Hill Heat

On Saturday, Sen. Pete Domenici (R-N.M.), ranking member of the Senate Energy and Natural Resources Committee, challenged the energy bill deal brokered by the Democratic leadership, attacking the inclusion of a Renewable Portfolio Standard (also known as the renewable electricity standard).

For weeks, my staff, along with Senator Bingaman’s, has been engaged in good faith negotiations with the House under a defined set of parameters laid out at the start of the process. We have made substantial bipartisan progress toward finalizing a bill. The legislation we have been working on contained a robust, much-needed Renewable Fuels Standard, important provisions on energy efficiency and carbon sequestration, and a long overdue increase in fuel economy standards. The parameters agreed to by Speaker Pelosi and communicated to us by Senate Democrats did not include a renewable portfolio standard.

Domenici complained particularly about what he saw as a lack of good faith.

At this time, I have instructed my staff to cease their work on the energy bill, since the final bill apparently will not be the product of our bipartisan negotiations. As someone who has been working for 35 years to forge bipartisan, good-faith compromises on tough issues like the federal budget and energy policy, I know that your word means everything. It is particularly disappointing for me to see that such a sentiment seems to be a thing of the past.

Sen. Domenici himself has failed to maintain such bipartisan compromises on this very bill. During the May committee markup of the Senate version of the energy bill (S. 1321, H.R. 6), Sen. Domenici failed to maintain a bipartisan deal to avoid controversial amendments during markup—Democrats had agreed not to introduce RPS in committee, and Domenici claimed Republicans would not introduce coal-to-liquids language. However, Sen. Craig Thomas, R-Wyo., introduced a coal-to-liquids amendment, breaking the deal.

On the first day of the United Nations Climate Change Conference in Bali, Kevin Rudd, the new prime minister of Australia ratified the Kyoto Protocol, leaving the United States and Kazakhstan the only signatories who have failed to ratify.

Rudd’s statement begins:

Today I have signed the instrument of ratification of the Kyoto Protocol. This is the first official act of the new Australian Government, demonstrating my Government’s commitment to tackling climate change.

Ratification of the Kyoto Protocol was considered and approved by the first Executive Council meeting of the Government this morning. The Governor-General has granted his approval for Australia to ratify the Kyoto Protocol at my request.

Under United Nations guidelines, ratification of the Kyoto Protocol enters into force 90 days after the Instrument of Ratification is received by the United Nations. Australia will become a full member of the Kyoto Protocol before the end of March 2008.

Last week McKinsey & Company released a report, Reducing U.S. Greenhouse Gas Emissions: How Much at What Cost?, that found that the goals of current greenhouse gas emissions reduction legislation for 2030 are achievable with current technology and at manageable cost, although it warned:

Achieving these reductions at the lowest cost to the economy, however, will require strong, coordinated, economy-wide action that begins in the near future.

The report was commissioned by the environmental organizations Environmental Defense and National Resources Defense Council and the energy technology companies Honeywell, National Grid, PG&E Corporation, Shell, and DTE Energy. The Conference Board, the leading U.S. corporate think tank, endorsed the paper.

McKinsey found that a broad mix of abatement options need to be followed; no one strategy accounted for more than 11% of the total abatement, noting:

In regions with high-carbon grids, energy efficiency improvements, typically through upgrades to building standards, HVAC equipment, and appliances, are likely to be the most effective and lowest-cost strategies. Conversely, sectors and regions with access to low-carbon grid infrastructure offer more compelling applications of such emerging technologies as PHEVs (plug-in hybrid vehicles).

In its conclusion the report reiterated the importance of immediately implementing energy efficiency strategies, many of which end up saving more money than they cost, to “buy time” for emerging technologies to develop commercially.

EE News reports that Sen. Boxer likely has sufficient votes to pass her updated version of the Lieberman-Warner cap-and-trade bill (S. 2191) out of committee at Wednesday’s markup, though the markup process may take two days.

EE News reported on some responses to the changes in Sen. Boxer’s version, known as the “manager’s mark”:

Environmental groups have different perspectives on the new version of the Lieberman-Warner climate bill.

Dan Lashof, a senior scientist at the Natural Resources Defense Council, signaled support. “I think the bill continues to move in the right direction,” he said in an interview. “The changes [in the manager’s mark] are incremental from what was passed in the subcommittee.”

Of the new section for HFCs, Lashof predicted “net environmental benefits” by forcing HFC-polluting industries to compete with each other for emission credits.

But Friends of the Earth still has some of the same concerns that caused it to oppose the legislation in subcommittee. In particular, Erich Pica, the group’s economic policy analyst, found fault with the bill’s allocation system. “It gives away too many permits for free,” he said. “It’s a hundred billion dollar windfall for the polluting industries that got us into this mess in the first place. And the targets need to be strengthened.”

Industry also has its own problems.

At the Edison Electric Institute, spokesman Dan Riedinger said the Lieberman-Warner legislation includes targets and timetables that don’t match industry expectations for the readiness of new energy technologies. He also said the bill doesn’t do enough to hold down the costs to the U.S. economy. And it doesn’t press for enough reductions from developing economies like China and India.

