Weekly Climate Change Policy Update - April 27, 2009

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Commentary

Executive Branch

• US Climate Envoy Calls Domestic Legislation “Cornerstone” of International Strategy.  Testifying before the Senate Foreign Relations Committee, Todd Stern, the lead U.S. climate change negotiator, called the passage of domestic climate change legislation in the U.S. essential to international efforts to negotiate a successor treaty to the Kyoto Protocol in Copenhagen, Denmark this December.  Stern said that domestic legislation is necessary to bolster U.S. credibility during the negotiating process and that without the committed involvement of the US the international negotiations would fail.
• Update on Administration Nominations and Appointments.  Harvard Law School professor Cass Sunstein was nominated to direct the Office of Information and Regulatory Affairs at the White House Office of Management and Budget (OMB).  A well-known constitutional scholar and strong advocate of the use of cost-benefit analysis in regulatory design, Prof. Sunstein will play a key role in evaluating draft environmental regulations submitted to OMB for review.  Sunstein and his wife, Samatha Power, also a White House staffer, announced the birth of their first child this past week.  President Obama nominated William Brinkman, a Princeton University physics professor and former Vice President of Bell Laboratories, to serve as Director of the Office of Science at the Department of Energy.  Agriculture Secretary Tom Vilsack appointed Robert Bonnie to serve as Senior Advisor to the Secretary for Environment and Climate.  Bonnie is currently Vice President for Land Conservation and Wildlife at the Environmental Defense Fund.   Lastly, the Senate Committee on Commerce, Science and Transportation approved the nominations of eight appointees for positions at the White House, the Department of Commerce (Commerce), and the Department of Transportation (DOT).  The nominees are: Sherburne Abbott, for Associate Director of Environment at the White House Office of Science and Technology; Roy Kienitz, for Under Secretary of Transportation for Policy; Peter Appel, for Administrator of the Research and Innovative Technology Administration of the DOT; Joseph Szabo, for Administrator of the Federal Railroad Administration; Dana Gresham, for Assistant Secretary of the Office of Government Affairs at DOT; Robert Rivkin, for General Counsel of DOT; and, at Commerce, Cameron Kerry, for General Counsel, and April Boyd, for Assistant Secretary for Legislative and Governmental Affairs.
• Minerals Management Service Finalizes Offshore Leasing Regulation.  The Minerals Management Service (MMS), which recently obtained exclusive jurisdiction over wind farm leases on the Outer Continental Shelf (OCS) under an agreement with the Federal Energy Regulatory Commission (FERC), has released a final rule governing the offshore development of renewable energy projects.  The rule provides for 25-year commercial leases, as well as 5-year limited leases for data collection and equipment testing.  State governments would share revenue from leases executed in neighboring areas of the OCS.  The American Wind Energy Association welcomed the rule, arguing that regulatory uncertainty over offshore wind leases had deterred development.  The rule is available at: http://www.federalregister.gov/OFRUpload/OFRData/2009-09462_PI.pdf.
• DOE Launches Pilot Program to Fund Purchases of Alternative Vehicles.  The Department of Energy (DOE) Office of Energy Efficiency and Renewable Energy announced a $300 million grant program to encourage state and local governments to purchase alternative fuel vehicles.  Drawing on funding provided in the American Recovery and Reinvestment Act of 2009 (the “stimulus package”), this Clean Cities program would require recipients to provide matching funds.  Vehicles powered by electricity, compressed natural gas, fuel cells, and hybrid-electric drive would all be eligible for funding, as would alternative fuel infrastructure projects.

