Senate Environment and Public Works Chairwoman Barbara Boxer (D-Calif.) is considering a “price collar” for her global warming bill that could help to curb the economic costs from a cap-and-trade program.
“I don’t know why we can’t consider this as one more way to give more certainty,” Boxer said during a hearing today. “I’m looking at it, is what I’m saying.”
Boxer did not go into much detail about what she means when she says a “price collar” is possible for the draft legislation expected early next month. Indeed, the concept does mean different things to different people in the often complex and controversial global warming policy debate.
I try to stay ahead of the curve on climate science, clean energy solutions, and carbon politics. This time my discussion of the price collar issue along with my specific proposal “How the Senate can fix cost containment in the climate bill with ‘price collar plus’ ” came less than 24 hours before the remarks that E&E News PM (subs. req’d) reported.
The article goes on to make clear that Boxer does not support the traditional — and environmentally flawed — price collar whereby the government to sells an unlimited number of allowances that represent no emissions reduction whatsoever at the ceiling price, but rather something closer to what I suggested:
Under the House-passed bill, U.S. EPA would release “strategic reserve” allowances into the carbon market via an auction in the event credit prices rise faster than expected.
House Democrats opted against an “offramp” that would cancel the climate bill’s requirements in the event prices went too high. And they also rejected the notion of a “safety valve” that placed an absolute ceiling on the price of carbon allowances — an idea that often has drawn outright opposition from environmental groups because it would not do enough to stimulate low-carbon energy technologies.
A Boxer aide later clarified that the EPW panel’s chairwoman is weighing a reserve fund that can control volatile prices without destroying the environmental integrity of the climate legislation.
“It is not an off-ramp, and she does not support a safety valve,” the aide said.
Senate Energy and Natural Resources Chairman Jeff Bingaman (D-N.M.) has long advocated price controls as part of a cap-and-trade bill, including a “safety valve” in previous versions of his own.
“I think it’s something that makes a lot of sense to look at,” Bingaman said today.
Bingaman’s proposals have also captured support from senators who do not typically sign onto such stringent environmental legislation, including Sens. Arlen Specter (D-Pa.) and Lisa Murkowski (R-Alaska).
“That was a big factor in why I had joined with Senator Bingaman,” said Murkowski, the top Republican on the Energy and Natural Resources Committee. “I’m encouraged to hear she’s looking at that.”
But both Bingaman and Murkowski cautioned that many details beyond the price control language would need to be addressed before reluctant lawmakers start signing on.
“These cap-and-trade bills have so many pieces,” Bingaman said. “I don’t know that you can point to one thing and say, ‘Stick that in and everyone jumps on board.’ I think it’s much more complicated than that.”
Several top industry groups have been lobbying for a “price collar” as part of the climate bill, including the Edison Electric Institute, the lead trade association for investor-owned utilities.
“We’re encouraged that Chairman Boxer has expressed interest in the concept of a price collar, which we think is essential to reducing price increases under a climate bill,” EEI spokesman Dan Riedinger said. “Setting a floor on allowance prices will encourage investments in new clean-energy technologies, while establishing a price ceiling will protect against price volatility and market manipulation.”
The National Commission on Energy Policy, an influential bipartisan group, was among the first to tackle the cost-containment debate in a 2004 report that called for a firm price limit on greenhouse gas allowances. The group, headed by Jason Grumet, one of President Obama’s top environmental advisers from last year’s campaign, has since backed away from the “safety valve” stance and now endorses the strategic reserve concept.
“Our commission has long advocated predictable price signals in the early years as both good policy and good politics,” NCEP spokesman Paul Bledsoe said today. “An effective cost collar can reduce economic risk of high prices and price volatility, while the price floor provides certainty for clean energy investors of a minimum carbon price.”
Environmentalists today largely held their fire that Boxer’s plan would not derail the integrity of the legislation. “We’re confident that they’re not going to put something forward that busts the cap,” said Dave Hamilton, who directs the Sierra Club’s global warming and energy programs.
Indeed, fence-sitting Senators and industries can legitimately see price collar plus as achieving stronger cost-containment protection than their analysis suggests the House bill now provides, including protection against speculators running the permit price up, while progressives can legitimately see PCoP as achieving better environmental outcomes than their analysis suggests the House bill now provides. Win-win.
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I have always been a little confused as to why people who claim that “reductions will be cheap!” object to any form of safety valve. For example, if there had been a safety valve on the SO2 cap-and-trade program in the 1990s, set at, say three times the expected permit price – the price would never have come anywhere near that point. The key part of a safety valve, of course, is that it does need to increase over time at inflation plus at least 4%. I care more about making sure that a price floor is included in cap-and-trade, since there is some historical precedent that these programs get over-allocated in early periods (or maybe it isn’t overallocation, it is that reductions are just that much cheaper than anyone expected).
Pretty much, I just want a carbon price in the US as soon as possible. And it has to be one that increases exponentially over time. After that, I don’t sweat the details so much – cap and trade vs. tax, with all gases or without, with international offsets or not. I figure that once a price is in place, other details can be worked out later.
And in addition to the price mechanism, I also want to see provisions to deal with some of the non-market barriers like efficiency requirements for buildings and continuing funding of R&D for energy technologies. And internationally, a deforestation program of some kind. Okay, maybe it isn’t just as simple as just wanting a carbon price, but my point is that I’d pay the price of including a reasonable safety valve for passage of a climate bill any day.
“A Boxer aide later clarified that the EPW panel’s chairwoman is weighing a reserve fund that can control volatile prices without destroying the environmental integrity of the climate legislation.”
Doesn’t HR 2454 as passed by the House include a “Strategic Allowance Reserve” already?
http://www.eia.doe.gov/oiaf/servicerpt/hr2454/execsummary.html