John Harwood incorrectly stated that House-passed Waxman-Markey "would reduce carbon emissions by 17 percent from 2005 levels over a 10-year period," in a post this week discussing the Kerry/Graham/Lieberman Senate legislation
on the New York Times blog, The Caucus.
In fact, the Waxman-Markey climate bill does not require emissions reductions in the U.S. economy below business-as-usual (BAU) levels for at least a decade. The bill would allow regulated firms to purchase up to two billion tons of carbon offsets in lieu of reducing their own emissions in the capped sector of the U.S. economy. As our comprehensive analysis of Waxman Markey has shown, firms would be legally permitted to continue BAU emissions and practices through 2017 under the most conservative estimates of offset projections (under the CBO) and 2027 under the most expansive estimate (from the EPA).
In the face of energy and financial companies pushing for offsets in Senate climate legislation, Public Citizen forces Senators Kerry, Graham, and Lieberman to wrestle with a tough question: Will they allow carbon offsets to gut the Senate bill, the way it did under ACES?
Polluting energy companies and giant financial firms are once again allying to advance international offsets that have the potential to render a carbon cap entirely non-binding. The Coalition for Emissions Reductions Projects (CERP), wrote to Senator Maria Cantwell earlier this month criticizing the CLEAR Act she co-sponsored with Senator Susan Collins for not including an offsets program.
Membership of the CERP coalition includes: Alpha Natural Resources, American Electric Power, BlueSource, Global, C-Quest Capital, C-Trade Comercializadora de Carbono, Deutsche Bank, Dominion, DTE Energy, Duke Energy, EcoSecurities, Element Markets, El Paso Corporation, Environmental Credit Corp, Equator, John Deere, Leaf Clean Energy Company, Macquarie Bank, Natsource, Noble Carbon Credits, PG&E Corporation and Verdeo Group.
Until just recently, carbon offsets appealed to environmentalists, polluting firms, farmers, timber interests, and development agencies alike because they promised to hold down the cost of reducing greenhouse gas emissions while promoting sustainable development. But things that seem too good to be true usually are, and the awareness that offsets all-too-often do not represent real emissions reductions has now been recognized by both a new alternative cap and trade proposal (Cantwell-Collins) in the Senate and by the World Resources Institute.
Rather than resolving the political and economic tradeoffs inherent in reducing emissions, offsets obscured them. Such was the case with Waxman-Markey cap and trade legislation, which passed the House last year. The bill's heavy reliance upon offsets obfuscated the fact that Waxman-Markey would not require emissions reductions by regulated firms for the first decade or two of the program. Thus, the bill would not result in the radical technological transformation required to make clean energy cheap and reduce emissions globally.
Green groups like World Resources Institute (WRI) were complicit in the obfuscation, and major media outlets including The New York Times followed their lead, duly reprinting WRI's graph showing that the legislation would reduce emissions reductions 17 percent by 2020, even though all of those reductions could be purchased as offsets.
World Resources Institute conducts ostensibly independent and objective analyses of environmental legislation for Congress, media including the New York Times, and advocates. But in its analysis of competing climate legislation, WRI used a double standard for measuring emissions reductions in a way that resulted in a more favorable intepretation of Waxman Markey legislation -- legislation WRI helped create.
1. Role of Carbon Offsets Central to Understanding Whether Legislation Will Reduce Emissions
Carbon offsets represent perhaps the most contentious single element of climate legislation currently proposed in Congress. Many environmental groups and energy industry interests support the broad use of carbon offsets because they promise to limit the cost associated with reducing carbon emissions while offering firms greater flexibility in complying with carbon caps.
Unfortunately, there is strong and growing evidence that carbon offset programs deliver little by way of actual emissions reductions. Numerous experts warn that offsets may not represent real emissions reductions (logging, for example, may just move to non-offsetted properties) and are in many cases fraudulent (e.g. businesses being paid to do what they would have done anyway, like capturing methane, planting trees, building dams, not tilling, and not logging).
In a Washington Post op-ed, long time EPA lawyers criticize the cap and trade policy espoused by both House and Senate version of climate and energy legislation and point out that such an approach is not sufficient to ignite a clean energy revolution
Update: NASA climate scientist James Hansen has affirmed Williams and Zabel's criticism of cap-and-trade in pending climate and energy legislation. To read his commentary see Andy Revkin's Dot Earth blog here.
Two lawyers at the Environmental Protection Agency (EPA) with more than forty years of collective experience, wrote this week in the Washington Post criticizing pending climate and energy legislation and enumerating the flaws of the cap and trade system both House and Senate versions of the bill espouse.
According to Laurie Williams and Allan Zabel:
"Cap-and-trade means a declining "cap" on total emissions, while allowing trading of pollution permits. Confidence in the certainty of declining caps is based on the mistaken assumption that cap-and trade was proven in the EPA's acid rain program. In fact, addressing acid rain required relatively minor modifications to coal-fired power plants. Reductions were accomplished primarily by a fuel switch to readily available, affordable, low-sulfur coal, along with some additional scrubbing. In contrast, the issues presented by climate change cannot be solved by tweaks to facilities; it requires an energy revolution through investments in building clean-energy facilities.
The biggest obstacle to this revolution is that uncontrolled fossil fuel energy remains much cheaper than clean energy. Cap-and-trade alone will not create confidence that clean energy will become profitable within a known time frame and so will not ignite the huge shift in investment needed to begin the clean-energy revolution. In recent interviews, even the economists who thought up cap-and-trade have said they don't believe it's an appropriate tool for climate change."
Williams and Zabel go on to point out that perhaps the biggest flaw of the proposed cap and trade system is its inclusion of dubious carbon offsets, that are not only close to impossible to verify, but allow major carbon emitters to continue to maintain business-as-usual practices for the majority of the next two decades.
I've also included the boost in FY2009 Department of Energy (DOE) R&D budgets provided by the economic stimulus bill, the American Recovery and Reinvestment Act. As Google's Dan Reicher warned the Senate on Wednesday: when these temporary stimulus funds dry up, the U.S. could fall of a "funding cliff" unless significantly larger allocations are made for clean energy R&D in Congressional legislation.
$15 billion. That is the figure at the heart of a growing consensus of energy innovation experts, all calling for dramatically larger U.S. investment in clean energy research and development. Writing at theEnergyCollective.com, Breakthrough's Jesse Jenkins highlights mounting calls to address what Google Director of Climate Change and Energy Dan Reicher called "a serious energy R&D short-fall" in the current House and Senate climate bills. As Congress debates energy and climate change legislation, a chorus of voices including policy think tanks such as the Brookings Institution, Third Way and the Breakthrough Institute, as well as a collection of both the nation's top research universities and dozens of Nobel-prize winning scientists have joined leading businesses like Google to converge on a $15 billion increase in annual U.S. energy R&D budgets as a critical component of any final legislation.
In a letter addressed to Senate Majority Leader Harry Reid, the APLU and AAU issued a strong criticism of both House and Senate versions of climate and energy legislation for failing to allocate enough funding to clean energy R&D and proposed a bottom line $5 billion investment to spur the kind of innovation needed to achieve a clean energy future
The nation's leading research universities are calling on the Senate to ensure dramatically more funding for clean energy R&D in the Senate climate and energy bill, investments they described as necessary to achieve the bill's targeted deep cuts in emissions.
In a letter delivered to Senate Majority Leader Harry Reid earlier this month, the Association of Public and Land-grant Universities (APLU) and the Association of American Universities (AAU) wrote:
"As the Senate moves forward with climate change legislation, we strongly urge you to ensure the amount of R&D funding designated for clean energy technologies is more in line with the President's proposal of $15 billion."
APLU and AAU collectively represent most of the nation's public and private research universities, and their letter imparts a pointed criticism of the House-passed ACES bill, calling for a frontloaded investment in research and development to kick-start critical clean energy innovation. The letter draws an apparent bottom line for the nation's top research universities, calling for dedicated R&D funding from the climate bill's cap and trade allowance revenues that totals at least one third of the $15 billion per year proposed by President Barack Obama.
Like its House sibling, the Senate's Kerry-Boxer climate bill allocates the vast majority (64%) of the tens of billions annually in emissions allowances created by the bill's cap and trade program to shield energy consumers and industry from the impacts of carbon prices. Just 13% of the value of allowances in the "Clean Energy Jobs and American Power Act" are invested in clean energy technologies.
Late Friday night, Senator Barbara Boxer's Environment and Public Works Committee released a new draft of the Kerry-Boxer "Clean Energy Jobs and American Power Act" (S.1733), the first version of the legislation to detail how emissions allowances created by the bill will be divvied up. These allowances, which give polluters the right to emit greenhouse gases under the bill's cap and trade program, will be worth nearly a trillion dollars over the first ten years of the program alone.
Breakthrough Institute staff worked over the weekend to dig through the new legislation and get an accurate picture of the allowance allocation pie [see summary tables and graphics below and click here to download a comprehensive spreadsheet(*also in xls format) of allowance allocations in both Kerry-Boxer and the House Waxman-Markey/ACES bill. Note: updated after initial posting to convert EPA forecasts to 2009 constant dollars. Hat tip to Jason at 1Sky for catch].
Depending on the value of emissions allowances under the cap and trade program, an average of roughly $70 billion to $126 billion in emissions allowances will be created and distributed on each year under the first ten years of the bill's cap and trade program, 2012-2021.
Of that value, by far the largest share, roughly 64% of the total allowances, will be distributed for free to shield energy consumers and industry from the higher energy prices driven by the establishment of a price on carbon dioxide and other greenhouse gases under a cap and trade system. This includes both direct rebates to end consumers and low-income energy assistance, as well as free allocations to electric and natural gas utilities (aka "distribution companies"), which they are directed to use "on behalf of" their customers. It also includes direct transfers of billions of dollars in free allowances to various industries, ranging from the relatively defensible (11.3% of allowances to heavy industries vulnerable to international competition), to the pretty indefensible, (e.g. a windfall-profit generating allocation of over 3% of the allowances -- worth at least $2 billion annually -- to the "merchant" operators of conventional coal plants).
