Weekly Climate Change Policy Update - March 30, 2009

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Commentary

Legislators introduced a number of climate-related bills in the past week.  However, the climate change legislative season really begins on March 31.  On that day, Rep. Ed Markey (D-MA) – Chairman of the Energy & Environment Subcommittee of the House Energy & Commerce Committee – will release his draft cap-and-trade bill.  Chairman Markey and full committee Chairman Henry Waxman (D-CA) have been laying groundwork for release of the draft through meetings with their relatively more centrist brethren on the Committee.  The outreach process already has yielded a letter to President Obama co-signed by Waxman, Markey, and past Chairmen John Dingell (D-MI) and Rick Boucher (D-VA).  The letter encourages the President to enact legislation this year; but the letter also discourages use of the budget reconciliation process for that purpose . . .  Some things to look for in the Markey draft: the emission targets and timetables, how allowances are distributed, rules for offsets, market oversight provisions; treatment of existing state and regional programs . . . Both the House and Senate also are moving energy bills.  Senator Jeff Bingaman (D-NM), Chairman of the Senate Energy and Natural Resources Committee, is shepherding a number of bills through his Committee.  Chairman Bingaman announced that the electricity bills are scheduled for mark-up after the Easter recess . . . Same means, different ends?  The Obama Administration announced on Saturday that it had organized two new sessions of the Major Economies Meetings on Energy Security and Climate Change.  The Bush Administration launched the Major Economies initiative as a means of negotiating future international climate policies within a smaller group that consists of the largest emitting countries.  Just 16 countries and the European Union are participating.  China and India are included.  In a recent speech, State Department Climate Envoy Todd Stern has said that he likes the approach from a process standpoint, but he also asserted that, unlike the Bush Administration, the Obama Administration intends to utilize the Major Economies initiative to drive to a new treaty with legally binding limits on emissions.     

Executive Branch

• Update on Administration Appointments.   This week, President Obama appointed Dr. Jonathan Pershing, current Director of the Climate and Energy Program at the World Resources Institute, to serve as the State Department’s Deputy Envoy on Climate Change.  Pershing is expected to play a leading role on the U.S. delegation to this December’s United Nation’s conference in Copenhagen, which will feature negotiations on a new global climate treaty to succeed the Kyoto Protocol.  The President also made three notable nominations at the Department of Energy: David Sandalow for Assistant Secretary for Policy and International Affairs, Steven Koonin for Undersecretary for Science, and Cathy Zoi for Assistant Secretary for Energy Efficiency and Renewable Energy.  An energy and climate expert at the Brookings Institution, Sandalow served as President Clinton’s Assistant Secretary of State for Oceans, Environment and Science.  Koonin, now chief scientist at BP, will head an office that has recently received increased funding for research on low-carbon energy technologies.  Zoi served as Chief of Staff for the Office of Environmental Quality in the first two years of the Clinton Administration, had a career at the Environmental Protection Agency (EPA) shepherding their green programs, and most recently, headed the Alliance for Climate Protection, founded by former-Vice President and Nobel Prize winner Al Gore.  The Senate also confirmed Gary Locke to be the next Secretary of Commerce, a position with responsibility for overseeing the National Oceanic and Atmospheric Administration.  A former governor of Washington, Locke promised to place a priority on clean energy and climate change during his confirmation hearings.  Lastly, Jon Cannon, the President’s nominee for Deputy Administrator of EPA, withdrew his name from consideration, citing scrutiny of a now-dissolved environmental organization on whose board Cannon once served.
• EPA Submits Endangerment Finding for OMB Review.  The White House Office of Management and Budget (OMB) has begun reviewing a proposed EPA determination that greenhouse gases (GHGs) endanger public health and welfare.  Under the Clean Air Act, this “endangerment finding” is a necessary precursor to the development of Federal greenhouse gas emission standards for mobile and stationary sources.  OMB review is one of the final steps before release of the long-awaited proposed decision, which will undergo a 60-day public comment period before becoming final.
• NHTSA Issues Final Fuel Economy Standards for Model Year 2011.  The National Highway Traffic Safety Administration (NHTSA) has issued Corporate Average Fuel Economy (CAFE) standards for model year 2011 passenger and non-passenger vehicles.  Reflecting reforms to the CAFE program enacted in the Energy Independence and Security Act of 2007 (EISA), the new standards prescribe fuel economy targets that vary with the size of the vehicle.  According to the agency, the new standards will result in a combined average fuel economy of 27.3 miles per gallon (mpg) for vehicles in the new model year, a 2 mpg increase over 2010 standards.  However, this outcome is about 0.5 mpg less than was proposed in the initial version of the rule, which was released by the Bush Administration last spring and included model years 2012-2015.  NHTSA plans to finalize CAFE standards for those model years at a later date.   
• President Obama Touts Energy and Climate Programs.  At a conference of energy entrepreneurs in Washington, President Obama promoted the investments in renewable energy and energy efficiency included in the American Recovery and Reinvestment Act (the “stimulus package”) and his proposed budget.  The President said that the stimulus package would invest $59 billion in these sectors, on top of $150 billion over the next decade planned in the budget the White House released March 8.  The President also advocated a permanent research and experimentation tax credit, another element of his budget plan, to benefit the renewable energy industry.  Climate policy was also a topic of discussion at the President’s press conference this week, during which the President opined that a Federal cap-and-trade program would have to accommodate “regional differences” in energy sources and “protect consumers from huge spikes in energy prices.”  The President expressed confidence that Congress would pass energy and climate legislation quickly, saying: “It will be authorized.  We’ll get it done.  And I will sign it.”
• DOE Requires Estimates of GHG Reductions From State Energy Grants.  A Funding Opportunity Announcement released earlier this month by the Department of Energy (DOE) for $3.1 billion in grants for state energy programs requires states to report the volume of GHG emission reductions achieved with the funds.  In addition, governors of recipient states must provide written assurances that they will “seek to implement” utility ratemaking reforms that give utilities incentives to assist consumers in making energy efficiency improvements.  The grant funding was provided by the economic stimulus package signed into law in February.  The Department of Energy also announced last week that $3.2 billion in energy efficiency and conservation block grants, also funded by the stimulus bill, will be distributed to cities, counties, tribes and states.
• FTA Offers Grant Funding for Transit Improvements.  The Federal Transit Administration (FTA) announced that it will release $100 million in funds provided by the recent economic stimulus package.  The FTA will distribute the funds in the form of grants for energy efficiency and greenhouse gas mitigation projects in public transit systems.  Applications are due May 22 and will be evaluated according to energy savings, emission reductions, creativity, project readiness, and other criteria.  The minimum grant size is $2 million, and maximum is $25 million.

