Weekly Climate Change Policy Update - May 11, 2009

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Commentary

Aided by a push from the President, Democrats on the House Energy & Commerce Committee apparently are closing in on a deal on the Waxman-Markey (ACES) bill, which would pave the way for introducing a new version early next week and following that with a markup in the full 59 member House Energy and Commerce Committee . . . In the Senate, the Energy and Natural Resources Committee is moving forward with new language on transmission siting and nuclear energy.  Negotiations on renewable electricity standards continue . . . EPA proposed a renewable fuels standard with a demanding standard for indirect GHG emissions from corn-based ethanol.  House Agriculture Committee Chairman Colin Peterson (D-MN) strongly criticized the proposal.     

Executive Branch

• Presidential Nominations and Appointments: 
  • President Obama nominated Wilma Lewis to serve as Assistant Secretary of the Interior for Land and Mineral Management, a position with responsibility for overseeing the Bureau of Land Management, the Minerals Management Service, and the Office of Surface Mining Reclamation and Enforcement.  Lewis served as Inspector General at the Department of Interior during the Clinton Administration, and was the U.S. Attorney for the District of Columbia from 1998-2001. 
  • The President nominated Richard G. Newell to serve as Administrator of the Energy Information Administration at the Department of Energy.  A professor of energy and environmental economics at Duke University, Newell served as a senior economist in the Council of Economic Advisers during the previous Administration. 
  • The President nominated Mississippi State Conservationist Homer Lee Wilkes to serve as Under Secretary of Agriculture for Natural Resources and Environment.  As Under Secretary, Wilkes would have oversight of the U.S. Forest Service and the Natural Resources Conservation Service. 
  • The Senate Committee on Environment and Public Works approved three nominees for positions at the Environmental Protection Agency (EPA): Cynthia Giles for Assistant Administrator for Enforcement and Compliance Assurance; Mathy Stanislaus for Assistant Administrator for Solid Waste and Emergency Response; and Michelle DePass for Assistant Administrator for International Affairs.
  • The Senate Energy and Natural Resources Committee also held confirmation hearings for four nominees for Interior and Energy Department positions: Rhea Suh, for Assistant Secretary of the Interior for Policy, Management, and Budget; Michael Connor, for Director of the Bureau of Reclamation; Daniel Poneman, for Deputy Secretary of Energy; and David Sandalow, for Assistant Secretary of Energy for Policy and International Affairs.
• Administration’s Detailed 2010 Budget Includes Allowance Auctions, GHG Registry.  The Obama Administration’s detailed fiscal year 2010 budget request, revealed last week, contained several important elements related to national climate change programs and policy:
  • The budget continues to contemplate the implementation of a federal cap-and-trade program for greenhouse gases (GHGs) with a full auction of emission allowances.  Projected revenues from allowance sales through 2020 total $647.7 billion.
  • The proposal would dramatically increase the Environmental Protection Agency’s overall budget from $7.6 billion to $10.5 billion, and designate $17 million for the implementation of EPA’s proposed greenhouse gas (GHG) reporting rule, which is still undergoing public comment.  In anticipation of a future cap-and-trade program, the proposal would provide $5 million for the development of measurement methodologies for offset projects.
  • The proposal would channel $128 million to the Department of Agriculture’s Rural Energy for America Program, which provides loan guarantees and grants to farmers, ranchers and small businesses for energy efficiency or renewable energy projects in rural areas.  If granted, the request would more than double the level of funding provided for the program in the 2008 farm bill.
  • International climate change programs would receive significant funding.  The proposal designates $500 million for a Clean Technology Fund administered by the World Bank, the purpose of which is to finance low-GHG energy infrastructure projects in developing countries.  The World Bank’s Strategic Climate Fund, which also provides assistance for climate-friendly economic development projects, would receive $100 million.  The same amount would be provided to the U.S. Agency for International Development’s renewable energy, energy efficiency, and carbon sequestration program.  Lastly, the budget would provide $10 million to the Global Environment Facility, which assists developing countries with climate change adaptation projects.

The detailed budget is available at: http://www.whitehouse.gov/omb/budget/Appendix/.