By contrast, only about 13% of the value of allowances will be invested in various clean energy technologies, including incentives for the deployment of carbon capture and storage technology (aka CCS, given 2.2% of permits on average each year), federal, state and local government funds to incentivize renewable energy and energy efficiency (6.4%), and investments in advanced clean vehicle technologies (1.7%).
Just 1.9% of the allowances are dedicated to critical clean energy research and development (R&D) efforts, which amounts to an investment of just about $1.4 billion annually under EPA-projected allowance prices (in 2009 constant dollars).
Overall, the "Clean Energy Jobs and American Power Act's" investments in clean energy technologies will total under $9.5 billion per year under allowance prices projected by the EPA.
Pulling no punches, Greenpeace writes: "There is all manner of spinning--well-intentioned, disingenuous, self-serving--among supporters of climate action, and it has become almost impossible to separate political calculus from scientific necessity. ... Many supporters of climate action find themselves forced to grasp a flimsy hope--that we just need to get something started--anything--and strengthen it later. And so we witness the cheerleading to which we cannot lend our voice. ... Politics as usual will only produce its corollary, business as usual."
Titled "Business as Usual," the report was prepared on behalf of Greenpeace by David Sassoon, who publishes the climate news site, SolveClimate. It is written as a "plain-spoken" analysis meant to be "a call to action to the President of the United States," according to the document.
"In order for federal climate legislation worthy of this nation to pass Congress, we see no alternative to active and principled engagement from the Oval Office," Greenpeace writes.
The report levels five key criticisms of current Congressional legislation, calling attention to what Greenpeace describes as "five points of maximum danger" that the environmental group argues must be addressed to ensure climate legislation is capable of spurring "a swift transition to a clean energy future."
While we certainly don't share Greenpeace's position on all (most) climate matters, this new report levels a pointed and impassioned critique of current Congressional climate action well grounded in the details of the pending legislation. Here's a 'Cliffs notes' version of the full report below the fold...
By Charles Kleecamp and Breakthrough Senior Fellow Barbara Hill. Originally published in Oct. 18th's Boston Globe.
The Waxman-Markey bill on climate change that recently passed the House is a train wreck waiting to happen. Intended to reduce global warming and achieve energy independence, it is totally inadequate in its reliance on a flawed cap and trade system, and the recently released Senate version called the Kerry-Boxer bill follows the same track. Like the House bill, the Senate version represents the further transfer of wealth from taxpayers to the nuclear and fossil-fuel industries - a result of their immense power and influence.
Both bills impose a legal limit or "cap'' on greenhouse gasses emitted each year. The trading part is based on issuing emission allowances, or permits, to various industries for each ton of greenhouse gas they emit. However, the fatal flaw in Waxman-Markey is the misguided government giveaway, for free, of 85 percent of all allowances, particularly to coal-related industries. For example, the most egregious source of carbon dioxide emissions is coal-fired electrical generating plants, which account for one-third of all such emissions. To mollify the powerful coal lobby and coal state representatives, this government giveaway provides little or no incentive to phase out old coal-fired plants anytime soon, and may diabolically increase their profits.
A lesson is to be learned from the 2005 European Union Emissions Trading Scheme that likewise gave away 95 percent of its emission allowances. The result was that EU electric utilities earned windfall profits while continuing to pass on higher energy costs to industrial and residential consumers. The EU told the US Government Accountability Office that "it could not be certain [the trading scheme] resulted in any reduction of emissions.''
To successfully confront the climate change crisis and the nation's addiction to fossil fuels, we at Clean Power Now endorse a straightforward carbon tax instead of the cap and trade schemes. To neutralize the impact on consumers, revenue from the carbon tax would be used to reduce payroll taxes, increase Social Security benefits, and fund renewable energy efforts that create new jobs and new industries particularly in the wind and solar sectors. This would amount to a tax shift with enormous societal benefits.
Others are supporting this as well. Elaine Kamarck, chairwoman of the US Climate Task Force and a former adviser to Al Gore, recently said in Politico, "Congress can go back to Al Gore's original idea about how to deal with climate change: Raise taxes on carbon, and cut taxes on work. A carbon tax shift is one of those rare ideas that can take a political liability and turn it into a political asset; it allows Congress to vote for a tax cut and a tax increase while putting into place the financial incentives we need to transition to a noncarbon future.''
A carbon tax is aimed at taxing the upstream source of carbon where it is produced, like coal mines, oil and natural gas wells, as well as shipping terminals and pipelines for imported fuel. Each pound of carbon embedded in the fuel would be taxed based on the fact that every pound of carbon consumed as fuel results in the emission of 3.6 pounds of carbon dioxide. Starting at a tax rate of $15 per ton of emitted carbon dioxide and progressively increasing until the goal of 80 percent reduction is achieved by 2050 is a good place to start.
The senators and representatives who are charged with leading the nation's energy policy should remember that politics is first the art of the possible and secondly the art of compromise. That means that starting from an already compromised position leads only to deeper compromises.
Chuck Kleekamp is the president and Barbara Hill the executive director of Hyannis-based Clean Power Now.
Back in January 2009, Joe Romm of ClimateProgress slammed the USCAP "Blueprint for Legislation Action," outlining a withering series of criticisms of what he then considered a "dead-end" proposal. The "Blueprint" went on to form the framework for the House-passed Waxman-Markey Climate Bill, and Joe Romm went on to become one of the bill's most vociferous advocates.
Here is Joseph Romm of ClimateProgress writing about the United States Climate Action Partnership proposal in January 2009. Despite Romm's assertions that this proposal was a "dead end ... obsolete and irrelevant," the Blueprint for Legislation Action developed by USCAP, a coalition of major corporations and DC-based green groups, went on to form the framework of the Waxman-Markey climate bill. That bill went on to pass the U.S. House of Representatives in June 2009 with all of the features Romm criticized here still intact: a "lame" 2020 emissions target of 83% of 2005 levels undermined by 2 billion tons of "rip-offsets" permitted each year; new conventional coal plants permitted if they are "capture ready" and able to install CCS technology by 2025; and the majority of cap and trade allowances given away for free. Joe Romm went on to be one of the Waxman-Markey bill's loudest champions. But here's a 'blast from the past' to consider as we take a look at a new bill emerging in the U.S. Senate. (emphasis in the original).
I think it is absurd for any serious environmental group to support permitting new coal plants that don't capture and store the vast majority of their emissions. Yet as the WashPostreports:
"The plan would also require any coal plant permitted after Jan. 1, 2015, to emit no more than half the carbon dioxide emissions now considered normal and require any newly permitted plant today to have the ability to be retrofitted to meet that standard."
These are bogus provisions. Nobody really knows what a capture-ready plant design is -- this is the climate equivalent of "the check is in the mail." ...
But it is the 2020 target and the issue of rip-offsets that make this proposal truly untenable. The Blueprint calls for requiring that U.S. greenhouse gases (GHGs) return to "80%-86% of 2005 levels by 2020." That is essentially returning to 1990 levels, which the science clearly says is inadequate to stabilizing at 450 ppm, let alone the 350 ppm target that environmental groups should be seriously considering ...
But the already-lame USCAP proposal shoots itself in the (other) foot with its embrace of a staggering amount of rip-offsets. ...
Shame on my NRDC and EDF and WRI friends for signing on to such nonsense. . .
But the unconscionable amount of rip-offsets USCAP embraces guts the entire effort. ...
"... any offset market of sufficient scale to provide substantial cost-control for a cap-and-trade program will involve substantial issuance of credits that do not represent real emissions reductions....."
...The USCAP proposal has other features that are problematic. For instance, "USCAP recommends that a significant portion of allowances should be initially distributed free to capped entities...." Again, Obama himself has called for a 100% auction. As the Friends of the Earth response to USCAP says:
"Put simply, the proposal would reward corporate polluters with hundreds of billions of dollars of giveaways, and its near-term pollution reduction targets are far weaker than what scientists have called for. The proposal is further weakened by its massive carbon offset loopholes. Were such a proposal to be enacted into law, it would fail to achieve the emission reductions we need in the U.S. and would undermine our ability to meaningfully and credibly engage in international climate negotiations. This is a dead-end approach that policymakers should reject."
Precisely.
This proposal is a dead end -- and an even deader starting point. Shame on NRDC, EDF, and WRI for backing it.
To head-off concerns that Joe Romm's comments have been taken out of context, we encourage readers to view Romm's full critique of the USCAP proposal here.
Cross-posted from Roger Pielke Jr.'s blog When the primary issues involved in the U.S. climate bill ares about how much subsidies are going to be devoted to fossil fuel interests such as coal and petroleum, then you can guess that...
When the primary issues involved in the U.S. climate bill ares about how much subsidies are going to be devoted to fossil fuel interests such as coal and petroleum, then you can guess that the bill is not going to do much to decarbonize the U.S. economy. From The Hill:
The climate bill coming this week from Sens. Barbara Boxer and John Kerry will likely leave some big questions unanswered, including the biggest: how to divvy up carbon allowances.
Allowances are permission slips to release emissions, and they function as a currency in the market the cap-and-trade legislation would create. For Boxer (D-Calif.) and Kerry (D-Mass.), they are chits to use to negotiate support for their bill as they attempt to form a winning coalition.
How are those "chits" being used?
The draft is also expected to have "placeholders" for some additional subsidies for coal and nuclear power. . .
Most energy lobbyists expect the bill to pass Boxer's committee but not get much further this year.
That would give President Barack Obama some progress on climate to show off in Copenhagen, Denmark, where world leaders will discuss what to do about global warming, but leave a final push in the Senate for early 2010.
Several Democratic senators are already on record as being uneasy about the climate bill. The distribution of the allowances is one way to ease those concerns.
Some sectors, namely the oil and gas industry, feel like they weren't treated fairly under the allowance system Waxman and Markey eventually settled on. Jack Gerard, the president and CEO of the American Petroleum Institute, said the sector was seeking more "equitable" treatment.
Refiners got 2 percent of the allowances to cover emissions at their own facilities. But the sector is also responsible for the emissions that come from the use of their products -- in total, around 44 percent emitted by human activity in the United States.
