Waxman-Markey Legislation Gives Coal a Competitive Future 2
By SolveClimate’s David Sassoon.
America’s future climate law began working its way through Congress this week, rewritten with new details and changes that were negotiated to give the coal industry generous incentives and the regulatory certainty to compete for a place in the nation’s energy future.
Here’s how Rep. Rick Boucher of Virginia, a lead negotiator for coal state Democrats on the House Energy and Commerce Committee, described the deal they worked out:I’ve been working extensively to fashion a controlled program that Congress can adopt which will preserve coal jobs, create the opportunity for increasing coal production and keep electricity rates in regions like Southwest Virginia affordable. The compromise that I have reached with Chairman Waxman achieves those goals.
Boucher and fellow coal state Democrats cut those deals with the bill’s authors, Reps. Henry Waxman and Ed Markey, with President Obama – a "clean coal" supporter – giving them a free hand to arrive at the formula that would secure the votes needed for passage.
Although the president called for a polluter-pays 100% auction of carbon allowances when he asked Congress for a climate law, the now 932-page American Clean Energy and Security Act of 2009 does the precise opposite: It contains a formula that gives most of the allowances to polluters for free – with about a third of them going to the coal-dominated power industry at no cost.
The free allocations were one major reason that Greenpeace withdrew support for the bill within hours of its introduction, but most of those in the climate community who have weighed in so far have been willing to swallow compromises that would have been unthinkable in January. Al Gore’s support for the bill remains undiminished. Paul Krugman at The New York Times summed up the prevailing attitude best:
The legislation now on the table isn’t the bill we’d ideally want, but it’s the bill we can get — and it’s vastly better than no bill at all.
As climate actors start wading further into the details of the bill’s provisions, however, they may find themselves hard pressed to justify passive acquiescence while enduring the certain further weakening of the bill on the Senate floor.
Ground zero of the contention centers around coal, an embattled industry which emerged from the negotiations with a surprisingly good deal. The bill contains performance standards for new coal plants that are weaker than those in the original Waxman-Markey discussion draft, funnels billions in funds and incentives to the development of "clean coal," and strips EPA of authority to proceed with development of regulations for smokestack CO2 produced by the industry.
Further, although the bill imposes a gradual economy-wide emissions cap, the penalty for non-compliance or failure to achieve target reductions would amount to no more than a slap on the wrist, given the low price permits are expected to fetch on the market for some time.
Mainstream environmental groups, however, are focused on what they would get in exchange — the holy grail of their climate campaign — the establishment of an economy-wide cap-and-trade system whose efficacy they believe can be increased over time. The bill also legislates valuable and groundbreaking support for clean energy, energy efficiency and green jobs, using federal law to erect economic pillars vital for eventually transitioning to a clean energy economy.
They seem satisfied even though the new bill also reduced the proposed national standard on renewable energy from 25% to 20%, compared to the first draft, diminishing its potential competitive pressure on coal.
All sides are now wading through the details of the massive bill, spinning messages and planning strategies for the political battle that is likely to continue for the duration of the year. It is unlikely that the parameters of coal’s good deal will substantially change during this week’s committee mark-up, but in the coming months, the future of coal will be a major topic of concern.
The continued growth and survival of coal brings three strikes against the bill in every climate campaigners handbook: It’s the source of the lion’s share of global CO2 emissions, it creates a weak negotiating position when across the table from China, and it fails to show the kind of leadership the world will want to see from the U.S. in Copenhagen.
Weakened Standards and Large Bonuses
The discussion draft of the Waxman-Markey bill contained performance standards for new coal plants that had some real bite. For starters, the draft stipulated that after January 1, 2015, no coal plants that emitted more than 1,100 pounds of CO2 per megawatt-hour would be permitted for construction. That’s a natural gas standard of performance, something that no coal plant can currently do, so it looked as if after 2015, no coal plants could be built unless they could capture and store their emissions. But the current bill has relaxed the standard in both definition and start date (see page 91).
Utilities may build coal plants permitted between now and 2020, as long as by 2025, these plants "achieve an emission limit that is a 50 percent reduction in emissions of the carbon dioxide produced by the unit." The language stipulating specific rate of emissions per megawatt-hour has been removed.