• EPA Issues Proposed Renewable Fuel Standard.  Responding to a mandate in the Energy Independence and Security Act of 2007, EPA issued a proposed rule last week that would reform the national Renewable Fuel Standard (RFS).  EPA calculates that its proposal would ensure an annual supply of 36 billion gallons of renewable fuel by 2022 (about 11% of expected gasoline and diesel consumption), reducing annual national greenhouse gas (GHG) emissions by an anticipated 160 million tons CO₂-equivalent.  The proposal contemplates annual production of 16 billion gallons of cellulosic biofuels by 2022; 15 billion gallons of conventional biofuel; 4 billion gallons of advanced biofuels; and 1 billion gallons of biodiesel.  New biofuel refineries would have to ensure that the lifecycle GHG emissions of their products are at least 20% less than the lifecycle emissions of gasoline and diesel – a standard that would exclude corn-based ethanol produced at many relatively less-efficient facilities.  EPA will take public comment on the RFS for sixty days.  The proposed RFS is available at: http://epa.gov/otaq/renewablefuels/rfs2-nprm-preamble-regs.pdf.  The Chairman of the House Agriculture Committee strongly criticized the RFS and EPA’s calculation of indirect emissions associated with corn-based ethanol.  The Renewable Fuels Association offered a detailed criticism of EPA’s methodology.  (For further information on the RFS proposal, see “House Ag Chair Condemns EPA, Climate Bill” and “Renewable Fuels Association Responds to EPA’s proposed RFS” below.)
• USDA, DOE to Provide Significant Biofuels Funding.  In conjunction with EPA’s release of the proposed RFS, the Departments of Energy (DOE) and Agriculture (USDA) announced that they would provide $786 million and $1.1 billion in funding, respectively, for biofuels programs.  The USDA funds were authorized in the 2008 farm bill, and will support loan guarantees for biofuels refineries, grants for demonstration projects, and funding for the production of biofuels from non-corn feedstocks.  DOE’s program was financed by the stimulus package passed earlier this year, and will provide $480 million for 10-20 advanced biorefinery projects; $176.5 million to expedite construction of commercial-scale biorefinery demonstration projects; and $110 million for research on algae biofuels, biofuel manufacturing, and biofuel infrastructure.
• FWS: Climate Change Could Endanger Pika; Polar Bear Rule to Remain Unchanged.  Fulfilling a settlement agreement with Earthjustice and the Center for Biological Diversity, the U.S. Fish and Wildlife Service (FWS) announced that it would undertake a 12-month review to address whether climate change impacts warrant listing the American pika as threatened or endangered under the Endangered Species Act (ESA).  FWS found that the two organizations had presented substantial evidence that rising global temperatures were impairing the habitat of the small mountain-dwelling mammal, which thrives in cool climates.  Last year, FWS listed the polar bear as a threatened species, due to the impact of climate change on the bear’s habitat.  However, the FWS issued a rule in December 2008 holding that the agency would not consider any human activity outside the Arctic Circle as a threat to the polar bear under the ESA.  Despite intense criticism from environmental organizations who view the ESA as requiring mitigation of climate change, Interior Secretary Ken Salazar announced last week that the Administration would uphold that rule.

Congress

• Compromise on Climate Bill May Be Near.  Closed door negotiations between the sponsors of the American Clean Energy and Security Act (ACES) and other Democratic members of the Energy and Commerce Committee continued all week.  Details under debate continue to include the renewable electricity standard, the timing and stringency of the emissions cap, allowance allocations, and offsets.  Committee Chairman Henry Waxman (D-CA) said that he intends to release a new draft of the bill next week in advance of a mark-up, likely in full committee.  When asked how he could pass a bill through Committee in less than three weeks, Rep. Waxman responded:  “Watch me.” 

The progress followed a field trip by almost all of the Committee’s Democrats to the White House where President Obama urged them to finish a bill by Memorial Day so they can turn their focus to health care legislation.  After the meeting, Committee members announced a compromise agreement on “Cash for Clunkers” language that will allow consumers to trade in older, less fuel efficient cars and trucks for vouchers worth up to $4,500 towards the purchase of a new, more efficient vehicle (achieving at least 22 mpg).  The agreement will now be included in the ACES bill.  Committee members also confirmed that the White House is interested in generating additional Congressional support for a climate change bill by linking it to an agreement to expand domestic energy production.  Members said the President told them that: “Fifty years from now when people look back at this time we don’t want to have missed the moment.  This is the moment.”

• Bingaman Releases New Transmission Siting, Nuclear Power Language.  Senator Jeff Bingaman (D-NM) released new drafts of the transmission siting and nuclear power sections of comprehensive energy language this week and then delayed the mark-up of these provisions.  The transmission siting proposal would give the Interior Department the lead in permitting new “high priority” energy transmission lines on federal lands, with FERC retaining backstop authority to certify their construction.  Amendments on cost allocation are expected at the mark-up.  The new nuclear waste language retains the 11-member commission selected by the President which would have 2 years to assess options for handling nuclear waste.  The commission would now also be instructed to recommend measures “necessary or advisable” to support industry efforts to develop the data needed to obtain a license for spent fuel reprocessing from the Nuclear Regulatory Commission.  The new language is available at http://energy.senate.gov/public/index.cfm?FuseAction=EnergyBill.2009. 