The Institute is flying in Hispanic workers this week as part of its grassroots push to change its image from that of the corporate fat cat. The group was preceded by a group of women and African-Americans who work in the industry, and will lobby on taxes and access issues beyond climate.
"We want to show the human face of the oil and gas industry in the United States," Gerard said.
As the Senate's climate and energy bill takes shape, it looks broadly similar to the House-passed Waxman-Markey American Clean Energy and Security Act, with a couple exceptions.
As the Senate's climate and energy bill takes shape, it looks broadly similar to the House-passed Waxman-Markey American Clean Energy and Security Act, with a couple key exceptions, according to E&E News' ClimateWire service.
ClimateWire has obtained an early version of the bill (pdf) being written by Senators Barbara Boxer (D-CA) and John Kerry (D-MA). Key sections are still under development as Senate staffers put the finishing touches on the discussion draft version of the bill scheduled for public release tomorrow, but the early draft appears to mirror closely the structure and content of its House sibling.
Emissions targets in 2020 are stronger than the House-passed version (20% below 2005 levels instead of 17%) and the EPA's authority to separately regulate greenhouse gas emissions from major sources is reportedly preserved. A modest new nuclear title has been added as well. Other major provisions, including the extensive permitted use off offsets and a strategic reserve pool to control allowance prices, appear consistent with the House climate bill.
[Update, 9/29/09, 5:33 PST: additional details are emerging as successive drafts of the legislation are leaked to reporters and bloggers. An 801-page draft bill was leaked this afternoon, which is reportedly more current than the 684-page draft reported by ClimateWire earlier today. This version is still not the final, which we'll have to wait until tomorrow for.
The current draft apparently contains a cost collar on emissions allowance prices backed up by the same kind of strategic allowance reserve in the House bill. The floor price begins at $11 per ton in 2012 and the ceiling at $28 per ton, both rising steadily each year. The House version had a $10 floor price in 2012 and a ceiling that floated at 60% above a rolling average of market prices for allowances, providing little certainty of an upper price on carbon under the bill. E&E News also reports that the new bill contains greater support for research and commercialization of advanced biofuels and greater incentives to replace coal-fired power plants with new natural gas plants.]
Key sections on how the climate bill will divvy up hundreds of billions of dollars in allowance allocation revenue will remain blank, to be filled in later when Senator Boxer releases a "chairmans mark" before formal markup of the bill in the Environment and Public Works Committer, likely sometime in October. However, if theHill.com's observations are accurate, as in the House bill, these billions in new revenue will likely be considered "chits to use to negotiate support for their bill as they attempt to form a winning coalition," rather than a funding source for critical, proactive investments to spur clean energy technologies, industries and jobs.
Joseph Romm warns on ClimateProgress.org that the House's Waxman-Markey climate bill is poised to over-allocate emissions permits, collapsing the carbon price and undermining emissions caps.
For readers of Climate Progress looking for some help sorting through Joe Romm's latest vituperation, here's a cliff-notes version: he agrees with our conclusions showing that climate legislation passed by the House in June would over-allocate emissions permits in the early years of the program, resulting in a collapse of carbon prices to the bill's $10 floor and the banking of excess permits that will undermine the stringency of the emissions cap in future years. He warns readers about precisely the same likely outcomes here.
Breakthrough conducted analysis of the implications of the economic recession and lower-than-expected emissions levels, concluding that the House climate bill would not require regulated firms to reduce emissions at all, either through offsets or actual reductions in their own emissions, until as late as 2018 under likely economic recovery scenarios. With offsets utilized at just 6 to 25 percent of the maximum levels permitted, the bill's cap and trade program would not require any actual reductions in emissions from regulated firms until 2020 or later.
Romm doesn't like these conclusions because it challenges his contention that Waxman-Markey is a strong bill. So, unable to actually challenge our analysis, Romm calls our analysis "crap" -- and then says we "glommed" it from him. He then quotes at length from an egregiously unbalanced E&E article about our analysis.
The global recession is likely to drive an oversupply of emissions permits in the early years of the House cap and trade program, collapsing carbon prices and allowing regulated firms to continue business as usual without cutting their own emissions or purchasing any offsets through as late as 2018. With only a fraction of the offset utilization permitted by the bill, U.S. emissions in capped sectors could rise for much--if not all--of the next two decades.
By Jesse Jenkins, Ted Nordhaus and Michael Shellenberger
The large decline in U.S. emissions in 2008 and 2009 due to the economic recession ensures that if the House-passed Waxman-Markey climate legislation becomes law, the bill's emissions reduction cap will require no reduction of carbon emissions over the first two to five years of the program. The resulting oversupply of emissions permits will allow regulated firms to continue business as usual emissions through as late as 2018, according to a new analysis by Breakthrough Institute based on new Energy Information Administration emissions projections that take into account the impacts of the global recession.
The analysis further establishes that very modest utilization of the offset provisions of the Waxman-Markey bill, as little as one-tenth to one-quarter of the levels of offset utilization projected by the Congressional Budget Office and the Environmental Protection Agency respectively, will allow emissions in regulated sectors of the U.S. economy to proceed at business as usual levels through 2020 or beyond. Depending upon how quickly U.S. emissions recover over the next decade, firms would need to purchase on average as few as 124 million tons of offsets annually in order to comply with the emissions reduction caps through 2020, substantially less than the 526 million and 1,223 million tons of average annual offset utilization between 2012 and 2020 projected this summer by CBO and EPA respectively.
In conjunction with the free allocation of a high percentage of emissions allowances under Waxman-Markey, and lower global demand for offsets from recession-hit EU and U.S. firms, substantial over-allocation of emission allowances in the early years of the program will likely lead to a cap and trade program awash in both cheap emissions allowances and offsets during at least the first decade of implementation. Under such conditions, the functional carbon prices for the first decade or more under Waxman-Markey are likely to hover at or even below the $10 per ton floor on allowance auction prices (rising slowly each year) established by the bill.
Thanks to US stimulus funding to nurture strong domestic clean energy markets, European wind giant Vestas is bringing money and jobs into the US as it opens more factories within American borders. But the US must follow the stimulus with sustained, substantial investments in clean tech development and deployment in order to avoid losing future foreign investments--and manufacturing jobs--to China.
It's strange to hear of "insourcing"--the transfer of manufacturing jobs into the United States instead of out--but that's exactly what's happening with Denmark's wind giant Vestas, according to a New York Times article yesterday.
According to the report, a combination of global recession and domestic stimulus spending on clean energy is adding up to a boon for the American clean energy manufacturing industry.
In Europe, Vestas has seen several nations slow down their rates of added wind capacity, and flagging government support combined with financial difficulties has impeded the construction of new projects. By contrast, the United States built 8,500 megawatts of wind capacity in 2008 to Britain's 500, and demand for turbine technology is high. So for opportunities in a more robust wind market, Vestas has begun to look across the Atlantic.
India's progress on building a domestic clean energy economy through investment represents a strategy that could also serve as a new approach to international climate policy. Unfortunately, Western nations that stall climate negotiations with their insistence on setting carbon caps continue to miss the world's best chance at forging a global agreement.
In New Delhi today, Indian Prime Minister Manmohan Singh said that India must invest in both new and existing clean energy technologies in order to develop sustainably over the coming decades. This comes as the latest indication of India's progress on building a domestic clean energy economy through investment--a strategy that could also serve as a new approach to international climate policy. Unfortunately, Western nations that stall climate negotiations with their insistence on setting carbon caps continue to miss the world's best chance at forging a global agreement.
In a recent speech at Harvard, energy secretary Steven Chu again supported an agenda to make the US a leading clean energy innovator. But Congress continues to reject strategic policies that would make this a reality.
In a speech yesterday at Harvard's John F. Kennedy School of Government, energy secretary Steven Chu again repeated his declaration that nothing less than a technological "revolution" is necessary to meet America's energy challenge and to ensure the US position as a leading global economic power.
Speaking alongside Congressman Ed Markey, Chu told his audience that future US prosperity depends upon widely deploying renewable energy, developing carbon capture and storage capabilities, and increasing energy efficiency--but most importantly, it depends upon becoming a leading innovator in clean energy technologies.
Chu minced no words when he described this critical juncture for the US in the
global clean energy industry:
"We're faced with the following choices: We can become the leader of a new industrial revolution and lay the foundation of our future economic prosperity ... or we can hope the price of oil will go back to $30 a barrel, deny climate change is happening and let other countries take the lead in energy innovation."
A recent Goldman Sachs report on the Waxman-Markey climate bill confirms it would result in one of the largest commodity markets in the world subject to significant speculation and have relatively marginal impacts on the renewable power industry.
A Goldman Sachs report on the Waxman-Markey climate bill, recently issued to Goldman Sachs' clients, confirms Breakthrough Institute analysis showing the legislation would result in one of the largest commodity markets in the world subject to significant speculation by financial firms, and would have relatively marginal impacts on the renewable power industry.
Titled "Carbonomics: Measuring impact of US carbon regulation on select industries" (not publicly accessible), the report concludes that "A new carbon market presents a major opportunity for exchanges and clearinghouses, especially as more allowances and offsets trade over time."
In a section titled "Carbon exchanges -- build it, and they will (must) come to trade," it estimates the bill would grow the global carbon market to become one of the largest in the world, with trading volume of 175 to 263 million contracts per year -- larger than the oil and gas markets combined and approximately the third largest commodity market in the world after U.S. interest rates and stock indexes. The analysts estimate the profit margin for financial firms resulting from this new carbon market could reach $2 billion per year globally.
The report also examines potential impacts of the legislation on the power sector, concluding that the carbon price expected from Waxman-Markey would not make most renewables competitive, and many regions might pay the compliance fee for the renewable electricity standard instead of deploying renewables:
Two new studies published last month -- one by the Office of Tony Blair and the Climate Group, the other by the Global Climate Network and Center for American Progress (CAP) -- strongly advocate a climate policy strategy based on direct government investment in energy technology development and deployment.
