US Climate Policy Developments

1
US Climate Policy Developments

• Peter L. Gray
• McKenna Long Aldridge LLP
• Washington, DC
• 202-496-7707
• pgray_at_mckennalong.com

2
Basic Policy Choices

• Technology-based standards
• Cap-and-trade
• Taxes and other economic incentives
• Disclosure and voluntary action

3
Policy Choices (contd)

• No serious discussion of carbon tax
• No environmental certainty
• As complex as cap-and-trade
• Let market (not IRS) set the price
• Politically hazardous
• Most predict adoption of a cap-and-trade regime

4
Cap-and-Trade Issues

• Size of carbon cap
• Time period of achieving carbon reduction goal
• Where to impose carbon limits upstream or
  downstream (e.g., power source? power plant? end
  user? both?)
• Baselines
• Trading/banking/offsets
• Allocating emissions allowances grandfathering,
  auction, allowance retirement
• Economic incentives such as carbon tax, green
  technology, tax incentives/subsidies
• Early action credits

5
Examples of Federal Bills

• Global Warming Pollution Reduction Act
  (Sanders-Boxer Gold Standard) (S.309)
• Climate Stewardship and Innovation Act
  (Lieberman-McCain) (S.280)
• Electric Utility Cap-and-Trade Act
  (Feinstein-Carper) (S.317)
• Global Warming Reduction Act (Kerry-Snowe)
  (S.485)
• Low Carbon Economy Act (Bingaman-Specter)
  (S.1766)

6
(No Transcript)
7
(No Transcript)
8
Sanders-Boxer Gold Standard (S.309)

• US GHG emissions to be reduced 80 percent below
  1990 levels by 2050
• US to reduce GHG emissions proportional to world
  emission reductions to achieve maximum 3.6 F
  global temperature increase and maximum 450 ppm
  concentration of CO2 or equivalents
• Regulates CO2, nitrous oxide, methane,
  hydrofluorocarbons, perfluorocarbons, sulfur
  hexafluoride, and other compounds found by rule
  to be climate-forcing
• Regulates biological carbon storage

9
Sanders-Boxer Gold Standard (S.309) (cont)

• EPA will implement the program
• EPA decide which facilities to regulate
• EPA, by rule, will sets emissions limits by
  industry sector, to meet reduction standards for
  each decade until 2050
• EPA authorized to create allowance trading
  markets, declining emissions caps, and a
  technology-indexed stop price

10
Sanders-Boxer Gold Standard (S.309) (cont)

• Vehicle emissions limits (e.g., 205-405
  grams/mile CO2e based on car weight)
• Electric utilities post-2011 new source
  low-carbon standard retrofit of pre-2012 units
  and retail electric suppliers must ensure peak
  demand and total electricity use reductions
• Renewable Portfolio Standard (RPS) for utilities
  (minimum of 5 percent renewables for 2008,
  phasing up to 20 percent in 2020 and after)
• 2020, 2030, and 2040 steps toward 2050 goal (80
  percent reduction below 1990 levels)

11
Sanders-Boxer Gold Standard (S.309) (cont)

• Recognizes reductions made prior to effective
  date of new law
• Local or state program must have been mandatory
  and as stringent as federal program, and
  reductions must be verifiable
• Voluntary reductions since 1992 under the DOE
  program must meet the verification standards of
  federal law
• Requires SEC reporting on the companys risks and
  potential liability due to its GHG emissions
• Directs US participation in 1992 U.N. Framework
  Convention (Kyoto post-2012 requirements)
• Corresponding House bill would be based on H.R.
  5642 (109th Congress) Waxman-Markey

12
Crystal Ball Reading Legislative Tea Leaves

• Six tasks for enacting a law
• Pass Senate Environment and Public Works
• Pass full Senate (60 votes to end debate)
• Pass House Energy and Commerce
• Pass full House
• House-Senate conference report that can pass each
  house
• Signed by President

13
Crystal BallLegis. Tea Leaves (contd)

• Presidents signature
• Impossible to predict today
• Key question Will President Bush veto a climate
  change bill supported by vulnerable Republicans
  just a few months before the election?
• The six tasks for enacting a law, while
  significant, do not seem insurmountable by 2008

14
Crystal Ball Trajectory of Environmental Laws

• 1. Scientists identify issue
• 2. Enviros amplify scientists findings
• 3. Elected officials offer legislation
• 4. Time magazine puts issue on cover
• 5. States enact laws
• 6. Congress steps up activity
• 7. Cataclysmic event serves as tipping point
  (e.g., Love Canal for CERCLA Bhopal for
  Right-to-Know law)

15
Trajectory of Environmental Laws
Scientific consensus by 2000
Al Gores Inconvenient Truth
Multiple times
Californias AB32 passed in 2006
In 2007 150 climate-related hearings and 110
bills
Katrina??
16
Crystal Ball

• Both Crystal Balls suggest
• Enactment in 2008 quite plausible
• If not by 2008, enactment by 2010 is likely

17
Regional Greenhouse Gas Initiative (RGGI)

• A regional GHG cap-and-trade program (one of
  several)
• Memorandum of Understanding signed late 2005 by
  Connecticut, Delaware, Maine, New Hampshire, New
  Jersey, New York, Vermont Massachusetts,
  Maryland and Rhode Island in 2007
• Pennsylvania, DC and Eastern Canadian Provinces
  are observers
• States must adopt implementing rules based on the
  RGGI model rule

18
RGGI

• Cap-and-trade program for CO2 commences on
  January 1, 2009
• From 2009-2015, emissions from fossil-fuel-fired
  electrical generating units of 25 MW or greater
  capped at 121 million tons per year (equivalent
  to 1990 level).
• The 121 million ton cap is divided among the
  states, which in turn must allocate to regulated
  facilities
• From 2015-2018, the cap declines 2.5/year, thus
  achieving 10 reduction below 1990 levels.

19
RGGI

• Regulated facility may offset 3.3 of emissions.
  (If spot price on CO2 exceeds 7/ton, facility
  may offset 5 of emissions.)
• Only five types of projects may be used to offset
  GHG emissions
• landfill methane capture and destruction
• sulfur hexafluoride fugitive emissions capture
  and recycling at electrical transmission
  equipment
• carbon sequestration through afforestation
• increasing fossil fuel end-use efficiency
• methane capture from agriculture