Congress

• Marathon ACES Hearings Begin and End; Subcommittee Mark-up Expected Week of May 4.  The Energy and Commerce Committee held four days of hearings on the American Clean Energy and Security Act (ACES), the draft climate change and energy bill.  (An overview of the ACES draft is available at http://www.vnf.com/news-policyupdates-347.html and a more detailed analysis is available upon request)  Witness statements and videos of the hearings are available through the committee’s website at http://energycommerce.house.gov/.  Noteworthy developments during the hearings included:
  • Environmental Protection Agency (EPA) Administrator Lisa Jackson, Energy Secretary Steven Chu, and Transportation Secretary Ray LaHood offered praise for the draft climate change legislation released by Chairmen Henry Waxman (D-CA) and Ed Markey (D-MA).  Chu and Jackson both stated that the bill would stimulate employment and innovation in clean energy sectors.  LaHood welcomed the proposed low-carbon fuel standard as an important measure that would reduce dependence on imported petroleum.
  • Five representatives of the U.S. Climate Action Partnership, the industry/environmental NGO alliance supporting a cap-and-trade climate program, testified that they would not support the auction of 100% of emission allowances.  The witnesses represented Alcoa, DuPont, Duke Energy, Conoco Phillips, and NRG Energy.  The same witnesses agreed, however, that the success of the U.S. economy and their companies depended upon passage of climate change legislation and U.S. leadership in clean energy.
  • Committee Chair Henry Waxman (D-CA) said he would object to the use of allowance auction revenues for purposes unrelated to climate change or energy issues.
  • Power company executives representing the Edison Electric Institute (EEI), the American Public Power Association, the National Rural Electric Cooperative Association, and the National Association of Regulatory Utility Commissions asked that their sector be given free emission allowances, at least for a transitional period.  EEI’s representative, PNM Resources Chairman and CEO Jeff Sterba, discussed the EEI proposal that 40% of emission allowances be distributed for free to regulated local distribution companies within the electricity sector, and argued that this would mitigate energy price increases until technologies such as carbon capture and sequestration are commercially available. The American Public Power Association also characterized the draft’s proposed Renewable Energy Standard (RES) as unrealistic, and called for the renewable energy target for 2025 to be reduced from 20% to 15%.
  • A number of Representatives, including Mike Ross (D-AR) and G.K. Butterfield (D-NC), expressed concern that the draft’s RES mandate requiring 25% renewable energy production by 2025 is too aggressive.
  • United Steelworkers Union Vice-President Thomas Conway told reporters after testifying that the Union will likely be unable to support the legislation absent modifications to protect trade-sensitive industries.  The draft in its current form would not permit the President to force importers of GHG-intensive products to submit “international reserve allowances” until 2019.  The United Steelworkers seeks to make a reserve allowance or border tax adjustment program mandatory, and require it to commence earlier than 2019. 
  • Trevor Houser, a fellow at the Peterson Institute for International Economics, testified that protecting the competitiveness of energy-intensive, trade-exposed U.S. industries would require 11-13% of the emission allowances.

At a press conference with House Speaker Nancy Pelosi (D-CA), Rep. Waxman and Ways and Means Chair Rep. Charles Rangel (D-NY) said they would work together to move a cap-and-trade bill to the House floor by the end of May.  Rep. Waxman said Rangel’s committee may produce its own allowance allocation proposal.  Rep. Rangel said his primary concern was protecting consumers, and that he preferred to return money directly to ratepayers rather than giving it to utilities.  The subcommittee mark-up of the ACES draft, originally scheduled for the week of April 27, is now scheduled for the week of May 4 with the precise day to be announced.

• Energy and Commerce Democrats Ask for Changes to Draft Bill.  Negotiations on possible modifications to ACES are underway among the Democratic members of the Energy and Commerce Committee.  Committee Chair Henry Waxman (D-CA) has said that he is open to changes, except to the overall emissions cap.  Energy and Environment Subcommittee Chair Ed Markey (D-MA) has said that the bill’s sponsors are committed to working with other committee members on the bill, and that the bill will distribute some number of free allowances to industry.    Details on the allocation of emissions allowances have not yet been released.  News agencies are reporting that Democrats from industrial and agricultural states, led by Rep. Rick Boucher (D-VA) and Mike Doyle (D-PA), are preparing a long list of requested changes.  Rep. Doyle stated his intention to offer the changes as a substitute or manager’s amendment, with the goal of getting most of the changes included in the subcommittee mark.  Potential changes reportedly include:
  • A more gradual tightening of the emissions cap, to 6% below 2005 levels by 2020 (rather than 20%);
  • Increasing the allowed amount of offsets (emission reductions from uncapped sectors) for compliance to 3 billion tons annually, along with an elimination of the 5:4 discount on offset allowance value, inclusion of a list of project types eligible for participation in the offsets program, and elimination of the limit on an individual firm’s use of domestic or international offsets for compliance;
  • Reducing the RES mandate from 25% by 2025 to 15%, exempting small cooperative and public utilities producing less than 4 million megawatt hours annually, allowing use of energy efficiency and demand response improvements to meet the standard, and removing nuclear plants and coal plants with carbon capture and sequestration from baseline calculations from which renewable percentage requirements are calculated;
  • Free allocation of 40% of emission allowances to regulated local distribution companies;
  • Free allocation of allowances to energy-intensive industrial emitters; and
  • Bonus allowances for carbon capture and sequestration deployment.
• EPA Reports That Waxman-Markey Cap Would Have Modest Economic Costs.  A preliminary EPA study of the proposed Waxman-Markey cap-and-trade program projected that the policy would have a mildly negative economic impact.  Although the cap-and-trade program would reduce growth in gross domestic product (GDP) and household consumption over the next several decades, EPA predicted that by 2030, consumption would still increase by 40% and GDP would expand to $22 trillion.  EPA forecasted that allowance prices would reach $17-22 by 2020, and that electricity and natural gas prices would increase 22% and 17% respectively by 2030.  EPA also anticipated that nuclear power, carbon capture-enabled coal power, and renewable energy would make up 46% of the nation’s primary energy supply by 2050 – three times the share these sources would obtain absent the program.  The full report is available online. 
• Boxer Divvies Up Climate Work.  Senate Environment and Public Works Committee Chairman Barbara Boxer (D-CA) has established five groups within the Committee’s Democrats to work through the details of a climate bill and to reach out to other senators.  Sens. Frank Lautenberg (NJ) and Tom Udall (NM) will address emission targets and deadlines; Sens. Max Baucus (MT), Ben Cardin (MD), and Jeff Merkley (OR) will address cost containment; Sen. Amy Klobuchar will address regional issues; Sens. Bernie Sanders (I-VT), Sheldon Whitehouse (RI), and Kirstin Gillibrand (NY) will address carbon market oversight; and Sen. Tom Carper (DE) will address coal research and technology.  Sen. Harry Reid (D-NV) said the Senate would not take up climate legislation until the fall, when the House had finished their bill.  Meanwhile, Sen. Debbie Stabenow (D-MI) said that the “Gang of 16” senators from manufacturing agricultural, and coal mining states intend to draft their own climate legislation before the Senate climate debate begins.
• Senate Energy and Natural Resources Considers EERS Bill and Releases Clean Energy Investment Fund.  The Energy and Natural Resources Committee met to review S.548, legislation sponsored by Sen. Charles Schumer (D-NY), that would require electric and natural gas utilities to implement efficiency programs to reduce customer demand.  The bill’s Energy Efficiency Resource Standard (EERS) would require electric utilities to achieve energy savings of 1% in 2012 and 15% in 2020.  Natural gas utilities would have to produce 0.75% in savings by 2012, rising to 10% in 2020.  A proposal similar to the Schumer EERS is already a part of the ACES draft bill under consideration in the House Energy and Commerce Committee. 