Negotiations on the renewable electricity standard targets are on-going.  The Committee marked-up S. 949, a bipartisan bill to create a Clean Energy Deployment Administration within the Energy Department to finance low-emission energy projects unlikely to attract commercial investment.   Members rejected an amendment proposed by Sen. Bernie Sanders (I-VT) that would have capped the funding available to any technology at 20% of project costs, an effort to limit monopolization of the fund by certain technologies—such as nuclear energy.  The Committee also held a hearing on policies to encourage small-scale distributed electricity generation.  Committee members Sanders and Robert Menendez (D-NJ) introduced the Grid Access Act (also co-sponsored by Sen. Joe Lieberman (I-CT)), legislation that would set national small-scale electricity generation standards for interconnection, compensation, and charges for the failure to deliver contracted electricity. 

• House Ag Chair Condemns EPA, Climate Bill.  Expressing frustration with EPA’s consideration of GHG emissions due to indirect land-use change in evaluating the GHG intensity of corn-based ethanol for purposes of the Renewable Fuel Standard (see related entries above and below), as mandated in the 2007 energy bill, House Agriculture Committee Chairman Collin Peterson (D-MN) said he would not support “any kind of climate change bill” that allowed EPA to write enabling regulations because he no longer trusted the agency.  Rep. Peterson had reportedly been in conversation with House leadership about the ACES bill and had begun working on issues, such as offsets and emission reduction projects in uncapped sectors, which affect agriculture. 
• Other Climate-Related Bills Introduced, Hearings Held.  Against the backdrop of negotiations on the energy bill in the Senate and the climate and clean energy bill in the House, Congress continued to hold hearings and introduce bills on related topics.
  • Agriculture Committee member Stephanie Herseth Sandlin (D-ND) has prepared legislation to alter certain biomass restrictions in the 2007 energy bill to allow the use of trees, brush, chips, and other materials from national forest lands to qualify as biofuel feedstocks if removed in order to reduce fire risks, curb disease or insect infestations, or to restore ecosystem health.  Herseth Sandlin said that she will work to include he language in the ACES legislation.
  • S. 345, a bipartisan bill to allow developing nations to pay off some of their debt to the United States by protecting coral reefs and tropical rainforests, received unanimous support in the Senate Foreign Relations Committee.  Committee Chair John Kerry (D-MA) framed the bill as an effort to reduce GHG emissions from tropical deforestation.  The Committee also held a hearing this week on climate change impacts in the Arctic.
  • The Senate Finance Committee held a hearing to discuss how to structure an auction for emission allowances under a cap-and-trade bill, as well as the effects of the cap on the economy.  Senators expressed concern with the potential for instability in the carbon market.
  • The Energy and Water Development Subcommittee of the Senate Appropriations Committee held a hearing on innovative technologies to reuse CO₂ produced by coal-fired power plants, including use as a feedstock to grow fuel-producing algae.
  • Sens. Carl Levin (D-MD) and Susan Collins (R-ME) introduced legislation that would allow federal agencies to regulate all swap transactions (cash exchanges based on the value of the underlying product)—including those involving energy commodities.  The bill would leave the details of the regulation to the Executive Branch.
  • Sen. John Thune (R-SD) introduced a bill that would allow the EPA Administrator to waive the GHG standards required under the RFS if the GHG standards prevent the ethanol industry from meeting the RFS production requirements.  The bill would also direct EPA to consider only direct lifecycle GHG emissions in ethanol production, not emissions from land-use change.  Rep. Jerry Moran (R-KS) intends to introduce a parallel bill in the House.
  • Reps. Neil Abercrombie (D-HI) and Tim Murphy (R-PA) introduced the American Conservation and Clean Energy Independence Act, a bill that would accelerate offshore oil exploration and commit associated federal government revenue streams to programs to promote carbon capture and sequestration, nuclear power, renewable energy, and energy efficiency.  The bill would also extend the production tax credit for solar and wind energy, remove the prohibition on classifying woody biomass from federal lands as a renewable resource, and make waste-to-energy garbage incineration plants eligible for renewable energy funds.
  • The House Science and Technology Subcommittee on Energy and Environment held a hearing to discuss the establishment of a National Climate Service. 

States and Cities   

• West Virginia Issues First Carbon Sequestration Permit.  The West Virginia Department of Environmental Protection issued to Appalachian Power Co. (APCo.), an American Electric Power Co. subsidiary, the state’s first CO₂ sequestration permit.  The permit will allow APCo.’s Mountaineer plant to sequester 165,000 tons of CO₂ annually for the next four- to five-years.      