The studies independently reach conclusions similar to the Breakthrough Institute's and are yet another indication of "The Emerging Climate Consensus," which recognizes the limits of carbon pricing and advocates major increases in federal funding to deploy low-carbon energy technologies and drive down their costs through direct public investment in RD&D (research, development, and demonstration), deployment, and supporting infrastructure.
"Governments should adopt a strategic top-down approach to ensure that critical technologies arrive on time and provide investment in disruptive options to allow radical transformation in the future... The reality is that carbon pricing does not address many other market failures along the innovation chain."
The study argues that direct public support is crucial to develop and deploy new technologies: "Market failures along the innovation chain require public spending to drive technologies down their cost curve to a point where the carbon price can take over and accelerate their deployment." Echoing the Breakthrough Institute, International Energy Agency, and Energy Secretary Steven Chu (and defying critics like Joseph Romm), the report once again concludes that energy technologies must undergo major developments to meet emission reduction targets:
"Although we have the technologies we need through to 2020, new technologies -- many available but not yet commercially proven -- will be needed to meet the more challenging long-term goals. Therefore, at the same time as we deploy existing solutions, we must invest in future options."
Joe Romm of Climate Progress relies on outdated sources and erroneous misstatements to attack the Breakthrough Institute for publishing an op-ed urging Congressional support for President Obama's energy education initiative.
On Monday, Joe Romm of
Climate Progress publicly attacked the Breakthrough Institute for publishing
an op-ed in the San Francisco Chronicle -- called
"Will America lose the clean energy race?" -- which urged Congress
to fully fund President Obama's energy education initiative and scale
up direct pubic investments in clean energy to boost U.S. economic competitiveness
and accelerate the nation's transition to a clean energy economy.
Romm never mentioned the central focus of the op-ed -- President Obama's energy education program (RE-ENERGYSE) and the Breakthrough Institute's efforts to rally support behind this program -- and instead attacked it for what he calls "willfully misleading nonsense" about Asian countries' planned investments in clean energy, while apparently defending the smaller investments in the proposed Waxman-Markey American Clean Energy and Security Act.
Romm asserts that the op-ed "attacks" President Obama and Democratic
leaders, when in fact the op-ed is aimed at supporting the President's
RE-ENERGYSE program and calling for larger public investment in clean
energy to compete with Asian challengers. The RE-ENERGYSE initiative
is currently in danger of being cut by Congress at a time when the U.S.
is severely lagging in energy science and technology education, and
last week the Breakthrough Institute organized over 100 universities, student groups and other organizations to submit a letter urging Congress to fully fund the initiative.
Romm makes several factually
incorrect statements about Asia's plans for clean energy investment
that contradict research in publicly accessible reports and analyses,
including those by the Center for American Progress (which employs Romm).
Here is a fact check to correct Romm's misstatements
and clarify the details of investment plans in Asia:
1. The op-ed states, "China alone is reportedly investing $440 billion to $660 billion in its clean-energy industries over 10 years."
Romm's response:
"the China figure -- while it is certainly impressive and definitely should motivate U.S. action (as I have argued) -- is "reported" and cumulative over 10 years. It is part of their stimulus and NOT just R&D, but an investment in clean-energy industries broadly defined"
Facts: China's planned investment of $440-$660 billion over 10 years is indeed part of an economic stimulus package, but not the original $586 billion stimulus that is passed late last year, as Romm implies. The new investment, according to a recent paper by Andrew Light and Julian Wong of the Center for American Progress (CAP), is part of a planned second stimulus package that is "dedicated solely to new energy development over the next decade, including generous investments in wind, solar and hydropower." China is planning to make a sustained commitment to clean energy investment by building on the clean energy investments in their first stimulus package rather than being content with a one-time investment.
China's massive clean energy investment plan is indeed "reported," or planned. A top source for Breakthrough Institute's figures are analysts at CAP, who have repeatedly published the same figures, including recently in Congressional testimony. These numbers were reported early by the AFP and have since been republished several times, including recently by the Washington Post in an article similar to Norris' and Jenkins' op-ed, titled "Asian Nations Could Outpace U.S. in Developing Clean Energy."
The Breakthrough Institute has never suggested that China's investment is centered solely around R&D, nor have we suggested that U.S. clean energy investments should be solely focused on R&D, despite Romm's ongoing effort to misrepresent our position, which strongly supports direct public deployment of clean energy technology (see here for a summary of Breakthrough's clean energy investment policy recommendations).
President Obama has repeatedly pledged $150 billion to clean energy research and development, but with just $1 billion per year in R&D funding, the Waxman-Markey bill falls far short. Will Obama listen to 34 Nobel laureates urging him to keep his promise?
With this week's letter urging Obama to ensure "stable support" for a Clean Energy Technology Fund in the climate bill currently before the Senate, America's top scientists and energy experts signaled that the scientific community will hold Obama to his promise of investing $150 billion in clean energy research and development.
The names on the letter represent a virtual who's who of the upper echelons of the American scientific community, led by former Federation of American Scientists Board Chairman Burton Richter. Its supporters include Dan Reicher, director of climate change and energy initiatives at Google, former special assistant to the Energy Secretary during the Clinton administration, and a former candidate for Energy Secretary under Obama.
These science and energy experts are insisting that the American Clean Energy and Security Act (ACES) be strengthened from its current form, which would invest just one-fifteenth of the $15 billion per year Obama pledges for clean energy R&D in his current policy plans. "This is a serious deficiency," the letter warns.
As Congress debates climate and energy legislation, Asia is moving rapidly to win the clean energy race. So warns a new article in the Washington Post that should serve as a wake-up call to America's leadership at the highest level.
Despite Obama's intentions to increase America's international competitiveness, the article reports that the amount and scale of investments in renewable energy programs coupled with ambitious renewable energy use targets are putting these Asian nations on pace to surpass programs set forth by both the U.S. economic stimulus package and the American Clean Energy and Security Act, the massive climate and energy bill recently passed by the U.S. House of Representatives.
Citing Breakthrough's Jesse Jenkins, the article warns:
"If the Waxman-Markey climate bill is the United States' entry into the clean energy race, we'll be left in the dust by Asia's clean-tech tigers," said Jesse Jenkins, director of energy and climate policy at the Breakthrough Institute, an Oakland, Calif.-based think tank that favors massive government spending to address global warming.
Leaving out a proactive clean energy investment fund "is a dangerous omission," said Burton Richter, the leader of the group of laureates who signed the letter and winner of the Nobel Prize in Physics. "Much can be done with the current generation of technologies. However, study after study has confirmed that to combine growing prosperity worldwide with sharply reduced production of greenhouse gases will require technological advances that are possible only through research."
In a letter submitted to President Obama today, a group of 34 prominent Nobel Prize recipients decried the lack of clear support in "The American Clean Energy and Security Act" (ACES) for the President's own promise to establish a Clean Energy Technology Fund of $150 billion over the course of ten years. The Nobelists, including many of the world's most prominent physical scientists, are calling on Congress and the President to ensure the climate and energy bill currently being debated by the Senate includes adequate and sustained support for clean energy innovation.
I was interviewed on a radio show this morning about our new climate "super lobby" analysis with Burt Cohen, former State Senator from New Hampshire and host of the radio show Port Side:
The American Clean Energy & Security Act (ACES) could create a powerful "super-lobby" of U.S. carbon offset producers, the financial industry, and utilities and fossil fuel companies to weaken or oppose measures to reduce emissions in capped U.S. sectors.
The recent passage of the American Clean Energy & Security Act (ACES) through the U.S. House of Representatives drew different reactions from climate and environmental advocates. But one key perspective shared by most advocates is that, despite its weaknesses, the bill is a good first step. ACES builds a solid foundation for future progress on U.S. climate mitigation, the argument goes, and climate advocates will be well-positioned to strengthen the legislation in years ahead.
But what are the prospects for strengthening ACES in future years? This question is subject to many uncertainties, depending on the vagaries of the political climate. But a closer examination reveals that ACES could create a "super-lobby" of interest groups that will significantly diminish the possibility of achieving future reforms.
The newest climate lobby -- and potentially one of the most powerful in years to come -- is the financial industry. If ACES is signed into law, the global carbon market could become the largest commodity market in the world. According to Bart Chilton, Commissioner of the U.S. Commodities Futures Trading Commission (CFTC), "The potential size and scope of a structured carbon emissions market in the US is unequivocally vast. It is certainly possible that the emissions markets could overtake all other commodity markets."
The economic incentives created by ACES may result in an alignment between financial, agriculture, and incumbent utility and fossil fuel firms to oppose or weaken measures that reduce carbon emissions in capped sectors, analysis by the Breakthrough Institute concludes.
This analysis was also covered in an op-ed at AlterNet. Breakthrough Institute's full collection of ACES analyses is here.
New analysis by the Breakthrough Institute concludes that the American Clean Energy & Security Act (ACES) could create a vast new carbon derivatives market subject to financial speculation and create a powerful alignment of economic incentives among the financial industry, carbon offset producers, and utilities and fossil fuel companies to weaken or oppose measures to reduce emissions in capped U.S. sectors.
Offset Industry & Utilities
The ACES bill would create new demand for domestic and international carbon offsets by allowing polluters to purchase these relatively cheap offsets in lieu of reducing their emissions. The bill allows for the purchase of 1 billion tons of domestic offsets and 1 billion tons of international offsets each year.
The use of offsets to meet emissions reduction targets has significant implications when evaluating the impacts of ACES. Offset utilization is one of the largest variables in the proposal determining both economy-wide emissions reductions and reductions in capped sectors of the economy, established carbon prices, revenues raised through auctioning allowances and revenues dedicated to clean energy, levels of private investment in clean energy driven by the program, and the revenues transferred from households and other domestic energy end-users to international interests through offset purchases.