“They don’t begin to address our overall concerns about the bill,” Riedinger said.

A collection of power companies that often lines up with Delaware’s Carper also took issue with the legislation. In a prepared statement issued Friday, the Clean Energy Group questioned the way the bill now favors coal-fired electric utilities over more energy efficient nuclear power and natural gas plants.

“We believe this approach will compromise the effective and efficient attainment of the greenhouse gas reduction targets by providing a subsidy to high-emitting generators,” the statement said. The group includes Entergy, FPL and Constellation Energy.

Friday afternoon the Democratic leadership in Congress announced the results of the energy bill negotiations that began in August and went into overdrive during the Thanksgiving recess, particularly once Rep. John Dingell (D-Mich.) signaled his willingness to support the 35 MPG CAFE standard as long as some technical provisions were included.

Speaker Pelosi:

CAFE will serve as the cornerstone of the energy legislation that will be on the House floor next week. We will achieve the major goal of increasing vehicle efficiency standards to 35 miles per gallon in 2020, marking an historic advancement in our efforts in the Congress to address our energy security and laying strong groundwork for climate legislation next year. We are confident that this final product will win the support of the environmental, labor and manufacturing communities.

This landmark energy legislation will offer the automobile industry the certainty it needs, while offering flexibility to automakers and ensuring we keep American manufacturing jobs and continued domestic production of smaller vehicles.

This comprehensive package will also include an increase in the Renewable Fuels Standard and a Renewable Electricity Standard, among other key provisions.

Translation of Pelosi’s statement:

“Offering flexibility to automakers”: The flex-fuel credit will extend to 2014, and be phased out by 2020.

“Continued domestic production of smaller vehicles”: The standards will distinguish between foreign-made and domestic vehicles

“Among other key provisions”: the status of the oil/gas subsidy rollback and related tax package, including the Production Tax Credit, is still under negotiation.

Presaging next week’s Climate Change Conference in Bali, the United Nations has released its 2007-2008 Human Development Report, a call to action on climate change using stark moral language.

Climate change is the defining human development issue of our generation. All development is ultimately about expanding human potential and enlarging human freedom. It is about people developing the capabilities thatempower them to make choices and to lead lives that they value. Climate change threatens to erode human freedoms and limit choice. It calls into question the Enlightenment principle that human progress will make the future look better than the past. . .

Our starting point is that the battle against climate change can—and must—be won. The world lacks neither the financial resources nor the technological capabilities to act. If we fail to prevent climate change it will be because we were unable to foster the political will to cooperate.

Such an outcome would represent not just a failure of political imagination and leadership, but a moral failure on a scale unparalleled in history. During the 20th Century failures of political leadership led to two world wars. Millions of people paid a high price for what were avoidable catastrophes. Dangerous climate change is the avoidable catastrophe of the 21st Century and beyond. Future generations will pass a harsh judgement on a generation that looked at the evidence on climate change, understood the consequences and then continued on a path that consigned millions of the world’s most vulnerable people to poverty and exposed future generations to the risk of ecological disaster.

The New York Times coverage: U.N. Warns of Climate-Related Setbacks.

From EE News (subs. req.), Sen. Boxer has led the drafting of a new version of Lieberman-Warner (S. 2191) in preparation for her committee markup a week from today.

An aide to Sen. Joe Lieberman (I-Conn.), a lead co-author of the bill, said one of the biggest changes involves an “upstream” cap placed on the heat-trapping greenhouse gas emissions that come from natural gas processors. With the new bill’s natural gas section, more than 80 percent of the greenhouse gas emissions that come from the U.S. economy will be covered under the legislation.

Previously, the bill dealt with about 75 percent of the U.S. economy.

Another change in the legislation speeds up by five years the end date for the free emission credits given out to power plants, manufacturers and other industrial sources. Free credits will now be phased out at the start of 2031, rather than the start of 2036.

Some of the other changes (see line-by-line comparison):

• Hydrofluorocarbons (HFCs) are separately capped (all allowances freely distributed), to “remove the financial incentive for companies to shut down their plants that use HFCs and move them to countries that don’t have similar limits” (s. 1202, 3901, 3906, 10001-11002)
• 25% of energy R&D funds explicitly allocated to renewable energy projects (an increase from a failed Sanders amendment in subcommittee markup) (s. 4401, s. 4406)
• 0.5% of annual emissions allowances to go to a “program for achieving” methane emissions reductions from landfills and coal mines (s. 3907)
• 1% of annual emissions allowances to go to states for mass transit funding, distributed following federal highway aid apportionment rules (s. 3304)
• Per the request of international aid groups, the national-security requirement for the Climate Change and National Security Fund has been dropped (s. 4801-4804)
• SEC requirement of corporate disclosure of climate risks dropped (s. 9002)
• Interagency Climate Task Force headed by EPA Administrator to submit a report “make public and submit to the President a consensus report making recommendations, including specific legislation for the President to recommend to Congress” in 2019 based on the triennial National Academy of Sciences reports
• Details added to Climate Change Worker Training Program (s. 4602-4606)
• Details added to Adaptation Fund (including combatting ocean acidification) (s. 4702)
• Details added to eligibility for carbon sequestration bonus allowances (s. 3602)

More details on the likely energy bill compromise are emerging. It appears that the renewable electricity standard and oil subsidy rollback provisions of the energy bill (H.R. 6/H.R. 3221), are being dropped, perhaps to be considered as a separate bill (per H.R. 2776) either concurrently or in the next year. The associated renewable incentives and research funds paid for by the rollback would have to also be dropped under pay-go rules.