At the heart of the standard is the assumption that carbon capture and sequestration technology will be available for commercial deployment so that industry can comply. The bill is silent on what happens if CCS technology is not ready or proves unworkable.
It is possible that these new coal plants would be permitted to continue operations through a relaxation of the legal standard, since EPA even now cannot enforce a technology standard that cannot be met. Companies in the UK are already negotiating for an opt-out clause there if CCS is not ready in time.
Utilities in violation in any case would not be shut down, but would face penalties — set by the bill at two times the "fair market value of emissions allowances" (see page 427). The EPA estimates that a permit for a ton of CO2 would sell for only about $15 in 2020. That makes it possible for industry to plan to pay for non-compliance as the penalties would be relatively cheap, especially when compared to penalties under the acid rain cap and trade program, which are $2,000 per ton of pollutant in excess of allowance.
If the coal plants succeed in capturing and sequestering CO2 on the other hand, the owners stand to reap huge profits. First, the bill reserves 2% to 5% of allocations to pay for the development of CCS, which would amount to tens of billions of dollars of federal support for industry out of the gate, supplemented by an additional $1 billion annually made available through a small ratepayer levy.
The bill also provides enormous bonus allowances for the first movers of CCs technology potentially worth tens of billions of dollars. For every ton of CO2 that it sequestered, a utility would receive a bonus allowance many times more generous than the open carbon market would provide, from a minimum of $50 a ton to a maximum of $90 a ton for every ton of carbon sequestered.
EPA to Lose Primary Authority over CO2
In March 2008, Lisa Heinzerling of Georgetown Law School testified before Congress to explain the implications of Massachusetts v. EPA, the landmark case decided by the U.S. Supreme Court. In no uncertain terms, Heinzerling, an expert on the Clean Air Act who now works as an advisor to EPA Administrator Lisa Jackson, testified that the agency must regulate CO2 from power plants as a result of the decision.
It was a prospect that sent shivers through the fossil fuel industry, fearful of an uncertain and protracted regulatory process. The Waxman-Markey bill, through amendments to the Clean Air Act, imposes limitations on the authority of EPA to proceed. The bill devotes an entire title, Title VII, to the amendments (see page 590), which prohibits any greenhouse gas, including CO2, from being listed as a "criteria pollutant" or a "hazardous air pollutant" on the basis of their effect on climate change.
The bill also does not permit greenhouse gases to trigger New Source Review, nor affect the granting of a permit to operate under Title V of the Clean Air Act.
In short, the legislation rewrites the law so that the impact of Massachusetts v. EPA is narrowed in scope and Congress takes the lead on GHG regulation. With coal state lawmakers controlling the swing votes, however, some groups like Greenpeace would rather see EPA in charge of setting the rules on climate protection.
Kansas and New Hampshire
In recent years, the utility industry has had an almost impossible time proceeding with construction of new coal plants. Sierra Club’s Beyond Coal campaign has halted close to 100 projects, forcing industry to look to extending the life of its aging fleet of existing plants, which on average are close to 40 years old.
A look at circumstances in two cases — one in Kansas and one New Hampshire – shows how a proposed new plant and the upgrading of an aging plant, respectively, would proceed even if Waxman-Markey is signed into law. The long time horizon before the law begins to bite in 2025 – when allowance auctions begin and performance deadlines hit – means the regulations have little chance to impact the behavior of corporations, which can barely contemplate a decade of strategic planning.
Evidence of this comes recently from Kansas, where the new governor recently signed a surprise deal with Sunflower Electric to allow construction of a new coal plant that would send 75% of its electricity to customers out of state. The deal signaled a reversal of two years of effort championed by former Gov. Kathleen Sebelius, now Obama’s Health Secretary.
The utility said it planned to break ground on construction within 10 months, fully aware of pending federal legislation that would impose a price on carbon and emissions standards on new plants eventually. There are no plans to make the plant ready for a CCS retrofit.
Similarly in New Hampshire, PSNH’s Merrimack Station, the largest single source polluter in the state, is moving ahead with a massive upgrade despite the opposition from leading local businesses, including Stonyfield Farms and Timberland.