Industry

• Renewable Fuels Association Responds to EPA’s Proposed RFS.  While praising EPA’s analysis of GHG emissions directly emitted during the production and use of corn-based ethanol, the Renewable Fuels Association (RFA) criticized EPA’s approach to calculating “indirect” emissions arising from international land-use changes related to ethanol use.  EPA’s proposed RFS found that corn-based ethanol production indirectly increases GHG emissions by reducing global food supplies and stimulating the further clearing of land for international agriculture.  According to RFA, EPA incorrectly estimated these indirect emissions by neglecting to take into account gains in U.S. crop yields and the value of ethanol byproducts used as animal feed, and by using a 30-year time horizon that emphasized near-term indirect impacts.  RFA also urged EPA to take into account indirect emissions from petroleum use, such as the cost of protecting shipping lanes in the Middle East and emissions from Canadian tar sands development.  RFA approved of EPA’s plans to submit its lifecycle emission estimates to a process of scientific peer review.
• RGGI Market Monitor Finds Active, Stable Allowance Market.  Potomac Economics, the independent market monitor for allowances issued under the 10-state cap-and-trade program known as the Regional Greenhouse Gas Initiative (RGGI), reported last week that the secondary market for RGGI allowances had grown and stabilized since late 2008.  An average of 979,000 RGGI allowances per day were traded through futures contracts on the Chicago Climate Futures Exchange in March 2009, over three times the average daily volume of 303,000 allowances observed last December.  The monitor also found that prices for futures and options contracts on RGGI allowances had become more stable over the last few months.  RGGI allowances are also traded on the Green Exchange, an affiliate of the New York Mercantile Exchange.

Studies and Reports

• Study Predicts Modest Impacts of Emissions Cap on Industry.  Research released this week by the Pew Center on Global Climate Change found that a cap-and-trade program like the one being considered by the House Energy and Commerce Committee would not cause energy-intensive industries like aluminum and steel to move overseas in large numbers or to lose significant market share to overseas competitors located in countries without carbon controls.  The study assumed a $15/ton price on CO₂ and found that the greatest impact on energy-intensive industries was due to customers switching to less emission-intensive products.  The analysis did not consider the impact of allowance allocations to energy-intensive industries such as those being considered by the House.  The study is available at http://www.pewclimate.org/international/CompetitivenessImpacts.
• CBO Releases Analysis of Climate Change Impacts.  A report by the Congressional Budget Office prepared at the request of Senator Jeff Bingaman (D-NM) details potential impacts of climate change and the uncertainty surrounding the likelihood and severity of those impacts.  The likely impacts include increases in the intensity of precipitation, tropical storms, and aridity; water shortages in the western U.S.; rising sea levels and flooding; and species extinctions.  The report notes that policymakers may consider taking more aggressive action to mitigate climate change in order to reduce the likelihood that the most severe climate change impacts would occur.  The analysis is available at http://www.cbo.gov/doc.cfm?index=10107.

International

• U.S. Pulls Back on HFC Amendment for Montreal Protocol.   The United States will not propose amending the Montreal Protocol to phase-out the use of hydrofluorocarbons (HFC), a class of potent GHG commonly used for refrigeration and air conditioning.  The U.S. State Department has informed the United Nations Environment Program that it will not submit an amendment proposing to phase out the use of HFCs, but instead will continue to study the issue.  The small island nations of Mauritius and the Federated States of Micronesia recently proposed a similar amendment that would require a 90 percent reduction in the use of HFCs by 2030.
• US, China, Australia Submit Climate Proposals to UN.  As part of the continuing international climate change negotiations, the United States, China and several other nations submitted to the United Nations (UN) their proposals for a successor treaty to the Kyoto Protocol.
  • United States: The United States proposal would have developing nations adopt, by 2020, action plans that include emissions targets.  With regard to developed nations, the U.S. proposal calls for an unspecified amount of funding to promote low-carbon strategies in developing nations.
  • China: The Chinese proposal called for stringent mid-term emission targets for developed nations, but did not include any emission targets for major developing nations.  Under the Chinese proposal, developed nations would be required to reduce their emissions 40 percent below 1990 levels by 2020.
  • Australia: In its proposal, Australia stated that under a stringent climate regime, in which all nations commit to reduce global atmospheric GHG concentrations to 450 part per million by 2020, Australia could commit to reducing its emissions 25 percent from 2000 levels by 2020.  Under a less stringent climate regime, Australia would be willing to accept an emission target of 5-15 percent below 2000 levels by 2020.