by KC Golden
This piece was co-authored by Ross Macfarlane.
Sens. Kerry (D-Mass) and Lieberman (I-Conn) finally
released
the American Power Act (APA) on Wednesday, May 11, after
months of
internal negotiations, and nearly a year after the House passed its
comprehensive climate and energy bill, (the American Clean Energy
and
Security Act or ACES). Climate Solutions is still reviewing its
nearly 1000
pages, and will be developing more detailed responses and priorities for
our
advocacy work. But we wanted to provide
some high level reactions to our friends and supporters, and highlight
some of
the areas that we will be working on to strengthen and improve. We will
be updating you on our thoughts, and
would appreciate hearing yours.
At the end of this memo, we have included a list of sources we have
used
for our initial analysis which includes good resources for those who
would like
more details on the APA’s provisions. We
want to single out the great work by Eric
De Place at Sightline, who also helped us with our
briefing call for key business and community leaders.
We will continue working for the strongest possible bill that limits
global warming pollution, reduces our dependence on fossil fuels, and
accelerates innovation and investment in clean and efficient energy.
Our advocacy focuses on mobilizing our
efforts and friends to fight for the best policy possible, incorporating
the
strongest provisions from a number of bills and policy proposals into
the final
product. We are particularly
appreciative of the tremendous contributions of Sens. Cantwell and
Collins
in the CLEAR Act, and believe their focus on a simple, fair approach is
having
a positive influence as the Senate moves forward.
A note on the spirit of these comments, and the difficult
situation we face as advocates for real climate solutions:
Like every piece of major legislation in our
somewhat dysfunctional political system, this one will bear the scars of
fear-based special interest politics and insufficient ambition. We will
keep fighting hard for what’s right
and necessary, while understanding (at the risk of echoing Sec.
Rumsfeld) that
we have to go to the policy field with the Congress we’ve got. In every
major climate bill that sees the
light of day, we can expect (without condoning) big problems; but there
are few
problems bigger than continuing to fail to respond to the climate
crisis. If we can find a way to move in a positive
direction, we need to move. This may
well include provisions of the APA as well as other bills, including the
CLEAR
Act. We’re focused on the destination
more than the vehicles.
Our first cut on the American Power Act’s provisions:
Limiting global warming pollution
Our top priority for comprehensive climate
and clean energy legislation is that it puts us firmly on the path to
rapidly
reducing fossil fuel dependence and building a strong clean energy
economy. Science-based limits on global
warming pollution are an essential foundation for that policy. We
need a declining cap on emissions to
send clear market signals that accelerate deployment and unlock
innovation in
clean and efficient energy solutions and to responsibly address the
climate
crisis.
The APA establishes reduction targets for
covered sources of 17 percent below 2005 levels by 2020 and 83 percent by 2050. While
these reductions are not steep enough,
especially in the near-term, they do track with President Obama’s
commitments
in Copenhagen,
ACES, and other proposals considered in Congress. The bill includes
provisions which allow
adjustment of the targets to the best available science. What is
scientifically necessary may not yet
be politically possible. We will continue to advocate for doing the
whole job.
Because of the central importance of the
emissions cap, we elaborate on it more than other features:
Structure of the cap
The bill takes a somewhat different approach than ACES (or other
legislative proposals)—a “sectoral” approach rather than an
economy-wide cap
or trading system. It establishes caps
that are phased in for four primary sectors—electricity generation,
industrial
sources, natural gas, and petroleum-based fuels. Together, these sectors
account for
approximately 85 percent of national emissions. Electrical utilities and petroleum based transportation fuels are
covered starting in 2013, and the largest industrial emitters and
natural gas
companies are phased in beginning in 2016.
For transportation, the bill requires the petroleum companies to
purchase allowances for the carbon emissions caused by their fuels at a
price
set by the market for other sources. The
transportation sector is directly subject to the declining cap on carbon
emissions, and oil companies will pay a price set by the market for
these
permits.
Eric De Place at Sightline has a
good description of how this works.
Offsets
Our biggest concern with the emissions reduction provisions in the
bill
relates to the excessive amount of offsets that are available (2 billion
tons
annually). This is not new or unique to this bill—these provisions are
largely unchanged from the ACES bill—but they do pose a significant
threat to
the integrity of the cap. The bill does establish oversight and
accountability
provisions that generally improve on the international standards and
ACES.
International offsets would be limited and
discounted (1.25 tons of international offsets are required for every
ton of
emissions covered).
We strongly support projects that reliably store carbon or reduce
emissions in uncapped sectors like agriculture.
But they should not be used to excuse or “offset” a large proportion of
the energy sector emissions within the cap. And two billion tons is just
too much—enough to substantially
undermine the incentives for technology innovation and deployment in the
core
energy sectors. We’ll be advocating a
reduced scope for offsets and strong oversight to ensure they are
legitimate
and effective.