The nearly half-billion dollars worth of upgrades won’t do anything to reduce the plant’s carbon emissions, but will allow the utility to reap an extra $20 million to $25 million a year from ratepayers. The state legislature, under the influence of the utility lobby, is turning a blind eye to the survival strategy of a dinosaur responsible for close to half of the CO2 emissions in the state.
Waxman-Markey is silent on the regulation of aging plants like these, presuming the carbon cap embedded in the bill will force needed changes through market mechanisms. PSNH, undeterred by the pending federal legislation, is already proceeding with construction on the half billion dollar upgrade.
There is some optimism within the climate community that market forces unleashed by the cap-and-trade program will put sufficient pressure on coal to force plants to close or diminish new construction in the coming decade. But the satisfaction within industry at the currently negotiated outcome is causing concern among others that the cap is far too weak to have an effect for decades.
It calls for a 4% reduction in U.S. emissions below 1990 levels by 2020, which is far below the EU target of a 20% reduction. The market signal may be barely audible. Indeed, one industrial Fortune 100 company with a carbon-intensive product line has been advised by three separate teams of consultants about the impact of a carbon price upon its business. Independently, the consultants reported that the impact in 2020 would be negligible, according to a company executive not authorized to speak publicly.
And even after 2020, one watchdog group was skeptical of success in ever making polluters pay. In a statement released today, Public Citizen had this to say:
We should not assume that a future Congress will hold fast to today’s pledge to hold polluters accountable in 20 years. In fact, using history as a guide, these polluters will simply ramp up their lobbying and influence-peddling in an effort to again stall the day of reckoning when their greenhouse gas emissions carry a price.
Climate advocates still have time to reassess where this legislation is headed. For now, official statements are supportive, though laced with carefully wrought caveats about the need for strengthening its climate protection mechanisms. The 932 pages have been publicly available for only a few days, and the first order of business is getting the bill out of committee and onto the House floor.
It remains to be seen how hard lawmakers will allow themselves to be pressed to dial back the generous cards being handed to coal-fired power generation in particular, and the massive bet they are making on a future in which greenhouse gases will kept out of the atmosphere and instead buried underground.
No one can dispute that politics has trumped science in the design of this law — at least considering the gradual pace of emissions reductions contemplated for the next decade or two. And there is great concern that this climate bill in Copenhagen will look like too little too late from an administration that has promised global leadership on climate change.
Official Summary of Waxman-Markey American Clean Energy and Security Act (H.R. 2454) 1
COMMITTEE ON ENERGY AND COMMERCE
U.S. HOUSE OF REPRESENTATIVES
MEMORANDUM
May 16, 2009
TO: Members of the Committee on Energy and Commerce FR: Democratic Staff of the Committee on Energy and Commerce RE: Full Committee Business Meeting on May 18
On Monday, May 18, 2009, at 1:00 p.m. in room 2123 Rayburn House Office Building, the full Committee on Energy and Commerce will meet in open markup session to consider H.R. 2454, the American Clean Energy and Security Act of 2009 (ACES Act), comprehensive energy legislation to deploy clean energy resources, increase energy efficiency, cut global warming pollution, and transition to a clean energy economy.
In the past two and half years, the Committee has held dozens of hearings on energy and climate change policy and has built a detailed factual record on the need for legislation in this area. The nation’s dependence on foreign oil has significantly increased over the last decade. Consumers have faced increasing and volatile energy prices. Other countries have overtaken us in the manufacture of wind and solar energy. Energy company investments are paralyzed because of uncertainty about what policies the Congress will establish. Meanwhile, global warming pollution has increased unchecked.
On March 31, 2009, Chairman Waxman and Chairman Markey released a discussion draft of the ACES bill to address these problems. Since that time, nearly 70 witnesses have testified before the Committee about the legislation. The views of members and stakeholders have been considered by the Chairmen and a revised version of the ACES bill was introduced on May 15, 2009.
Following is a description of major provisions of the ACES bill. [Full text available here.]