Sen. Jeff Bingaman (D-NV), the Committee Chairman, has also released a draft proposal to improve the Department of Energy’s loan guarantee program.  The proposal would create a Clean Energy Investment Fund within the Treasury Department that DOE would use for the loan program, and establishes a 180-day deadline for a determination of whether a loan application will receive conditional approval.  The bill would also create a new Clean Energy Deployment Administration within DOE, which would be authorized to provide financing options to promising technologies too risky to receive private sector funding.

• Soot Study Bill Introduced.  Sens. Tom Carper (D-DE), James Inhofe (R-OK), Barbara Boxer (D-CA), and John Kerry (D-MA) introduced a bill that would direct EPA to study sources of soot, or black carbon, and to identify the cheapest ways of reducing the pollutant.  Black carbon, composed of particulate matter from diesel engines, biomass burning, and other combustion sources, is thought to be the second leading source of U.S. greenhouse gas emissions, after CO₂.

Judicial

• D.C. Circuit Adopts Narrow View of Standing in Climate-Related Lawsuit.  In a ruling with potential implications for climate-related litigation, the Court of Appeals for the District of Columbia Circuit held in the case of Center for Biological Diversity v. Department of the Interior that private plaintiffs have procedural standing to challenge the Department of Interior’s failure to consider climate change impacts in evaluating offshore mineral leases under the National Environmental Policy Act (NEPA).  However, Chief Judge David Sentelle’s opinion for the Court also held that plaintiffs had not established injury or causation sufficient to support “substantive” standing based on harms resulting from climate change, despite the Supreme Court’s holding in Massachusetts v. EPA.  Judge Rogers’ concurring opinion reasoned that it was unnecessary for the Court to decide the question of substantive standing.  The plaintiffs' theory of “procedural standing” was that the government’s procedural error contributed to the approval of a leasing plan that would threaten a specific habitat of particular importance to the plaintiffs; by contrast, the plaintiffs' theory of 'substantive standing' posited that the government's actions would harm the plaintiffs by aggravating climate change.  The ruling is available at http://pacer.cadc.uscourts.gov/common/opinions/200904/07-1247-1176224.pdf.

States and Cities   

• California Approves Low Carbon Fuel Standard.  The California Air Resources Board (CARB), the state air regulatory body, has adopted a low-carbon standard for transportation fuels.  The standard will require fuel blenders, refiners and importers to achieve a 10 percent reduction by 2020 in GHG emissions from their entire fuel mix.  Regulated entities will be permitted to purchase credits from producers of low-carbon fuels to comply with the standard.