Congress

• Moderate Group Could Influence Climate Policy.  Sixteen Senators formed the Moderate Dems Working Group last week to support “common-sense solutions” to policy problems, with a geographically diverse membership.  The members’ widely varying views on energy and environmental policy may make it difficult to agree on negotiating positions, however.  The group includes strong environmentalists such as Mark Udall (D-CO) and Jeanne Shaheen (D-NH) as well as senators with closer ties to the energy industry, such as Mary Landrieu (D-LA).  The group was organized by Sens. Evan Bayh (D-IN), Blanche Lincoln (D-AR), and Tom Carper (D-DE); the remaining members are Democratic Sens. Michael Bennet (CO), Mark Begich (AK), Kay Hagan (NC), Herb Kohl (WI), Claire McCaskill (MO), Ben Nelson (NE), Bill Nelson (FL), Mark Pryor (AR), Mark Warner (VA) and Independent Joe Lieberman (CT).         
• Climate Hearings Consider Arctic Resource Ownership, Job “Leakage”.
  • At a hearing held by the House Foreign Affairs Committee this week, experts warned that warming in the Arctic region would open an area predicted to have large oil and natural gas reserves to exploration and where sovereignty issues have yet to be clarified.  Until the United States ratifies the U.N. Convention on the Law of the Sea – ratified by 156 other nations – the U.S. cannot file a formal claim to establish territorial rights or dispute claims by other nations. 
  • At a hearing this week, the Trade Subcommittee of the House Ways and Means Committee considered provisions to minimize any future movement of energy-intensive industries from the U.S. to countries without carbon controls.  Witnesses suggested distributing free emission allowances to energy-intensive industries with foreign competition and imposing carbon tariffs on imported goods.  International law professor and former World Trade Organization (WTO) appellate body advisor Joost Pauwelyn testified that policies could be crafted to limit carbon and job leakage without running afoul of international trade treaties and the WTO.  Pauwelyn suggested that such policies could include energy performance standards applied to imported goods and domestic goods or a requirement that importers buy emission allowances.
• Congressmen Race to Introduce Bills in Advance of Debate on Energy, Climate Legislation.  
  • Representatives Lloyd Doggett (D-TX) and Jim Cooper (D-TN) introduced the Safe Markets Development Act to control carbon allowance price volatility during the early years of the anticipated cap-and-trade regulatory regime.  The bill would establish a new board, composed of six climate experts and the heads of EPA, DOE, and the Treasury Department, to determine annual carbon allowance prices from 2012 through 2019 that will ensure that the 2020 emission reduction goal is met.  The legislation directs the Treasury Department to hold quarterly allowance auctions to maintain that price.  Cosponsors include members of the fiscally conservative Democratic Blue Dog Coalition as well as members of the Congressional Progressive Caucus, representing more liberal House members.
  • A bipartisan group of senators including Energy and Natural Resources Committee Chairman Jeff Bingaman (D-NM) introduced the Restoring America’s Manufacturing Leadership through Energy Efficiency Act of 2009, which would provide financing for industry to undertake energy efficiency overhauls and establish public-private partnerships to develop and deploy low-carbon industrial technologies.  Sen. Bingaman is expected to fold the bill into the energy legislation that his committee will begin marking up next week.  Sen. Bingaman has announced that electricity bills, including a transmission bill and a national renewable energy mandate, will not be marked up until after the Easter recess. The energy efficiency bill and a summary are available at http://energy.senate.gov/public/index.cfm?FuseAction=IssueItems.View&IssueItem_ID=b54bc851-3511-478d-a3ae-97efde3ec607. 