Waxman and Markey Release Full Text of American Clean Energy and Security Act
Following weeks of intense negotiations with industry-friendly Democrats on the House Energy and Commerce Committee, chair Henry Waxman (D-Calif.) and energy and environment subcommittee chair Edward Markey (D-Mass.) have released the complete text of their comprehensive energy and climate legislation. The American Clean Energy and Security Act (H.R. 2454) now runs 927 pages.
WonkLine: May 13, 2009
From the Wonk Room.
The Hill reports that “House Energy and Commerce Committee leaders on Tuesday night announced a new agreement on a contentious climate change bill, assuaging the concerns of enough committee Democrats to get the bill out of committee.”
Former President Jimmy Carter “who presided over the oil crisis of 1979, told Congress Tuesday that America’s energy challenges are deeper and more urgent today than when he was president, but the solutions are the same.”
The Southern Alliance for Clean Energy has found that a “proposed energy efficiency goal would save Georgia $6.3 billion in costs and create 9,000 jobs over the next decade.”
Rep. Doyle Says Waxman-Markey Will Give Away Most Permits for 'Ten to Fifteen Years'
From the Wonk Room.
According to Rep. Mike Doyle (D-PA), corporations would be subsidized for most of their global warming pollution for more than ten years, under terms being negotiated for the climate and energy bill being drafted by the House Energy and Commerce Committee. If this is true, the Waxman-Markey American Clean Energy and Security Act would violate a pledge by President Obama to fund tax cuts for working families through carbon market revenues and runs the risk of windfall profits for covered emitters. Doyle said most of the pollution permits created for a cap-and-trade system to reduce greenhouse gases would be given away:
While the exact numbers were still in flux, Doyle said, “The majority of the permits will be allocated (given away) at first.”The Center for American Progress “supports auctioning 100 percent of the greenhouse gas emission permits from day one under a cap-and-trade program” and using the auction revenues to assist workers and industries to make the transition to a low-carbon economy:Asked what percentage would be sold to utilities, manufacturers and other firms, Doyle responded, “Not a big number initially…in the first 10 to 15 years.”
This would include supporting new investments in green technology and energy efficiency; sheltering American households from any economic dislocations due to shifting energy prices; alleviating higher costs for energy-intensive industries; adapting to some of the effects of global warming that we are already experiencing globally; and creating good, “green jobs” and more vibrant, healthier communities in this process. A 100 percent auction will ensure that large polluters, and not the hardworking Americans least able to foot the bill, are financing the investments necessary to carry out these vital public projects.Without any climate policy, the public is subsidizing all the present and future costs of climate change. President Obama has previously expressed his willingness to be flexible on the pollution subsidies in order to establish a cap-and-trade system. As President Obama explained to business leaders in March, he is flexible on his campaign pledge for full auction of pollution permits:
Now, the experience of a cap-and-trade system thus far is that if you’re giving away carbon permits for free, then basically you’re not really pricing the thing and it doesn’t work, or people can game the system in so many ways that it’s not creating the incentive structures that we’re looking for. The flip side is, you’re right, if it’s so onerous that people can’t meet it, then it defeats the purpose – and politically we can’t get it done anyway.
Mike Pence Says USCAP Businesses Should 'Keep Their Powder Dry'
From the Wonk Room.
Speaking at an event meant to oppose Democratic clean energy legislation, Rep. Mike Pence (R-IN) warned corporations calling for the United States to take action on global warming to “keep their powder dry.” Grist’s Kate Sheppard asked Pence after the GOP mock climate hearing yesterday what he would say to the corporations in the U.S. Climate Action Partnership (US-CAP) who have testified that a mandatory cap on global warming pollution is needed. Pence told companies that support a green economy to “keep their powder dry” as the GOP attempts to preserve Bush-era energy policy:Um. I, I just would say that any American who is prepared to endorse a national energy tax that there’s a better solution. Uh, that they should keep their powder dry. And uh, take their case to the American people that they don’t need, particularly during this very difficult time in the economic life of our nation, to raise the energy cost on our businesses and on American families.Watch it:
As Grist noted, “the House heard the leaders of Duke Energy, ConocoPhillips, and DuPont ask for a cap as recently as April 22.” Politico reports that Nike has been telling the U.S. Chamber of Commerce “to take a more progressive stance on the issue of climate change.” And Exelon Corporation, one of America’s largest electric utilities and another US-CAP member, is featured in a new advertisement today from the Environmental Defense Action Fund calling for a carbon cap as a part of comprehensive clean economic policy:
WonkLine: April 28, 2009
From the Wonk Room.