How many of these offsets will be utilized is uncertain, however, if all offsets are utilized and purchased at the average allowance price estimated by EPA, the bill would create a domestic offset industry with annual sales of $20 billion per year by 2020. The profit margin on the sale of such offsets is also uncertain, but total profit from domestic offset production is likely to range in the billions of dollars each year. Below is a table estimating total potential sales compared to projections by the EPA (see here) and CBO (see here) on the utilization of offsets through 2020 (value estimates based on EPA price projection of $15/allowance in 2012 and $20/allowance in 2020):
The American Clean Energy and Security Act passed in the House this Friday by a narrow margin of 219-212, and US lawmakers immediately began patting themselves on the back. Rep. Henry Waxman touted the bill as "decisive and historic action to promote America's energy security and to create millions of clean energy jobs that will drive our economic recovery and long term growth."
Some international observers joined in the praise, expressing levels of support varying from China's cautious endorsement to the EU's enthusiastic approval; some hailed the bill as a sign of commitment by the US, likely to encourage efforts toward a workable international climate treaty in Copenhagen. Coverage in the UK's Guardian introduced ACES favorably as "a milestone," "the first time either house of Congress had acted to reduce the carbon emissions that cause climate change," and quoted environmentalists who called the bill "a signature achievement."
Criticism of Cap and Trade
But not everyone's so excited. Among the critics speaking up against Waxman-Markey, Todd Darling wrote in the LA Times that the newly passed climate bill is full of "smoke and mirrors." We only have to look to Europe to see the "critical weakness" of a cap and trade plan that gives away too many pollution credits, Darling argues; and since ACES gives 85% of credits to polluting industries for free, it won't establish a strong carbon market, won't result in emission reductions, and won't generate money to fund new technology.
The American Clean Energy and Security Act (ACES) needs a major makeover in the Senate to redress its critically insufficient provisions for funding clean energy R&D, according to Mark Muro, policy director at the Brookings Institution's Metropolitan Policy Program.
The American Clean Energy and Security Act (ACES) that passed by a margin of 219-212 in the House on Friday needs a major makeover in the Senate in order to redress its critically insufficient provisions for funding clean energy R&D, according to Mark Muro, policy director at the Brookings Institution's Metropolitan Policy Program.
In a Brookings article criticizing the climate bill, Muro argues:
"While a $20 to $30 billion a year R&D outlay would be optimal, Waxman-Markey would invest just 1.5 percent of the 40-year revenue stream of the cap-and-trade system in the R&D efforts of ARPA-E and the innovation hubs--which comes to just $1.4 billion a year or so at accepted permit price forecasts... The bottom line: Reps. Waxman and Markey did well to install several crucial innovation provisions in the House bill, but the political trades that were required to pass it have left far too little revenue behind for the most crucial use of cap-trade money--investments to catalyze a radically cleaner energy future."
Muro's points reaffirm Breakthrough Institute's analysis, which has shown how ACES invests far more cap and trade revenue in polluting industries and foreign offsets than it does in building new clean energy industries in the U.S.
Muro mentions that some ACES provisions -- such as the funding it would direct toward ARPA-E and the eight regional "Energy Innovation Hubs" it would establish -- constitute a modest start toward the kind of public investment that will promote the development and commercialization of clean energy technologies. Breakthrough Institute, too, has pointed to some of the same provisions as promising -- but only if they are adequately funded.
On a morning radio show, Congressman Waxman responded directly to the Breakthrough Institute. His response raises concerns about whether ACES can be significantly strengthened in the Senate.
Earlier today, Congressman Henry Waxman was asked to directly respond to the Breakthrough Institute's analysis of the American Clean Energy & Security Act (ACES) during an interview on the Montel Williams Across America radio show. His segment came after my interview on the same show, where I highlighted Breakthrough's analysis and spoke about some of our concerns with the bill.
Listen to Teryn Norris interview with Montel:
Listen to Rep. Waxman interview with Montel:
Below is a transcript of Waxman's response (starting at 5:00 minutes, podcast also available here). Rep. Waxman is Chairman of the House Committee on Energy and Commerce and lead author of the ACES climate bill:
Montel Williams: "Teryn Norris from the Breakthrough Institute and several other people say that this [bill] is based on credits that would be given out and traded by companies to meet their carbon footprint - I'm being told that 85% of these are being given away when they could have been auctioned off, which would have been a revenue source that could have been put toward more forms of renewable energy. Why did we decide to give away these credits rather than auction them off?"
Congressman Waxman: "We're giving away the credits to utilities in order to protect ratepayers. The credits they won't have to pay for won't be charged to ratepayers, both individual consumers and businesses... So this is a way to be fair to the consumers.
Representative Doggett (D-TX): "Doing nothing actually results in more renewable energy than approving ACES... Largest corporate welfare program in US history... I cannot support it." Rep. Doggett is citing analysis by the EPA, which found that ACES would reduce the amount of renewable energy deployed in the United States relative to business-as-usual, increase the amount of coal-fired electricity generation relative to 2005 levels, and provide no incentive for a move to cleaner cars.
Representative DeFazio (D-OR): "Wall Street predicts this is the new trillion dollar market." Rep. DeFazio echoes a recent study by Friends of the Earth, which found that "the federal cap and trade proposals put forth so far would create a system that poses almost identical challenges as those in the mortgage-lending industry."
And, finally, tried and true progressive Dennis Kucinich (D-OH), who ultimately voted against the bill, had this say: "I oppose H.R. 2454, the American Clean Energy and Security Act of 2009. The reason is simple. It won't address the problem. In fact, it might make the problem worse.
"It sets targets that are too weak, especially in the short term, and sets about meeting those targets through Enron-style accounting methods. It gives new life to one of the primary sources of the problem that should be on its way out- coal - by giving it record subsidies. And it is rounded out with massive corporate giveaways at taxpayer expense. There is $60 billion for a single technology which may or may not work, but which enables coal power plants to keep warming the planet at least another 20 years.
"Worse, the bill locks us into a framework that will fail." (get the full text of Kucinich's address here)
Leading energy experts from across the country sent a letter to President Obama and members of Congress on Thursday calling for a massive increase in clean energy investments included in the American Clean Energy & Security Act.
Leading energy experts from across the country sent a letter to President Obama and members of Congress on Thursday calling for a massive increase in clean energy investments included in the American Clean Energy & Security Act.
"We express our profound concern about the abysmal funding for energy technology innovation in the Waxman-Markey American Clean Energy and Security (ACES) Act," the energy experts wrote. "As it stands, this Act ignores President Obama's consistent call for investing $150 billion over ten years in energy research and development."
Analysis by the Breakthrough Institute has shown that ACES invests only one-fifteenth of what President Obama has consistently promised for energy R&D. As Michael Shellenberger and Ted Nordhaus wrote today, "While the White House web site still promises $15 billion annually for clean energy R&D alone, the House climate legislation would invest just $800 million to 1.4 billion in R&D."
The energy experts called for a clean energy RD&D budget of $20-30 billion annually. "Moreover, we believe that at least $30 billion will be needed annually to research, develop, and demonstrate low- and no-carbon energy technologies, with the aim of achieving breakthroughs that can make them much cheaper."
This letter echoes the recommendations of the Brookings Institution, International Energy Agency, Apollo Alliance, Breakthrough Institute, and others. In late 2007, 30 energy experts including several Nobel Laureates wrote a letter to Congress calling for $30 billion of annual investments in clean energy RD&D.
While the White House web site still promises $15 billion annually for clean energy R&D alone, the House climate legislation would invest just $800 million to 1.4 billion in R&D.
Since he launched his campaign for president in 2007, President Barack Obama has promised legislation that would deliver more clean energy jobs through the creation of new and larger clean energy industries, like solar and wind manufacturing, to drive future economic growth. On Tuesday and again yesterday, Obama claimed that climate legislation to be voted on as early as tomorrow in the House of Representatives legislation "will create a set of incentives that will spur the development of new sources of energy, including wind, solar, and geothermal power."
But analyses by the Environmental Protection Agency, the Union of Concerned Scientists, the Breakthrough Institute, and others show that the Waxman Markey climate legislation will not significantly grow the number of clean energy jobs or industries. The EPA analysis released on the same day as Obama's speech shows that the deployment of renewables could be less than without the legislation. An analysis of the renewable energy standard (RES) provision of the legislation by the Union of Concerned Scientists, whose model of various RES exemptions is the most thorough, finds that the legislation could actually require less renewables deployment than projected to occur under the U.S. Energy Information Administration's conservative business-as-usual forecasts. And EPA says the impact of the legislation on gasoline prices ($0.13 a gallon in 2015, $.25 in 2030) will be too small to motivate consumers to drive less or buy smaller cars, or provide incentive for the automotive industry to produce more fuel efficient and technologically advanced vehicles like plug-in hybrid cars.
The U.S. EPA projects renewable energy sources like wind, solar and biomass will generate just 9% of U.S. electricity by 2020 under the Waxman-Markey renewable electricity standard.
The U.S. Environmental Protection Agency projects renewable energy sources like wind, solar and biomass will generate just 9% of U.S. electricity by 2020 under the Waxman-Markey renewable electricity standard (RES). This contrasts with the bill's nominal 20% combined efficiency and renewable electricity standard due to numerous exemptions in the standard. Total renewable electricity generation under EPA's modeling of Waxman-Markey with the renewable electricity standard is just 41 terawatt-hours (or 7%) higher than the Agency's business as usual projections.
As we reported, EPA concludes that the expansion of new wind farms, solar arrays and other renewable energy power plants will actually be somewhat slower under their core scenario for Waxman-Markey than under their BAU projections [p. 27]. Total renewable electricity generation under their core scenario is somewhat higher (3%) in 2025 under Waxman-Markey than in their BAU scenario, but this extra generation comes in the form of biomass co-firing at existing coal-fired power plants, EPA predicts [p. 26].
However, EPA's core scenario does not attempt to model the impacts of the Waxman-Markey bill's RES. EPA apparently decided they were not confident enough in their results to include the effects of the RES in their core scenario and chose to model it instead as a "sensitivity analysis" for the power sector only. Here we look at their projections for the impacts of the bill's RES.