  • Sen. Bingaman has also circulated a draft of his proposal to create a Clean Energy Deployment Administration to provide financing for “breakthrough” clean energy technologies.  The program would be administered by a presidentially-appointed administrator rather than the DOE, whose much criticized clean energy loan guarantee program has just issued its first loan guarantee.  The administrator would be subject to oversight by a presidentially-appointed board of directors who are to have banking or finance experience.
  • A bipartisan group of Representatives, headed by Representative Rich Boucher (D-VA), introduced a bill to establish a $1 billion annual fund to help finance commercial-scale carbon capture and sequestration (CCS) projects.  The funding would be generated by fees on coal, oil and natural gas that would be paid by electricity consumers.  The fund would only be established if approved by a two-thirds vote of fossil fuel-based utilities.  The Carbon Capture and Storage Early Deployment Act is available at http://www.boucher.house.gov/images//ccs%20111th.pdf.
  • Rep. Lois Capps (D-CA) reintroduced the Coastal State Renewable Energy Promotion Act (H.R. 1690) to fund state surveys of the outer continental shelf and adjacent coastal areas to identify appropriate areas for offshore renewable energy development.  The funding would be available through a new grant program under the Coastal Zone Management Act.
  • Rep. Chris Van Hollen (D-MD) floated a bill to create a “Green Bank” to fund domestic renewable energy and energy efficiency projects where the private credit market is not providing adequate financing.  The projects must demonstrate their financial viability and provide evidence that they would aid U.S. manufacturing.  The bank would be capitalized by “green bonds” to be issued by the Treasury Department.  The text of the Green Bank Act of 2009 is available at http://vanhollen.house.gov/NR/rdonlyres/9DA07479-499F-4ED7-A19D-1ADFBB8F47D6/0/Green_Bank_Act_of_2009.pdf.
  • Rep. Jim McDermott (D-WA), Chairman of the Income Security Subcommittee of the House Ways and Means Committee, introduced a hybrid carbon tax / carbon allowance bill that would require greenhouse gas emitters to purchase non-transferable emission permits.  The Treasury Department would set permit prices, and the funds raised would be deposited in a trust fund to finance energy projects and/or offset any costs of climate regulation borne by low- and middle-income families.  The Clean Environment and Stable Energy Market Act of 2009 (H.R. 1683) is available at http://www.house.gov/mcdermott/The%20Clean%20Environment%20and%20Stable%20Energy%20Market%20Act.pdf.
  • Rep. Ed Markey (D-MA), Chairman of the Subcommittee on Energy and Environment of the House Energy and Commerce Committee, announced that he plans to release a draft climate change bill on March 31^st.  On March 27^th, Reps. Markey, Henry Waxman (D-CA), John Dingell (D-MI), and Rick Boucher (D-VA) – the current and former climate change leadership within the House Energy and Commerce Committee – sent a letter to President Obama indicating their strong support for passing climate change legislation to enhance energy security, mitigate global warming, and provide regulatory certainty for industry.  The letter discourages use of the budget reconciliation process to pass the legislation.  The letter is available at http://energycommerce.house.gov/index.php?option=com_content&task=view&id=1553&Itemid=93.
• Climate Language Missing From Budget Reconciliation, For Now.  Cap-and-trade legislation is not included within the budget proposals under consideration in the House and the Senate this week.  The Democratic leadership has not, however, ruled out the possibility of using the budget reconciliation process as a vehicle for climate legislation later this year, despite significant opposition among Democrats and Republicans.  Budget reconciliation requires only 51 votes for passage (and is not subject to filibuster).  The current budget proposals do incorporate deficit neutral reserve funds that could accommodate legislative initiatives on climate change.