The rollback was a key component of Speaker Pelosi’s 100 Hours Agenda:

We will energize America by achieving energy independence, and we will begin by rolling back the multi-billion dollar subsidies for Big Oil.

New York Times:

Reaching agreement on that timetable is likely to require Congressional leaders to drop provisions like a mandate that electric utilities nationwide generate 15 percent of their power from renewable sources, including wind, solar and hydroelectric power. Utilities lobbied intensively against that requirement.

A House-passed measure to repeal $16 billion in tax breaks for the oil industry is also expected to be scrapped, aides said. President Bush threatened to veto the entire package if the oil and gas tax bill were included.

Wall Street Journal:

Speaker Nancy Pelosi is pushing for a vote next week on compromise legislation aimed at reducing the nation’s reliance on fossil fuels, a major source of greenhouse gases. Democratic leaders have wrestled for months with how to meld the Senate bill, which includes a new fuel-economy mandate for auto makers, and the House bill, which would require power companies to use greater amounts of wind, solar and other renewable fuels. With only a few weeks left in the year, Democrats are now considering a new option: moving two separate bills.

One measure would include the proposed fuel-economy increase as well as a proposal to boost production of ethanol and related biofuels. The companion bill would include the utility mandate, as well as a tax package rolling back oil industry tax breaks.

According to a report in the National Journal’s subscription-only Congress Daily, Congress is nearing a compromise to resolve the differences between the Senate (HR 6) and House (HR 3221) versions of the comprehensive energy package. Major sticking points have been CAFE standards, renewable fuels mandate, a federal renewable energy standard, and renewable energy tax incentives (the renewable production tax credit (PTC)).

Speaker Pelosi indicated the sense of progress in a press release Monday:

Congress is now moving forward with historic energy legislation that will reduce our dependence on foreign fuels and promote energy efficiency. We have made significant progress toward completing this package and hope to have a final agreement next week.

The draft compromise, according to Congress Daily and Hill Heat sources, incorporates suggestions from Rep. John Dingell (D-Mich.)’s November 13 letter to Speaker Pelosi.

CAFE

• By 2020, 35 mpg average standard for cars, light trucks and SUVs (in line with HR 6)
• Separate fuel-economy standards for cars and trucks
• Distinctions between domestic and foreign-made vehicles in standards

Renewable Fuels Mandate

• By 2015, required production of 20.5 billion gallons of renewable fuels, with as much as 15 billion gallons coming from corn-based ethanol (HR 6 had 36 billion by 2022)
• By 2015, required production of 5.5 billion gallons of advanced biofuels—fuel not derived from sugar or starch and that can cut lifecycle greenhouse gas emissions in half
• National Academy of Sciences study within 18 months of mandate impact, followed by periodic reviews authorized by the Clean Air Act of technologies and the feasibility of complying with the mandate

PTC

• According to Hill Heat sources, the extension of the PTC is likely, though perhaps for as little as one year.

Lieberman-Warner (S. 2191), the Senate global warming emissions cap-and-trade bill undergoing markup next week, generates a emissions trading system with an estimated lifetime (from inception to 2050) net worth on the order of three to four trillion dollars, in the form of emissions credits given away for free and revenues generated from the auction of the remaining credits.

L-W establishes two independent entities to administer the allocation and appropriations of such funds, taking the direct appropriations authority away from Congress for the lifetime of the bill.

Carbon Market Efficiency Board (Title II, Subtitle F; sec. 2601-2605)

The authority to change the percentage of offsets or foreign credits used and the terms of borrowing allowances against future years is vested in the Carbon Market Efficiency Board, a executive-branch entity with seven members who each serve staggered 14-year terms. The Board is appointed directly by the President and is not part of any existing department.

Climate Change Credit Corporation (Title IV, Subtitle B; sec. 4201-4203)

The Climate Change Credit Corporation, a non-profit private federal corporation, will administer the auctions, the revenues thereof to be split into four distinct funds in the Treasury, the Energy Assistance Fund, Climate Change Worker Training Fund, Adaptation Fund, and the Climate Change and National Security Fund.

The Corporation has five members appointed by the president, no more than three from one political party, who serve five year terms. The Corporation has complete authority of the allocation of the Energy Assistance Fund (55% of the revenues, over one trillion dollars) within general allocation ranges for particular technologies (28% for CCS, 20% for vehicles, etc.).

The remaining funds are put under the jurisdiction of existing programs or Cabinet secretaries.