Market protections
The bill contains extensive provisions that limit the ability of
traders
to manipulate the market. It limits auction participation to the
companies that
are required to have permits. It also protects against synthetic
derivatives. The bill incorporates some
of the strong market protection provisions of Sen. Cantwell’s CLEAR
Act as
well as other efforts to better regulate markets. Again, Eric DePlace has
a very good description of the market
protection provisions and his opinion that they constitute an
improvement over
previous bills.
Price collars
As a method to reduce price volatility, the bill contains both a
ceiling
and floor on the price of carbon credits (which both escalate over the
period
of the reductions) and establishes a strategic reserve to reduce the
likelihood
that hitting the ceiling will “break the bank” by requiring EPA to issue
additional permits above the levels allowed by the cap. We oppose a
price ceiling, because it could
allow emissions in excess of the cap. At
minimum, we believe the ceiling should be higher and should escalate
more
rapidly to minimize the likelihood of exceeding the emission limits in
the
bill.
Allocation of allowances
As in ACES, many of the emission allowances are distributed without
charge in the early years to electric and natural gas utilities, with
provisions requiring the value to be distributed to ratepayers to reduce
rate
impacts and promote energy efficiency (note: the efficiency provisions
are a bit unclear
yet, and may not have the intended effect). 75 percent of the allowances would be distributed based on historical emissions
and 25 percent based on the load served (ACES had a 50/50 split). The bill also
follows ACES in allowing free
distribution in the initial years to trade-sensitive industries. A
substantial percentage of allowances are
allocated for public purposes, such as support for state programs,
deficit
reduction, protection of low income consumers, and transit projects that
reduce
GHGS (this transit and other “smart growth” funding is new and welcome
in the
APA—the kind of legitimate, carbon-reducing public purpose that merits
public
investment much more than, say, provisions that shift financial risk
from nuclear
operators to taxpayers.)
Over time, the percentage of free allowances will decline and the
amount
auctioned will increase. After 2026, an
increasing percentage of allowances will go to a trust fund which will
rebate
75 percent directly to households and allocate 25 percent to deficit reduction.
Climate Solutions has always
advocated an auction-based system and will continue to push for
transparency,
equity, and efficiency. The sky is a
public resource, and any proceeds from the private use of that resource
belong
to the public. It is important to
remember, however, that the allocation system does not directly affect
the
market signals or emission limits that are established by the declining
cap.
Consumer protection
As noted above, the bill provides significant protections through
utility rebates and (in the later years) direct refunds. It also
provides direct refunds for
low-income consumers who would be disproportionately affected by any
cost
increases and have done the least to cause global warming. We
strongly support
having good provisions that ensure that basic energy service is
affordable to
all.
The Clean Air Act and EPA authority
One of the areas of intense debate and concern is how new climate
policy
would affect EPA’s existing authorities to regulate climate pollution.
The carbon reduction provisions of APA are a
title of the Clean Air Act and would mark the first significant
expansion of
that Act since the 1990 Amendments (which established the Acid Rain
Program). EPA would be the entity primarily responsible
for implementation of the program.
However, APA would reduce CAA authority in one key area: major
stationary sources. This is essentially the same approach taken
in the 1990 Amendments—when Congress replaced individual source
permitting
approaches with a sectoral cap. The APA
also establishes performance standards for coal-fired power plants built
after
2020, and allows EPA to set performance standards for older power
plants. It
would preserve existing Clean Air Act authority over mobile-source
emissions of
global warming pollution and other types of air pollution.
We will be advocating for stronger preservation of EPA’s
existing authority, especially for the largest and dirtiest sources.
Some changes to existing authority are likely
given the scope of new authorities in the legislation, but it’s
imperative that
we emerge overall with a much more effective national commitment to
regulate
climate pollution.
State authorities
The APA appropriately allows states to retain most of their authority
to
regulate global warming pollution and promote clean and efficient
energy. The one major exception involves state cap-and-trade programs, like the one implemented in the Northeast States and
proposed in the Western States under the Western Climate Initiative,
which
would be preempted. States that have
implemented caps will get financial compensation for their lost
revenues. In the House bill, these programs were
suspended. While we prefer the House approach (or no preemption at all)
we will
likely be focusing our efforts on preserving the Bill’s broad retention
of
state authority and pushing for better funding and support for state
programs. This is likely to be an
area of continuing contention, and maintaining the ability for leading
states
to serve as pioneers and innovators is vital to our continuing progress.
Renewable energy and energy efficiency
APA’s energy efficiency and renewable energy provisions (standards
and
funding) are substantially weaker than ACES. In part, the reason is jurisdictional. In the House, a single committee
developed the energy and climate
portions of the bill. In the Senate, by
contrast, different committees have jurisdiction. The Senate Energy
committee
reported a bill (the American Clean Energy Leadership Act or ACELA) last
June,
that contains provisions on these issues, but they are generally much
weaker
than the comparable provisions of ACES. For example, ACELA contains a
national Renewable Power Standard that is weaker than what many experts predict will be achieved in a business as usual
scenario, without any new policy.
