s statement that the revised Federal fuel economy standards will be more protective of the environment than the California standards.  CRS stated, however, that the outcome of the presidential election is likely to determine whether EPA eventually grants California’s waiver request.
• U.S. State Utility Regulators Recommend that Cap-and-Trade Program Covers All Sectors.  The National Association of Regulatory Utility Commissioners (NARUC), the non-profit organization that represents state utility regulators, released a study entitled, “State Commission Electricity Regulation under a Federal Greenhouse Gas Cap-and-Trade Policy,” which describes the impacts of a cap-and-trade program on state regulators.  The study recommends that state regulators advocate an economy-wide cap-and-trade program, rather than a program that solely regulates the electricity sector, because a targeted program would likely result in higher electricity rates for consumers.  The study cites the benefits of a larger, more diverse allowance market in providing flexibility for the electricity sector to comply with regulatory requirements.  The study also recommends that NARUC members advocate that any free allowance distribution to the electricity generation sector be given to the local distribution companies, rather than the generators themselves.  The study indicates that this distribution of allowances will allow state “commissions the ability to treat end users of electricity from different pricing regimes more equitably.” 
• Installed Wind Power Capacity in the U.S. Increased 45 Percent in 2007.  The American Wind Power Association released a report that approximately 5,244 MW of new wind power capacity was installed in the U.S. in 2007, a 45 percent increase in wind generating capacity.  The report also estimates that the new wind capacity represents about 30 percent of the new power generation capacity installed in the U.S. in 2007.  The report projects that newly installed wind capacity in 2008 will match that of 2007.

International

• Ontario Joins The Climate Registry.  The Canadian province of Ontario joined The Climate Registry, a greenhouse gas emissions reporting system.  The registry is an effort by the states and provinces to develop standards for measuring, tracking, verifying and reporting GHG emissions.  The province’s decision to join the registry follows the passage last year of legislation creating emission reduction targets that cap provincial emissions at six percent below 1990 levels by 2014, 15 percent below 1990 levels by 2020, and 80 percent below 1990 levels by 2050.  Ontario emits 200 million tons of CO₂ annually and is Canada’s second highest emitting province after Alberta. (For further information on The Climate Registry, see discussion under “Industry” above.)
• Carbon Tariff Dropped From Latest Draft of ETS Rule.  The European Commission’s latest review draft of the European Union Emissions Trading Scheme (ETS) has softened the language of a proposed carbon tariff on carbon-intensive imports.  As originally drafted, the proposed carbon tariff would have imposed carbon caps on importers based on the volume of their imports and would require importers to purchase allowances for emissions that exceed the cap.  The current draft of the review merely calls for a study of European companies’ competitive position under the cap.  The purpose of the provision is to mitigate any disadvantage caused to European industry by the cap and to place EU and non-EU firms in equal position.  The review draft also includes a number of other major changes for the ETS including a switch from free distribution to auction as the primary method of allocating allowances.  A final rule is expected by January 23 and would take effect in the third phase of the ETS beginning in 2013.
• U.S. Announces Multibillion-Dollar Clean Technology Fund for Developing Countries.  David McCormick, Treasury Undersecretary for International Affairs this week said the proposed fund will finance the transfer to developing countries of advanced technologies for reducing emissions of GHGs and other pollutants.  The U.S. will be one of the lead contributors to the fund.  In addition to facilitating deployment of advanced technologies, the fund will promote private capital investment in developing countries and encourage developing country governments to adopt more stringent environmental laws.  Estimates suggest that developing countries will require $30 billion through 2030 to retire older, less efficient technologies and replace them with more advanced technologies.
• Japan Accepts Observer Status With International Climate Action Partnership.  The Japanese Environment Ministry announced that it will send an official to observe the meeting of the International Climate Action Partnership (ICAP) in late January.  ICAP is a multinational effort to address climate change by sharing information and eventually building a world-wide emissions trading market.  In making the announcement, Japan’s Environment Minister also stated that the country will consider adopting new measures to address climate change, such as a cap-and-trade system, if it fails to make sufficient progress towards its Kyoto Protocol GHG emissions target.  Japan, the world’s second largest economy, is also one of the world’s largest emitters of GHGs.  ICAP was launched by the European Union and current members include France, Germany, the UK, and Italy, as well as individual states and provinces from the U.S., Canada, New Zealand and Norway.
• Major Economies Meeting Will Focus on Sectoral Agreements.  At a hearing before U.S. House of Representatives Energy and Commerce Subcommittee on Energy and Air Quality, James Connaughton, chair of the White House Council on Environmental Quality, said that the next major economies meeting will focus on reducing GHG emissions from individual industrial sectors, such as steel, cement, and aluminum.  Mr. Connaughton said the meeting, to be held in Hawaii later this month, would not include discussion of any specific goals or targets.  Specific goals are likely to be addressed at a later meeting in July, but Mr. Connaughton added that the group intends to reach an agreement on voluntary emission reduction goals by the end of 2008.  The major economies process is a series of U.S.-led negotiations between government representatives from 17 countries with the largest domestic economies.  The process serves as an alternate track to international climate change negotiations under the United Nations Framework Convention on Climate Change.  (For further information on Chairman Connaughton’s remarks before the subcommittee, see discussion under “Congress” above.)