The Breakthrough Institute has published twenty separate "real-time" analyses of major provisions in the Waxman-Markey climate and energy bill, entitled the "American Clean Energy and Security Act" (ACES), tracking changes and conducting analysis as the bill has evolved from initial discussion drafts in May into House-passed legislation in June. The following bullets summarize major findings of these analyses, which primarily focus on the potential impact of the legislation on energy innovation, the deployment of emerging clean energy technologies, and the competitive position of American clean energy industries:
The bill's greenhouse gas emissions cap is effectively non-binding for the first decade or more and is unlikely to drive significant near-term changes in the U.S. energy economy. In order to control costs of the cap and trade program created by the bill, firms are permitted to purchase up to 2 billion tons of offsets annually - roughly equal to one third of total emissions in sectors of the economy that fall under the emissions cap - instead of reducing their own emissions. Up to 1.5 billion tons could be offset by overseas emissions reduction projects. Projections of likely offset usage are generally lower than the legal maximum due to expected limits in the supply and availability of low-cost offsets. However, analysis of the legislation published by multiple government agencies projects that regulated firms will utilize enough offsets each year to render the cap effectively non-binding for most of the next decade or two. Firms would be legally permitted to continue business-as-usual emissions and practices through the end of 2017 under the most conservative offset projections (from the CBO) and through 2027 under the most expansive estimate (from the EPA). Emissions could fall for other reasons during this time period but would not be required to by the emissions 'cap.'
The global recession is likely to drive an oversupply of emissions permits under the cap and trade program for several years. Unless the economy rapidly recovers, U.S. emissions in 2012 (when the cap and trade program would be implemented) will likely remain lower than the emissions cap for several years, leading to an over-supply of permits and a collapse in carbon market prices to at or near the floor price on auctioned permits established by the bill ($10 per ton, rising slowly over time). Firms will purchase and bank low-cost permits and emissions offsets during this period, undermining the stringency of the emissions cap in future years, as well. Under likely emissions and economic recovery scenarios, U.S. emissions in capped sectors could rise for much - if not all - of the next two decades by utilizing only a fraction of the offsets permitted by the bill.
The carbon price signal established by the cap and trade program is expected to be modest and insufficient to pull emerging clean energy technologies into the market or spur significant investment in clean energy innovation. Estimates of carbon prices for the first decade under the bill range from $11-$16 per ton of CO2 under EPA forecasts to $15-$26 per ton under CBO projections. If the economic recession results in lower-than-previously-forecasted emissions levels and emissions permits are over-supplied (as discussed above), prices will be even lower, likely remaining at or near the $10 per ton auction floor price established by the bill. For comparison, carbon prices in the European Union's Emissions Trading Scheme (ETS) have regularly traded at more than $30 per ton of CO2 and have been insufficient to drive significant clean energy innovation or deployment of low-carbon energy sources.
The renewable electricity standard (RES) established by the bill will not ensure any increase in U.S. renewable energy deployment beyond already conservative business-as-usual projections. After exemptions are factored in, the bill's combined energy efficiency and renewable electricity standard will require between 8% and 11.5% of U.S. electricity generation from qualifying renewable sources by 2020. Without any RES, the U.S. Energy Information Administration (EIA) already projects 10% of U.S. electricity will come from qualifying renewable energy sources by 2020 under their business-as-usual forecasts. EIA's projections are considered conservative, because they assume tax credits driving wind, solar and other renewable energy deployment expire without renewal (in 2012 for the production tax credit and 2018 for the investment tax credit). Analysts with the Union of Concerned Scientists conclude, "Bottom line: The Waxman-Markey RES does not ensure that any new renewable electricity will be developed beyond the renewables that are already projected to occur under the business as usual forecast by the [EIA]."
The bill invests far less in clean energy technologies and industries than either the American Recovery and Reinvestment Act (ARRA) or the direct investments being made by competing nations, including China, South Korea and Japan. At an average carbon price of $15 per ton of CO2, clean energy technologies would receive just $9 billion out of over $70 billion in annual allowance revenue generated by the bill's cap and trade program. Only about $1 billion annually would be directed to clean energy R&D, just one fifteenth of President Obama's proposed investment in next-generation energy research and development. An additional $1 billion annually would be directed through a separate provision towards the demonstration and early deployment of carbon capture and storage (CCS) technology for coal-fired power plants, bringing the bill's total direct investment in clean energy technology to an estimated $10 billion annually. In contrast, ARRA (the stimulus bill) will invest over three times more - roughly $33 billion annually - in clean energy technology in 2009 and 2010. The Chinese government is planning to invest $44 to $66 billion annually in China's own clean energy technologies and industries over the next ten years and South Korea and Japan are also making aggressive investments to position their clean energy industries at the lead of the burgeoning global clean energy sector.
The latest version of ACES reduces funding for CCS and state funding for renewable energy deployment while increasing funding for R&D and location distribution companies.
The allowance allocation in the latest version of the American Clean Energy & Security Act (available here) contains some differences compared to the first version, which we analyzed after its introduction on May 15th. Below is a graph comparing the bill's average annual value of allowances between 2012-2025 for each sector (at $15/allowance). Sectors highlighted in gray experienced a decrease in funding, while sectors highlighted in yellow experienced an increase:
Waxman-Markey would reduce the amount of renewable energy deployed in the United States relative to business-as-usual, increase the amount of coal-fired electricity generation relative to 2005 levels, and provide no incentive for a move to cleaner cars, according to a new analysis by the U.S. EPA
The Waxman-Markey climate bill (AKA the American Clean Energy and Security Act) would reduce the amount of renewable energy deployed in the United States relative to business-as-usual, increase the amount of coal-fired electricity generation relative to 2005 levels, and provide no incentive for a move to cleaner cars, according to a new analysis by the U.S. Environmental Protection Agency (EPA).
We certainly can't vouch for EPA's methodology or assumptions. However, with EPA's conclusions about the likely cost of the Waxman-Markey bill on U.S. Households and the broader economy being widely cited, the surprising and even counter-intuitive projections that underlie EPA's cost estimates are worth a close look. In this post we dig passed the EPA's executive summary to take a closer look at their modeling and projections.
The climate bill is now poised for a vote on the floor of the U.S. House of Representatives as soon as Friday, following a deal struck late yesterday between the bill's champion and Energy Committee Chairman Henry Waxman (D-CA) and Agriculture Committee Chairman Collin Peterson (D-MN). Waxman agreed to further concessions to secure the support of agricultural interests and their Congressional champions, including agreeing to strip EPA of primary oversight over the domestic carbon offsets market, giving the US Department of Agriculture jurisdiction over these programs instead, provide additional free allowances for rural electric co-operatives, and place a moratorium on new EPA rules to strengthen the environmental integrity of biofuels like corn ethanol.
The segment with Morning Show host Amy Allison begins at 1:10:00 into the show which you can listen to below or click here to download an mp3 of the segment and listen on your computer:
The Los Angeles Timesreports that the Environmental Protection Agency projects coal plant electricity generation would grow through 2020 if Waxman-Markey climate legislation becomes law.
Electricity generation from coal will grow if Waxman-Markey climate legislation becomes law, according to a Los Angeles Times investigation. The Times notes that "coal-fired power plants are the largest source of heat-trapping gases that cause global warming," and yet the EPA projects [pdf] (p. 23) that conventional (not CCS) coal power generation will increase from 2013 TWh in the year 2005 to 2030 TWh in 2020.
According to a new analysis by Public Citizen, Waxman-Markey (W-M) climate legislation would inadequately protect American consumers from electricity price increases, despite claims by the bill's authors that the value of the free pollution allowances allocated to utilities would be returned to consumers.
According to a new analysis [pdf] by Public Citizen, the Waxman-Markey (W-M) climate legislation would inadequately protect American consumers from electricity price increases, despite claims by the bill's authors that the value of the free pollution allowances allocated to utilities would be returned to consumers. W-M grants 30 percent of all of the emission allowances to local distribution companies (LDCs) -- otherwise known as regulated utilities. The bill's authors suggest that 50 different state utility regulators will ensure that the benefits will be passed onto consumers.
EPA analysis of the American Clean Energy and Security Act projects that firms regulated under the bill's cap and trade program will opt to purchase over one billion tons of offsets each year from 2012-2020 rather than reduce their own emissions.
[Updated 6/18/09 with graphics that more clearly reflect banking of offsets under EPA's projected offsets scenario.]
The Waxman-Markey climate bill (HR 2454) will not require emissions reductions below projected business as usual (BAU) growth in emissions for at least a decade ahead, according to an EPA analysis [pdf]. EPA projects that firms covered under the bill's cap and trade program will opt to purchase over one billion tons of offsets each year from 2012-2020 rather than reduce their own emissions.
EPA predicts that firms would use 110 - 120 million metric tons (mmt) of available domestic offsets each year between 2012 and 2020 [see graphic, p. 6] and the full 1 billion mmt of international offsets permitted under the cap and trade program [p. 5].
If offsets are utilized at the levels projected by EPA, cumulative emissions in the sectors of the U.S. economy covered by the Waxman-Markey cap and trade program will be legally permitted to exceed EPA's business as usual emissions rates from 2012-2020 by nearly five billion mmt. If emissions in covered sectors were actually required to fall to the 17% below 2005 levels by 2020 targeted by the legislation, cumulative emissions would be just 49.5 billion mmt, 10.1 billion mmt lower than the levels legally permitted under EPA's projections for offsets utilization.
In the first projections from a government agency of the likely impacts of the American Clean Energy and Security Act, the Congressional Budget Office projects that the legislation will cut cumulative emissions in supposedly capped sectors of the economy by just 2% through 2020. Economy-wide emissions would fall just 5%, CBO projects.
[Updated with correction, 6/18/09: Thanks to John Larson at WRI for alerting us to an error in our data. Our data is now corrected and impacted figures and conclusions have been bolded in the text below so readers can see what has changed. An updated spreadsheet has been uploaded.
In summary: a smaller portion of economy-wide emissions were included in the emissions profile for sectors that fall under the cap starting in 2012 and a larger portion was included in the sectors that are phased into the cap starting in 2014. The result is slightly lower emissions under the ACES target scenario and CBO projected offsets scenario for the years 2012 and 2013 and slightly lower cumulative emissions between 2012-2020.