Although Interior Secretary Ken Salazar made it clear he “likes coal,” the Interior Department “said on Monday it will try to overturn a Bush administration rule that made it easier for coal mining companies to dump mountaintop debris into valley streams.”
As Arctic carbon dioxide levels are growing at an “unprecedented rate,” an “area of an Antarctic ice shelf almost the size of New York City has broken into icebergs this month.”
Speaking about the Waxman-Markey clean energy bill, Rep. Gene Green (D-TX) called for free pollution permits to petroleum refiners and Rep. G. K. Butterfield called for free pollution permits to electric distribution companies. These companies have given more than $375,000 to energy committee members in the first three months of 2009.
WonkLine: April 24, 2009
From the Wonk Room.
As a wildfire in Myrtle Beach on the South Carolina coast “spread over thousands of acres by early Friday” and a “7,500-acre-plus blaze” raged in South Florida, scientists reported that “wildfires spur climate change, which in turn makes blazes bigger, more frequent and more damaging to the environment.”
Rep. Gene Green (D-TX), who “represents a district with several oil refineries, a huge source of greenhouse gas emissions, said about the Waxman-Markey clean energy bill, “they have to get our votes, and I’m not going to vote for a bill without refinery allowances.”
Sen. John Barrasso (R-WY), a prominent coal industry advocate, asked administration nominees whether they agreed with comments this week by Jon Wellinghoff, chairman of the Federal Energy Regulatory Commission, that no new nuclear or coal plants may ever be needed in the United States.
Democrats on the Waxman-Markey Fence Worried about RES, Allocations
By SolveClimate’s Stacy Morford.
The usual court jesters shot off verbal fireworks as a week of hearings got underway on the Waxman-Markey climate bill, but the real attention on Capitol Hill was tuned to a few moderate Democrats who have the power to make or break the bill.
House Energy and Commerce Committee Chairman Henry Waxman acknowledged their concerns this morning as EPA Administrator Lisa Jackson, Energy Secretary Steven Chu, and Transportation Secretary Ray LaHood were being questioned by the committee.
Praising one of those moderates, former committee chairman John Dingell (D-Mich.), Waxman said he had hoped to see his legislation pass with something like the committee’s 42-1 vote that had secured amendments to the Clean Air Act in 1990. But he added,
“I have my suspicions after listening to the opening statements here that we may not be able to succeed in the same way.”
The statements and questions so far from the committee’s moderate Democrats suggest that winning enough votes will likely mean rewriting the bill’s proposed renewable energy standard to account for regional differences. It may also require free emissions permits and other aid for industries – particularly automotive and energy – that will need to evolve to survive in a carbon-constrained world.
The RES currently proposed in the draft legislation would require utilities to derive 25 percent of their power from renewable sources by 2025.
Mike Ross (D-Ark.) and Bart Gordon (D-Tenn.) both expressed concerns that that level would penalize states like theirs that lack the wind power of Texas and the sunshine and geothermal reserves of California. G.K. Butterfield (D-N.C.) said his state could probably reach its current target of 15 percent by 2025, and possibly do better if nuclear and biomass could count, but 25 percent was out of the question.
Jim Matheson (D-Utah) asked Chu if he thought Congress would be overprescribing if it required both an emissions cap and a national renewable energy standard.
Chu has been outspoken in his desire to restore the United States’ place as the world’s leader in energy technology. The RES, he said, is a necessary interim driver of innovation and renewable energy use. The cap won’t start until 2012, and industry will need time to adjust. The RES, meanwhile, will drive renewable energy development by guaranteeing a marketplace. Energy executives who testified later in the day echoed that argument, saying federal rules would create stability and expectations that businesses could bank on.
That doesn’t mean that that the RES has to be uniform nationwide, though. A few committee members questioned whether Congress could instead require each state to set a minimum standard, which could then be met in ways tailored to that state’s own resource mix. Twenty-eight states already have renewable energy standards.