Judicial

• Second Circuit Hears Oral Argument in GHG Preemption Case.  The Second Circuit Court of Appeals held oral argument on March 19 in the case of Green Mountain Chrysler v. Crombie, on appeal from the District of Vermont.  Automakers and car dealers brought the suit to challenge California’s GHG emission standards for automobiles, which California, Vermont, and thirteen other states plan to implement if EPA grants a required waiver of Federal preemption under the Clean Air Act.  The plaintiffs’ central claim in the case is that the state GHG standards are preempted by Federal fuel economy standards, a preemption that is not waivable by Federal agencies.  At oral argument, two of the three judges on the panel suggested they agreed with the U.S. Department of Justice, an amicus in the case, that the issue would not be ripe for review until EPA approves California’s Clean Air Act waiver request.  The Circuit’s Chief Justice disagreed, arguing that the EPA waiver decision was sufficiently imminent for the court to decide the case.

States and Cities     

• New Hampshire Task Force Releases Climate Recommendations.  The New Hampshire Climate Change Policy Task Force (Task Force), an advisory group created by Governor John Lynch (D), issued a report providing 67 recommendations for state action on climate.  In the report, the Task Force called for the state to implement emissions targets of 20 percent below 1990 levels by 2020 and 80 percent below by 2050 and provided specific actions to help meet those goals.  The majority of the reductions would come from the building, transportation and electricity generation sectors.  The recommendations include maximizing building energy efficiency through more stringent building codes, increasing reliance on renewable and low-carbon energy generation sources, adoption of California’s vehicle GHG emission regulations, increasing forest preservation, and developing an integrated public transport system to reduce vehicle miles traveled.  New Hampshire is a member of the Regional Greenhouse Gas Initiative, a regional cap-and-trade program for power plants in the northeastern United States.  
• New Mexico Legislature Passes Bill to Delay Vehicle GHG Rule Implementation.  The New Mexico legislature passed legislation that would delay implementation of vehicle GHG emission regulations in the state.  The regulations, which are based on California’s vehicle GHG regulations and were approved by the state Environmental Improvement Board in November 2007, were set to be implemented in 2011 but would be delayed by 2 years under the new legislation.  The bill must be signed by Governor Bill Richardson (D) to become law.      
• Arizona, EPA Grant Permit for Pilot Carbon Sequestration Project.  The Arizona Department of Environmental Quality and the U.S. Environmental Protection Agency issued a one-year permit to the West Coast Regional Carbon Sequestration Partnership (WESTCARB), a pilot carbon sequestration program.  WESTCARB plans to sequester 2,000 tons of CO₂ in an underground geologic formation at a site near Phoenix.  The project received permits under the state’s Aquifer Protection Permit program and the Safe Drinking Water Act’s Underground Injection Control program.  WESTCARB is one of seven regional carbon sequestration partnerships founded by the U.S. Department of Energy.   

Industry

• European Insurer Offers Liability Insurance for CCS Projects.  Zurich Financial Services, a major European insurer, has begun developing insurance policies to cover certain risks associated with carbon sequestration sites.  The policies will have a duration of several decades and provide $50 million in annual coverage for property damage, as well as protection against government suspensions of sequestration activities.  Importantly, the policies would not cover a site’s potential liability for offset credits that are cancelled due to a subsequent release of stored emissions.  Zurich claims it is assembling quotes for five project developers and has received inquiries from companies in the United States, Europe, and Asia.
• Steel Industry Criticizes Chinese GHG Emissions.  The Alliance for American Manufacturing (Alliance), a coalition of American steel companies and steelworkers’ unions, released a report last week claiming that rival Chinese steel manufacturers operate under unfairly lax environmental regulations.  The Alliance reported, among other things, that the Chinese steel industry accounts for one-third of global production, but approximately one-half of global GHG emissions from steelmaking.  Representatives of the organization argued that a Federal cap-and-trade program should prevent “leakage” of manufacturing jobs to the less-regulated Chinese market by offering U.S. industries free emission allowances, imposing “carbon tariffs” on imports, and insisting that – in future global climate treaties – trading partners adopt emission reduction programs equally stringent to those of the U.S..  
• DOE Provides $535 Million Loan Guarantee for Solar Panel Manufacturer.  Solyndra, a California-based manufacturer of solar photovoltaic panels, will be the first beneficiary of the Department of Energy (DOE) Loan Guarantee Program.  The loan is the first issued in the 11 year history of the program, but might signal the beginning of a dramatic speed-up promised by Obama Administration Energy Secretary Steven Chu.  The company will use the $535 million loan guarantee to open a new fabricating plant in California, which is expected to employ more than 1,000 people and produce 500 MW of solar generating capacity each year.  The financing will cover about 73% of the project costs.
• Airline Industry Presses for Exemption From Cap-and-Trade Programs.  At a hearing of the House Space and Aeronautics Subcommittee, representatives of Continental Airlines, Boeing, and Pratt & Whitney testified that improvements in the nation’s air traffic control systems and increased Federal subsidies for renewable sources of jet fuel would be the optimal approach to reducing GHG emissions from aviation.  Continental Airlines Vice President Holden Shannon argued that the inclusion of the airline industry in a potential Federal cap-and-trade program would raise ticket prices, limit travel, and further depress economic activity in the airline sector.

