Bridges Trade BioRes • Volume 9 • Number 6 • 3rd April 2009

Draft Energy, Climate Bill Provides Sneak Peak at US Environment Policy

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Environmentalists are praising a new draft bill released by Congressional Democrats in the US as a bold plan to combat climate change. But critics say the proposal will need to be drastically reworked in order to get the approval of the US Senate.

The 648-page American Clean Energy and Security Act of 2009, introduced Henry Waxman of California, who chairs the House Energy and Commerce Committee and Edward Markey who chairs the Energy and Environment Subcommittee, would establish an aggressive cap-and-trade program that exceeds the Obama Administration’s initially expected targets.

The discussion draft also proposes several other initiatives aimed at cleaning up the environment, such as a plan to reduce carbon through offsetting, a renewable energy scheme, and new transportation emissions standards.

Some critics argue that measures such as an emissions trading, or cap-and-trade, scheme would place the US economy in jeopardy as domestic industry is forced to compete with countries without such restrictions. But the chairmen say their proposal will, in fact, strengthen the financial system.

“This legislation will create millions of clean energy jobs, put America on the path to energy independence, and cut global warming pollution.” said Waxman. “Our goal is to strengthen our economy by making America the world leader in new clean energy and energy efficiency technologies.”

Bill places emphasis on carbon trading

The proposed cap-and-trade scheme surprised some observers by establishing short-term targets exceeding those that have been outlined by Barack Obama in the past. The new bill aims to reduce economy-wide greenhouse gas emissions by three percent below 2005 levels in 2012, 20 percent by 2020, 42 percent by 2030, and 83 percent by 2050. In contrast, Obama has suggested a cut of some 15 percent by 2020 in the past.

The bill would place a cap on greenhouse gas emissions and requires entities that emit more than 25,000 tons (22,680 tonnes) of carbon dioxide annually to have tradable federal permits, or allowances that allow them to pollute. The program sets a cap on available allowances and the number of permits will reduce each year.

The plan will primarily target electric utilities, oil companies, and factories that together are responsible for 85 percent of US greenhouse gas emissions.

While the proposal provides a basic outline on how a national cap-and-trade market on emissions would work, it stopped short of describing how emissions credits would be distributed to polluters. President Obama has said in the past he would like to see 100 percent of the permits auctioned off, but has since indicated that this is not a requirement.

Industry says cap-and-trade will hamper competitiveness

Proponents of the bill say it breaks from the previous US position set under the Bush Administration and sets a new course toward a clean energy economy. But some industries say they are concerned as to what their role in the new vision will be.

The US steel industry recently spoke out about Washington’s plans for cutting greenhouse gasses, saying that steel produced in countries such as China and India should face import tariffs if their industries do not have to adopt similar emissions targets.

“Chinese steelmakers enjoy an unfair advantage in global trade due to the lack of enforcement of exceptionally weak pollution standards,” Scott Paul, the executive director of the Alliance for American Manufacturing, said recently.

American steelmakers say their cost of production has already gone up significantly as a result of investments in pollution control systems aimed at reducing particulates and components of acid rain.

Terry Straub, a senior vice president at US Steel Corp, says that government should carefully consider the impact of the possible flood of cheap foreign imports and suggests a carbon fee be placed on steel from any country that does not regulate greenhouse gas emissions.

Government not ruling out ‘border adjustment programme’

Comments from US Energy Secretary Steven Chu at a House hearing earlier this month suggest that he is not adverse to the idea of a scheme aimed at assisting sensitive industries adapt to their new reality. Chu suggested that the US would not rule out tariffs and other trade barriers as a means to place pressure on countries like China and India. “If other countries don’t impose a cost on carbon, then we will be at a disadvantage,” he said at the hearing.

While Chu insisted that the tax idea on imports was only one possible option the Obama administration should consider, Xie Zhenhua, the head of China’s Climate Change and Coordinating Committee, jumped on the comments calling the idea of such tariffs protectionist and “an excuse to impose trade restrictions.”

China recently surpassed the US as the world’s top emitter greenhouse gases, but Chinese officials have frequently said that the onus of emissions should be placed on countries that purchase the goods manufactured in China, rather than by China itself.

The proposed bill acknowledges the obstacles some industries - such as steel, aluminium, cement and chemicals - will face under cap-and-trade and proposes assistance in the form of rebates, incentives for carbon capture projects, and a ‘special reserve’ of allowances administered by the US Environmental Protection Agency (EPA) that can be use in the event that prices rise faster than expected. However, should these measures prove to be less than what is required, the bill allows the president to establish a so-called ‘border adjustment programme’, which some observers speculate is a code term for import taxes or tariffs.

Offsets, clean transport also proposed

The draft looks to compliment the cap-and-trade scheme with annual reductions of 2 billion tons of offsets - investments in clean energy projects such as wind and solar farms - per year. Also, power utilities would be required to generate 6 percent of their power from alternative energy sources by 2012 and 25 percent by 2025.

Regarding transportation, the proposal would establish a new low-carbon fuel standard to promote the use of biofuels and provide grants and loans to help electric vehicles gain a better foothold in the auto market.

The European Commission (EC), the EU’s executive arm has welcomed the proposal, saying it boosts the possibilities for a favourable outcome at the December UN Framework Convention on Climate Change (UNFCCC) meeting in Copenhagen, Denmark.

“We welcome this. It is really very encouraging,” EC Environment Commissioner Stavros Dimas told a news conference on Wednesday. “This will send a very strong message…and facilitate an agreement in Copenhagen.”

Additional information

A copy of the draft can be found here:

http://www.eenews.net/public/25/10364/features/documents/2009/03/31/document_gw_03.pdf

ICTSD Reporting; “House Democrats release draft energy, climate bill,” NEW YORK TIMES, 31 March 2009; “U.S. Democrats launch draft carbon legislation,” REUTERS, 31 March 2009; “U.S. Carbon Emissions Trading Core of Clean Energy Bill,” ENVIRONMENT NEWS SERVICE, 31 March 2009;

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