This effects the post's key result: assuming offsets are utilized at CBO's projected levels, cumulative emissions from 2012-2020 are 2.0% below BAU levels , not 0.5% as originally posted. This change has no effect on other years, on the difference between emissions at the CBO projected offsets scenario and emissions at the ACES target scenario, or on the BAU scenario. As always, we will continue to publish all of our assumptions and calculations and invite readers to look at the data and our analysis themselves. - Jesse Jenkins, Director of Energy and Climate Policy]
The Waxman-Markey climate bill (HR 2454 or the American Clean Energy and Security Act) would reduce cumulative emissions by just 2% between 2012 and 2020 in the sectors of the U.S. economy regulated under the bill's cap and trade program, according to the Congressional Budget Office's analysis of the legislation.
The CBO analysis is significant in that it is the first published predictions from a government agency about the likely actual impact on U.S. emissions resulting from the version of Waxman-Markey legislation passed by the Energy and Commerce Committee and now heading towards debate on the House floor.
According to a new, as-yet-unpublished analysis from the Union of Concerned Scientists (UCS), the combined efficiency and renewable electricity standard (CERES -- formerly RES) in the Waxman-Markey climate legislation will not increase renewable electricity generation and might actually reduce it.
UCS concludes:
"Bottom line: The Waxman-Markey RES does not ensure that any new renewable electricity will be developed beyond the renewables that are already projected to occur under the business as usual forecast by the U.S. Energy Information Administration (EIA)."
UCS created a high-deployment and a low-deployment scenario to predict the impact of the CERES provision in Waxman-Markey, as compared to the EIA's business-as-usual (BAU) baseline projections of renewable electricity generation. Under the high-deployment scenario, the Waxman-Markey CERES provision "would lead to slightly more renewable energy to be developed than business as usual" -- but only starting in 2020.
Effective climate policy must include a proactive strategy to spur clean energy technology development and deployment. The Waxman-Markey climate bill contains several smart provisions that could be key components of an effective clean technology strategy -- but only if they are adequately funded.
Several of the bill's provisions aim to do that, but we conclude that most are currently either completely unfunded or critically underfunded. Here we take a look at three smart provisions in the ACES bill that could be key components of a proactive clean energy technology strategy -- but only if they are adequately funded.
Clean Energy Deployment Administration: this provision would establish a sort of public clean energy bank charged with creating an attractive investment environment for the widespread deployment of a suite of advanced clean energy technologies. Notable for being a deployment policy explicitly dedicated to advancing technology development goals, this provision also enjoys strong bipartisan support on both the House and Senate. However, ACES provides zero funding for this critical component of a proactive clean energy technology strategy. At least $16 billion in initial seed funding should be provided for CEDA, consistent with the Senate version of this provision.
Energy Innovation Institutes: largely consistent with the recommendations of the Brookings Institution, Breakthrough Institute, Third Way and others, ACES establishes new "Clean Energy Innovation Centers" at research universities, national labs and private research facilities, creating new cross-sector and multi-disciplinary hubs for applied research and development on clean energy technologies. However, these energy innovation institutes are critically underfunded, receiving less than $1 billion/year in funding from the bill's cap and trade allowance value. To bring federal energy R&D programs to a scale sufficient to address the urgent energy innovation imperative and address the needs of a $1.5 trillion annual industry, at least $15 billion in new annual funding should be dedicated to energy R&D, with a significant portion of this new funding dedicated to establishing a robust nationwide network of energy innovation institutes.
Carbon Capture and Sequestration Demonstration and Early Deployment Program: financed by a micro-carbon fee on all electricity sold in the United States, this program would dedicate $10 billion over the next ten years to promote the commercialization and large-scale demonstration of carbon capture and sequestration technologies for coal plants and other major point-source emitters of CO2. This program is a good example of the kind of direct public investment necessary to bring down capital and technology risk barriers and accelerate clean technology commercialization. But a much better-funded and technology neutral program that would provide competitively awarded funding for the demonstration of a whole suite of first-of-their-kind clean energy technologies is needed, and would be vastly superior to this technology-specific, industry-managed program.
We delve into each of these programs in more detail after the break...
In new independent analysis released yesterday, the Southern Alliance for Clean Energy concludes, as Breakthrough earlier analysis has, that the the impact of the now severely-weakened Waxman-Markey renewable electricity standard on U.S. renewable electricity generation will be "effectively zero."
SACE also looks at the likely impact of the efficiency requirements in the now combined efficiency and renewable electricity standard (which the Alliance refers to using yet another new acronym: "CERES") and concludes it falls far short of President Obama's campaign pledge to reduce U.S. electricity consumption 15% by 2020 (below business as usual projections).
As debate moves on around the Waxman-Markey climate bill, there seems to be no one contesting the conclusion that the legislation notably does not establish a binding cap on U.S. emissions.
But whether or not you believe the legislation would result in lower emissions, there appears to be universal acknowledgment that various provisions in Waxman-Markey -- including but not limited to the extensive number of offsets permitted and the strategic reserve pool -- prevent the "cap" from being binding. Given this, Waxman-Markey cannot be accurately referred to as establishing a "cap" on U.S. emissions, much less a "binding cap." Probably the most accurate term is "non-binding cap."
VoteSolar is "skeptical that current versions of either the RES or a carbon cap and trade policy will lead to significant solar deployment" and thinks it will fail to make solar energy cheap and abundant.
The solar energy advocacy organization VoteSolar issued a pretty clear verdict on whether or not the Waxman-Markey American Clean Energy and Security Act will effectively make solar energy cheap and abundant: "The accurate answer is nuanced, but the short answer is no."
New Breakthrough analysis concludes that the national renewable electricity standard (RES) established by the American Clean Energy and Security Act has been severely weakened since initially proposed; as it now stands, the RES may barely increase U.S. renewable electricity generation compared to business as usual projections.
Advocates of the Waxman-Markey American Clean Energy and Security Act (H.R. 2454, or "ACES" for short) argue that the bill is far more than just a climate bill. It's a comprehensive piece of clean energy, efficiency and climate legislation, and taken as a whole, they argue, it should be considered transformational -- even if the cap and trade portion of the bill may have been significantly weakened (see Breakthrough's detailed analysis of the ACES cap and trade program here).
The ACES bill does indeed include many provisions to set a new course for our nation's energy policy, including efficiency standards and regulations, authorization for new programs aimed at modernizing the nation's electricity infrastructure and paving the way for plug-in hybrid and electric vehicles, and a national renewable electricity standard. Many of these will move America in the right direction.
But the question remains: will ACES really be transformational? And will it propel American quickly away from business as usual and towards the prosperous clean energy economy and dramatic emissions reductions we need?
Here we examine one of the other major provisions of the ACES bill, the national renewable electricity standard (RES) established by Title I of the bill. Unfortunately, our analysis concludes that the RES has been severely weakened since initially proposed in the discussion draft version of the ACES bill; as it now stands, the RES may barely increase U.S. renewable electricity generation compared to business as usual projections.
The American Clean Energy & Security Act contains a provision that could allow U.S. global warming pollution to exceed the supposed emissions "cap" by 10 percent -- and "make up" for these additional emissions by purchasing several billion more tons of carbon offsets.
Every climate bill, in the U.S. and abroad, contains provisions limiting how high carbon prices established by the policy can rise. The Waxman-Markey American Clean Energy and Security Act (ACES) is no different. As the Breakthrough Institute previously reported, ACES would allow polluters to purchase up to 2 billion tons per year of relatively cheap carbon "offsets," which could allow emissions in supposedly "capped" U.S. sectors to rise by up to 9% between 2005 and 2030. The EPA predicts that, largely due to the extensive use of offsets, carbon prices will remain less than $20 per ton of CO2 for the next decade.
Many proponents of ACES have argued that U.S. polluters will not utilize the 2 billion tons of authorized carbon offsets each year. The supply of credible offsets is limited, they say, and demand will eventually push their price above the cost of most alternative emission reduction strategies. (For now, let's put aside the fact that those same price pressures -- and the industries and sectors that stand to profit from selling more offsets -- will also be a powerful force for establishing weaker offset certification standards.)
However, even in the case where affordable offsets are unavailable, and emission allowance prices rise, ACES contains an additional cost containment provision that could allow U.S. global warming pollution to exceed the supposed emissions "cap" -- and "make up" for these additional emissions by purchasing several billion more tons of carbon offsets.
If allowance prices rise too much in any given year, this provision, known as the "strategic allowance reserve pool," would allow polluters to delay their emission reductions by purchasing emission allowances from the reserve pool, which would then be "refilled" over time with additional international forestry offsets. Based on our analysis, this provision could allow U.S. emissions to rise 10% above the "cap" in any year after 2016 and introduce up to 9.3 billion additional offset allowances between 2012-2050.
Therein lies a Catch-22 of ACES: if the annual use of up to 2 billion tons of offsets permitted by the bill is limited due to a restricted supply of affordable offsets, the government will pick up the slack by selling reserve allowances, and "refill" the reserve pool with international forestry offset allowances later. Here's how it would work (defined in section 726 of the bill).
Momentum is now behind a serious effort to address climate change, and that itself is cause for celebration. However, knowing how much is at stake, we must also take a close look at whether or not the bill lives up to its promises. Unfortunately, after spending all last week digging through the 1,000 page ACES bill, I'm left worried, very worried. Find out why...
Late last Thursday night, the House Energy and Commerce Committee voted 33-25 to pass landmark legislation that promises to address our nation's urgent energy challenges and help avert potentially catastrophic climate change. The legislation, known as the American Clean Energy and Security Act (or ACES), also presents an unprecedented opportunity to renew our economy and position the United States at the forefront of a burgeoning global market for clean and affordable energy technology.
Momentum is now behind a serious effort to address climate change, and that itself is cause for celebration. The bill's champion's - notably Henry Waxman, Ed Markey and Jay Inslee and their dogged staff - deserve praise for bringing the bill through some pretty hostile territory in the Energy and Commerce Committee, and for their tireless efforts during the marathon sessions of the past week.