Studies and Reports

• Firm Predicts Rate Hike Under Climate Change Regulation.  A report by the credit-rating firm Moody’s Investors Service predicts that electricity prices would increase by 15-30% if carbon allowances reached $20 a ton under climate change regulation, assuming that such legislation is passed in the next twelve to eighteen months.  The report predicts that costs will be highest in areas with predominately coal-fired power generation, and that coal plants being planned today will be cancelled or postponed. 
• Researchers Coax Algae to Make Hydrogen.  The green algae Chlamydomonas reinhardtii produces small amounts of hydrogen when deprived of oxygen.  Researchers have discovered that by genetically blocking specific metabolic processes, they can create algae strains producing much higher hydrogen yields.  Principal investigator Michael Seibert predicted that the discovery will lead to new ways to produce hydrogen and other biofuels to replace fossil fuels.  The study was published in the March issue of the Journal of Biological Chemistry.  The abstract is available at http://www.jbc.org/cgi/content/abstract/284/11/7201.
• Ocean Fertilization Disappointing as Climate Solution.  The controversial experiment to fertilize the Southern Ocean with iron has produced disappointing results.  Although the iron did generate a phytoplankton bloom (which had the potential to sequester carbon dioxide), the bloom triggered a zooplankton population increase, and the zooplankton ate much of the phytoplankton – with negligible impacts on sequestration.  Scientists have suggested that fertilization could benefit blue whales, which eat zooplankton.  Click here for more information.

International

• Obama Administration Revives Major Economies Sessions.  The Obama Administration announced that it had organized two upcoming sessions of the Major Economies Meeting on Energy Security and Climate Change.  The first session will be next month in Washington.  The second session will be in La Maddalena, Italy, in July.  The sessions will include 16 countries – including China and India – and the European Union (EU).  The group collectively accounts for over 80 percent of the world’s GHG emissions.  The Bush Administration first organized the Major Economies Meeting, as a complementary initiative to the United Nations-based talks.  The Bush Administration proposed that the Major Economies Meeting should set long-term goals for emission reductions, and focus on near-term cooperative actions.  The Obama Administration appears to have to adopted the process, but State Department Climate Envoy Todd Stern has said that he intends that the talks will contribute to the process of negotiating a successor to the Kyoto Protocol, which will have legally binding emission limits. 
• EU Leaders Agree to €1.05 Billion For CCS.  As part of a broader stimulus package, the EU will provide €1.05 billion to develop CCS technologies.  The funds will support CCS projects in seven member nations, with Germany, the Netherlands, Poland, Spain and the United Kingdom each receiving €180 million, Italy receiving €100 million, and France receiving €50 million.
• Canadian Agency To Provide C$140 Million for Eight CCS Projects.  As part of Canada’s C$3.6 billion (US$2.9 billion) ecoENERGY initiative, Natural Resources Canada, a government agency, announced that has committed to provide C$140 million (US$114 million) for eight CCS projects in western Canada.  The eight projects will capture CO₂ emissions from a variety of coal-fired electricity generation, gasification and refining facilities and store the emissions in underground geologic formations or use the gas for enhanced oil recovery at existing wells.

Erratum:  Last week’s Weekly Update contained some errors in its entry on “Voluntary Offset Registry Launches Standard for Forest Projects.”  The California Climate Action Registry (CCAR) has not yet finalized its updated forestry protocol; the release is targeted for June 2009.  Also, for the updated protocol, the CCAR is proposing that project owners be allowed to use Climate Reserve Tons from other offset projects (including non-forest projects) to satisfy their obligations in the event of a reversal.