Dingell also questioned the “aggressive nature of the renewable electrical standard,” but he and Gene Green (D-Texas) were more focused on aid for industries, particularly the U.S. automakers and refiners.
Green, worried about job losses in the Houston ship channel area that he represents, urged the committee to provide ample free emissions allowances from the trading program for energy-intensive industries, as well as financial support for consumers facing higher electricity prices.
“We must protect our energy–intensive industries, including refineries, so we do not simply export those jobs abroad to nation without carbon controls and lax environmental regulations,” Green told the committee.
Dingell called for doubling the incentives for the Department of Energy’s advanced technology vehicle incentives programs to help the auto industry in his home state. He added:
“Of course, the question of auction versus allocation still lies before us, and that is a very serious question. Some might say ‘deal breaker’ for many members.”
The auction details from the cap-and-trade portion of the bill have yet to hammered out, which has created an easy target for fiscal fear mongering among opponents. Without knowing how the money from cap-and-trade auctions would be distributed, the Congressional Budget Office can’t accurately gauge the bill’s financial impact.
Jackson offered the committee the EPA’s newly released cost assessment: The energy bill for an average family would rise between $98 and $140 per year.
However, the EPA’s analysis looked only at the cap-and-trade portion of the bill, and with so many details yet to be determined by the committee, the EPA had to make assumptions about the price of carbon ($13-17 per ton in 2015) and the percentage of revenue that would be returned to consumers (40 percent).
The 40 percent rebate for consumers, a number recommended by the bill’s authors, did offer more insight into how Waxman and Markey might propose divvying up the revenues, but it was still only an estimate.
The committee’s 23 Republican members asked Waxman in a letter this week for more hearings to flesh out the details before the committee begins marking up the legislation for a vote.
“Your discussion draft lacks any decision on permit allocations versus auctions,” they wrote. “The manner in which you will address this issue is the cornerstone of the legislation; without it the bill is simply not finished and not ripe to be marked up or accurately discussed in the context of a hearing.”
In the absence of stronger data, some opponents have resorted to inventing their own numbers.
Two of the most outspoken opponents of the bill – Reps. John Shimkus (R-Ill.) and Joe Barton (R-Texas) – suggested that the lack of details was a conspiracy to prevent the committee from knowing the true cost. They repeated the GOP’s manipulation of a recent MIT study, saying the increase would be $3,100, a number the study’s own author says is 10 times too high.
It was a fellow Republican, LaHood, who spoke up today about the continued abuse of the MIT study.
LaHood held up a letter from the study’s author correcting the GOP’s use of his numbers. But when he asked to enter the letter into the committee record, Shimkus objected. If the MIT letter was submitted, then Shimkus wanted to submit a story written by the Weekly Standard, too. Waxman agreed to both.
Shimkus was clearly playing to the cameras this morning. He vowed that “those of us who want jobs are going to try to defeat this bill” and went on to declare cap-and-trade a greater danger than terrorism:
“I see this as the largest assault on democracy and freedom in this country as I’ve ever experienced. I’ve lived through some tough times in Congress. I’ve seen two wars, terrorist attacks. I fear this more than all of the above.”
Like it or not, economics will be the issue for members of Congress. Their re-election campaigns are built on numbers – how many jobs they created, how much federal bacon they brought home – and their campaigns are always on.
WonkLine: April 22, 2009
From the Wonk Room.
On Earth Day, President Obama is visiting a “wind turbine manufacturer in Iowa” to “champion his push to cap greenhouse gas emissions and boost renewable alternatives to fossil fuels,” as top officials testify before Congress on behalf of action on green jobs for a green future.
Oil-patch and Blue Dog Democrats like Gene Green (D-TX) and Jim Matheson (D-UT) yesterday called for subsidies for the oil and nuclear industries to be added to the Waxman-Markey clean energy bill, while criticizing federal renewable energy and energy efficiency standards.
Sen. Ben Nelson (D-NE) criticized the Environmental Protection Agency for taking initial steps to obey a Supreme Court mandate to regulate global warming pollution, saying, “if alphabet agencies can do what they want without regard to what Congress believes, there’s something wrong with the system.”