Industry

• Transmission Coalition Submits Recommendations to White House.   The WIRES Group—an association of transmission developers and customers whose membership includes Dominion Resources, NextEra Energy Resources, Oncor Electric Delivery, ITC Holdings, Xcel Energy, and Energy Future Holdings—presented recommendations for transmission planning in a letter to Carol Browner, the Assistant to the President for Energy and Climate Change.  The group argued that massive investments in the nation’s transmission infrastructure would be required to accommodate more renewable energy, but cautioned against restricting access to the new lines to low-carbon energy sources.  The letter also called for mandatory regional transmission planning processes, reinforced by Federal siting authority, as well as broad cost allocation mechanisms that recognize the widespread benefits of low-carbon energy sources.
• FPL and City of Miami to Apply for Smart Grid Stimulus Funds.  Florida Power & Light (FPL) announced an agreement with the City of Miami, FL to seek $200 million in stimulus funds to deploy “smart grid” technology in Miami-Dade County and install one million “smart meters” in Miami households and businesses.  Other partners in the project include General Electric, Cisco Systems and Silver Spring Networks.  If the project receives Federal support, deployment should begin later this year and finish by 2011.

Studies and Reports

• Climate Change Will Threaten Colorado River Water.  A study published in the Proceedings of the National Academy of Sciences found that future negotiated water allotments to Arizona, California, Colorado, Nevada, New Mexico, Utah, and Wyoming from the Colorado River cannot be met if climate change reduces runoff in the area by 10-30%, as has been projected.  The researchers predicted that by 2060, shortfalls would be experienced 70-90% of the time.  According to the study, the problem is accentuated by the fact that the allotment schedule is based upon flow data from the 20^th century, one of the wettest in the region over the past 1,200 years.  An abstract of this article is available at http://www.pnas.org/content/early/2009/04/17/0812762106.abstract.
• Forests Could Switch from Carbon Capture to Release.  A report, published by the United Nations (UN) and the International Union of Forest Research Organizations, projects that if global average temperatures increase by 2.5 degrees Celsius relative to pre-industrial times, land ecosystems—currently major carbon sinks—could begin to release more carbon than they store.  Forest growth in northern climates will not offset the emissions from heat-damaged forests in other regions.  The report, authored by 35 leading forest scientists, is available at http://www.iufro.org/science/gfep/.
• Haze Increases CO₂ Absorption.  Research published in the journal Nature indicates that polluted and hazy skies increase CO₂ absorption by plants because clouds and airborne particles scatter sunlight, exposing plants to more light.  Lead author Lina Mercado, from the Center for Ecology and Hydrology, said that atmospheric pollution appears to have enhanced global plant productivity by as much as 25% between 1960 and 1990, equivalent to a 10% increase in the amount of carbon stored by land ecosystems.

International

• G8 Meeting Makes No Progress on Climate.  In Syracusa, Italy, the three-day meeting of environment ministers from the G8 nations plus 11 other countries concluded without any major breakthoughs on climate policy.  The ministers reached agreement on biodiversity and deforestation issues, but found no common ground on the many issues that remain to be resolved prior to the major climate negotiations later this year.
• Nations Submit Climate Treaty Proposals to UN.  In the run up to negotiations to be held in Copenhagen, Denmark this December, Japan and Saudi Arabia submitted to the United Nations Climate Secretariat their proposed text for a successor treaty to the Kyoto Protocol.
  • The Japanese proposal for a post-Kyoto climate treaty called for major developing nations, such as China and India, to accept binding energy efficiency targets; for all developing nations to prepare national climate plans; and for developed nations to agree to binding emissions targets of 50 percent below 2005 levels by 2050.
  • In its position paper, Saudi Arabia stated its opposition to binding emission targets for developing nations.  Saudi Arabia also expressed opposition to recent proposals calling for sectoral targets for developed nations, preferring instead that developed nations agree to economy-wide emissions targets.
• Americas Meeting Produces Energy and Climate Partnership.  At the Fifth Summit of the Americas in Port of Spain, Trinidad and Tobago, the heads of state of Western Hemisphere nations agreed to a multilateral pact aimed at addressing energy and climate change issues.  Through the partnership, designated the “Energy and Climate Partnership of the Americas”, the nations will promote increased energy security and cooperate in their response to climate change. 
• Canadian Advisory Group Recommends Cap-and-Trade.  In a report prepared for the Canadian government, the National Round Table on the Environment and the Economy recommended a cap-and-trade program as the most effective means for Canada to meeting its mid- and long-term GHG emission targets.  The report, titled “Achieving 2050: A Carbon Pricing Policy for Canada”, suggested that a cap-and-trade program, which would minimize costs by creating a uniform national carbon price, should be applied across all economic sectors in all Canadian jurisdictions, be in place by 2015 at the latest, and provide for linkages with major Canadian trade partners.