We do note the addition of a Rural Energy
Savings Program, authored by Sen. Merkley, that will provide
substantial
efficiency benefits in rural communities. Energy efficiency and
renewable energy standards remain a critical
piece of any successful emission reduction and clean energy job creation
strategy; strengthening provisions will be a major focus for us.
The APA also contains far less financial support for state programs
that
promote energy efficiency and renewables than ACES. According to the
American Council For An
Energy-Efficient Economy (ACEEE), APA only provides one quarter of the
state
funding for efficiency programs as ACES and much less funding
for gas utility programs to benefit consumers. ACEEE has estimated that
the House bill would save the average American
consumer $200 on their energy bills. One
issue that we will have to look at more closely, though, is the
potential
trade-offs between these funding mechanisms for state programs and
consumer
protection. For a variety of reasons,
the Senate Bill allocates less public funding overall, so the tradeoffs
become
somewhat more difficult. Since we
strongly support both clean energy and consumer protection, we need to
advocate
for solutions that provide adequate funding without “robbing Peter to
pay
Paul.” One obvious place to look for this funding is the extensive
giveaways to
dirty energy, discussed below.
In addition to these examples, there are many important policies that
will promote energy efficiency and renewables that should be amended
into this
bill or adopted separately. These
include nationwide building codes, appliance and equipment efficiency
standards,
provisions to accelerate home and building efficiency (such as HOME STAR
and
BUILDING STAR), research and development support, renewal and expansion
of
incentive programs established under ARRA, and clean energy financing.
Many of these provisions were contained in
the House bill, and should be considered as part of a final package. A
number of the leading associations
representing renewable and energy efficiency businesses issued a joint
statement last month highlighting a number of areas that they believe
should be
included in a comprehensive climate and energy bill.
Dirty energy giveaways
Presumably in an effort to find a path to 60 votes, the APA contains
unwarranted and inefficient subsidies to dirty, risky, and expensive
energy
sources. Nuclear power gets more than
$50 billion in federal loan guarantees, along with risk protection, cost
recovery
and streamlining/elimination of critical environmental and regulatory
reviews. Taxpayers should not be asked
to shoulder huge financial and other risks for a well-established
technology
like nuclear. And Senators who support
fiscal discipline and oppose big government should be the last to insist
on
such provisions.
The APA contains a large program to demonstrate carbon capture and
sequestration for coal plants. While we
support research into CCS, the amounts of money involved perpetuate a
huge
investment in coal fired generation, well in advance of any solid
evidence that
a cost-effective solution for disposing of carbon emissions is at
hand. We will advocate redirection of these
subsidies to clean energy sources that entail less risk and greater
public
benefit.
Offshore drilling
The recent disaster in the Gulf graphically illustrates the costs of
our
addiction to fossil fuels. The APA provisions on this issue are clearly a
work
in progress, and are being amended to respond to the enormous public
sentiment
and concerns from coastal state senators. On the one hand, the bill provides a financial incentive (revenue
sharing) for states that open their coastline to offshore drilling. On
the other hand, the bill provides veto
opportunities for states that would be affected by spills, and
institutes some
other protections.
Climate Solutions has joined with
other groups in calling for a ban on new offshore drilling, at least
until a
full review of the Gulf disaster has been completed. We also support
the efforts of the Senators
in Washington, Oregon,
and California to ban drilling off our states,
as well as a stop to drilling in the sensitive and extremely hazardous
environments of the Beaufort and Chukchi
Seas off arctic Alaska. Expanded fossil fuel exploration has no place in a climate bill,
since it demonstrably promotes increased emissions. And in the wake of
the Gulf oil disaster,
these provisions may well cost the bill more votes than it attracts.
Conclusion and recommendations for strengthening
The American Power Act is much less than we need and much more than
we
currently have for a national climate policy. It would, for the first time, establish a flawed but significant
national commitment to climate solutions. Given the ticking clocks of
climate change, the threats to our national
security, and the race to compete in the global clean energy economy, we
must
do everything possible to get the best possible bill enacted now. And
there are few signs that our
dysfunctional political system is going to make meaningful change easier
in the
next session or near future.
We urge the Senate to pass the strongest possible climate
and clean energy bill this year. Initial
priorities for strengthening the APA include:
Stronger and more certain emission limits, including
stronger near-term targets, provisions to limit the quantity and quality
of
offsets, and a price collar that preserves the integrity of the cap.
Stronger
energy efficiency and renewable energy
standards and funding, with a significant change in the balance of
investment
from higher cost, dirtier technologies to cleaner ones with greater
public
benefit and less risk.
Preserving and enhancing key
regulatory authorities of
EPA and the states.
So the APA is clearly a mixed bag. But we’re going to keep fighting—creating the political space for what
we need, and pushing the Senate to do more than it appears to believe it
can. We hope you’ll join us.
Related Links:
Outcomes, not mechanisms: the effects of the American Power Act
Friedman nails Obama for his timid response to the “environmental 9/11”
The American Power Act and California’s AB 32
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