However, knowing how much is at stake, we must also take a close look at whether or not the bill lives up to its promises.
Speaking in London, U.S. Energy Secretary Steven Chu said Tuesday that climate policy debates may be "over-obsessed" with emissions reduction targets and timetables, echoing a long-standing Breakthrough Institute argument that we must focus more on effective mechanisms to drive technology transformation, energy modernization and emissions reductions, not haggle over long-term targets.
U.S. Energy Secretary Steven Chu said Tuesday that the long-standing focus of climate policy on setting precise emissions reductions targets and timetables has led to an "over-obsession" with numbers, according to Reuters.
Reuters reports:
The comment came less than a week after a congressional panel
approved President Barack Obama's landmark draft bill on climate
change [see Breakthrough's analysis of the bill here], bringing it closer to debate in Congress.
"There was a great deal of discussion on the Kyoto targets, and I'm
not really sure which fraction of the countries that took part in that
actually met their targets," Chu, a Nobel laureate for physics, said at
a conference in London. "In terms of the targets, whether it's 17
percent or 20 or 25 percent, I think there's perhaps ... an
over-obsession on these percentages."
If all foreign offset provisions in the Waxman-Markey climate bill are used, the United States will spend nearly three times more money on foreign carbon offset programs than for domestic clean energy and efficiency.
If all foreign offset provisions in the Waxman-Markey climate bill are used, the cap and trade regime would spend nearly three times more money overseas for carbon offset programs than it would invest in home-grown clean energy industries, technologies, and job creation.
Last week, our analysis showed that Waxman-Markey would, on average, invest between $6 to 9 billion annually in clean energy technology and energy efficiency between 2012-2025. These funds would be raised by auctioning a cumulative total of 8.4 billion emission allowances. This stands is contrast to the $41 billion in allowances that would be given to polluters each year, and it is far less than the $15 billion President Obama has promised for clean energy R&D.
But how do these clean energy investments stack up against Waxman-Markey's spending on international offsets? The bill would allow polluting firms in the U.S. to finance emissions reductions overseas instead of reducing their own global warming pollution. The number of U.S. emissions that could be covered by foreign offsets every year is one billion tons, however, if too few domestic offsets are available, this number could rise to 1.5 billion tons. Breakthrough Institute analysis shows this could allow U.S. emissions to rise through 2030.
If all 1.5 billion foreign offset provisions are used each year between 2012-2025, this adds up to a cumulative total of 21 billion emission allowances. That's 2.5 times times the allowances provided for clean energy during that period (8.4 billion). The table below compare allowances and potential funding under these scenarios, and the graph compares annual funding at an average allowance price of $15.
If fully utilized, the emissions "offset" provisions in the American Clean Energy and Security Act would allow continued business as usual growth in U.S. greenhouse gas emissions until 2030, leading one to wonder: where's the cap in the "cap" and trade?
[Updated 6/18/09 to more clearly explain and depict the potential banking of offsets.]
At the heart of the nearly thousand page long climate change and clean energy bill being debated in the U.S. House of Representatives this week is a "cap and trade" mechanism aimed at limiting greenhouse gas emissions that contribute to global warming.
However, a provision in the bill, known as the American Clean Energy and Security Act (H.R. 2454 or "ACES"), allows polluting firms in the U.S. to finance emissions reductions overseas in lieu of reducing their own global warming pollution and may allow American emissions to continue to rise for up to twenty years, according to new analysis from the Breakthrough Institute.
The provision allows power plants, oil refiners, and other polluters regulated under the bill's cap and trade program to use up to one billion tons of international emissions reductions, or "offsets," to be used instead of reducing their own emissions each year. The bill also allows up to one billion tons of additional offsets each year, sourced from sectors of the U.S. economy that do not fall under the pollution cap, such as forestry and agriculture. If a suitable supply of domestic emissions offsets are unavailable, the limit on the use of international offsets may be raised to 1.5 billion tons annually at the discretion of the Administrator of the U.S. Environmental Protection Agency (EPA).
The extensive use of these international and domestic offsets would effectively allow U.S. firms in capped sectors to continue emitting global warming pollution at levels well above the reductions supposedly driven by the emissions cap. New analysis from the Breakthrough Institute reveals that if fully utilized, the offset provisions in the ACES bill would allow continued business as usual growth in U.S. greenhouse gas emissions until 2030. Emissions in supposedly sectors of the economy supposedly "capped" by ACES could continue to grow at BAU rates until as late as 2037.
The latest version of Waxman-Markey eliminates the 1.25 to 1 conversion ratio for offsets to emission allowances and weakens the 2020 emissions target, leading to a 10% lower carbon price, according to EPA estimates.
The original discussion draft of Waxman-Markey included a key provision that would have required domestic and international offsets to reduce 1.25 tons of carbon dioxide in order to receive one pollution allowance equivalent to 1 ton of carbon dioxide. In other words, the conversion ratio for offsets to carbon allowances was 1:25 to 1.
However, the full version of Waxman-Markey (introduced on Friday) eliminates this provision for all domestic offsets and for international offsets between 2012-2017. The impact, according to new EPA analysis (download PDF), will be an 11% increase in domestic offset use, an unspecified increase in international offsets use during the first five years of the cap and trade program (2012-2017) and a 7% reduction in the price of all pollution allowances every year. The EPA writes:
The offsets provisions in H.R. 2454 differ from the provisions in the draft bill. Domestic offsets in the introduced bill have a one-to-one turn-in ratio (i.e., only one ton of offsets needs to be turned in for every ton of covered sector emissions being offset). International offsets have a one-to-one turn-in ratio for the first five years of the policy. After the first five years, five international offsets must be turned in for every four tons of covered emissions being offset...
As was shown in EPA's modeling of the draft bill, using a one-to-one turn-in ratio for domestic offsets instead of the five-to-four turn-in ratio that was specified in the draft increases the total purchase and use of domestic offsets by 11%... The effect of that change alone is to lower allowance prices by 7% in each year.
The EPA's initial estimate of allowance prices was $13-17 in 2015 and $17-22 in 2020. The combined impact of allowing additional offsets and the weakening of the 2020 emissions reduction target (now 17% vs. 20% in earlier versions) led the EPA to revise downwards their allowance price estimates by 10% or more (more in the case where up to 1.5 billion tons of international allowances are permitted). That would result in an allowance price estimate of $11.70-$15.30 in 2015 and $15.30 to $19.80 in 2020. In more round terms, call it $12-20 per ton of CO2-equivalent between 2015 and 2020.
Compared to President Obama's promises and the recommendations of a variety of energy experts alike, the ACES climate and clean energy bill's investments in clean energy are an order of magnitude too small.
[Updated 5/22/09: the ACES bill now includes a $10/ton price floor for auctioned pollution permits. The analysis below has been updated to reflect that change in the legislation]
Today, the House Energy and Commerce Committee began markup of the American Clean Energy and Security Act of 2009 (ACES). The bill promises to cap and reduce carbon pollution, create clean energy jobs, and spur technology innovation. Unfortunately, as our analysis of the use of carbon pollution allowances in the ACES bill revealed, the bill is on course to invest very little of the hundreds of billions of dollars in value created by the bill's cap-and-trade program over the coming years towards those objectives.
Most of the allowance value (74 percent) created by the ACES cap and trade program is dedicated to blunting the impact of the carbon price established by the program on industries and consumers (and securing the critical swing votes on the committee representing these entrenched energy and industry interests). In contrast, just 12 percent of the allowance value is dedicated to clean energy investments, broadly defined.
At an average allowance price of $10 to $20 dollars per ton of CO2 between 2012-2025, that would amount to clean energy investments of just $6-12 billion per year, and just $490-980 million for clean energy R&D (see our full analysis of the allowance allocations in ACES for more).
President Obama has repeatedly promised to, "Invest $150 billion over ten years in energy research and development to transition to a clean energy economy" (from WhiteHouse.gov). The President's 2010 Budget Outline specifically dedicated $15 billion per year in new revenue generated by a cap and trade program to this purpose. Yet the bill before us, depending on the allowance value it establishes, would invest just one-fifteenth to one-thirtieth of the $15 billion President Obama has pledged -- and specifically requested from Congress. Furthermore, this new energy R&D spending may amount to just a ten percent increase in current federal energy R&D budgets.
Likewise, the total investments in a new clean energy economy, more broadly defined, are an order of magnitude smaller than proposals advanced by the Breakthrough Institute, Apollo Alliance and others have deemed necessary to drive clean energy innovation, create millions of new energy jobs, and jump-start a prosperous, clean energy economy.
Below the fold, you can see how the clean energy investments made by the ACES bill compare with what a range of proposals and current R&D funding levels...
The landmark Waxman-Markey 2009 American Clean Energy and Security Act was introduced in the House this afternoon (May 15, download PDF here), and the Breakthrough Institute has performed a preliminary analysis of how it would invest over $1 trillion in cap and trade revenue between 2012-2025. Our key findings for this period include (all numbers are approximate -- download spreadsheet here):
Polluting industries: 57.3% of allowances would be freely distributed to polluting industries, including 36.7% for the electricity sector, 12.3% for energy-intensive industries, 6.5% for local natural gas distribution companies, and 1.8% for oil refiners
Direct consumer protection: 16.5% of allowances would be used for direct consumer protection , including 15% for low and moderate-income families and 1.5% to benefit users of home heating oil and propane
Energy efficiency and clean energy technology: 12.2% of allowances would be used to fund energy efficiency and clean energy technology development and deployment
Adaptation and technology transfer: 4.7% of allowances would be used for domestic and global climate adaptation and technology transfer
Workforce development: 0.6% of allowances would be used to fund worker assistance and job training
Deficit reduction and other: 8.6% of allowances would be used to fund deficit reduction and other public purposes
How much money would these allocations translate into? That depends on the average price for each pollution allowance. The EPA's initial price estimate was $13-22 per allowance between 2015 and 2020, and has since revised that downward by at least 10% (to $12-20 per allowance) as the bill was weakened and additional offsets were permitted. We will assume here an average price of $15 per allowance. In that case, the allocation would look like this (click images to magnify):
