Bill “eliminates the possibility of market manipulation” and “from day one, two-thirds of revenues not dedicated to reducing our deficit are rebated back to consumers”
Kerry and Lieberman have apparently been waiting for a sign from above to release their climate and clean energy jobs bill, the American Power Act. Instead, the unmistakable message that we need to get off of dirty, unsafe fossil fuels came from an undersea volcano of oil unleashed by the hubris, recklessness, and arrogance of Big Oil.
Before offering my thoughts on individual sections, here’s Dan Weiss, CAPAF’s Director of Climate Strategy:
“The Kerry-Lieberman American Power Act jump starts efforts to adopt comprehensive clean energy and climate polices that would cut oil use, increase security, reduce pollution and create jobs. The BP oil disaster is like a signal flare warning us that we must reduce our oil use via investments in more efficient, cleaner energy technologies. President Obama and Senate leaders must work together to craft a comprehensive program that achieves these goals.”
So let’s go through this, starting with the summary.
“From day one, two-thirds of revenues not dedicated to reducing our deficit are rebated back to consumers.” The rest goes to low-carbon energy development and deployment along with things to aid industries in transition to a low carbon economy.
In the later years, every penny not spent to reduce the deficit will go directly back to consumers.
You might call it cap-and-dividend, were the name not taken.
Yes, much of this money goes back to consumers through the local regulated utilities, but that was not only inevitable from a political perspective — to keep utilities and Senators from the mid-west and south from immediately bolting — it’s actually a good idea from the perspective of regional equity (see here and here). There’s just no other way to construct a bill that could have any chance whatsoever in either house of Congress.
The auctioning is done along the lines I suggested here: How the Senate can fix cost containment in the climate bill with ‘price collar plus’. The floor price starts at $12 in 2013 and rises 3% plus inflation each year. The ceiling starts at $25 increasing 5% plus inflation annually.
The bad news is that, after the regular allowances are auctioned off — and then after the strategic reserve is auctioned off (explained here) — the hard ceiling is maintained by providing unlimited new allowances. The “good news” is that I can’t see us getting near the ceiling price until well into the 2020s since the emissions targets are so weak compared to where we are today — EIA Stunner: Energy-related CO2 emissions are now down nearly 10% from 2005 levels — and since there are so many low-cost clean energy strategies available, many of which are directly incentivized by this bill (see “Game changer part 2: Unconventional gas makes the 2020 target of a 17% reduction so damn easy and cheap to meet).”
I will do a post soon on why these floor and ceiling prices are sufficient to drive significant clean energy into the marketplace, including fuel switching from coal to natural gas.
Yes, there are still 2 billion offsets, but they won’t vitiate the 2020 target because, again, it’s too easy to meet with efficiency, conservation, renewables, and natural gas fuel switching. Large quantities of offsets aren’t gonna be cheaper those solutions. As I wrote here, I doubt offsets will comprise even 3% out of the 17% target achieved by emitters in 2020. And yes, I would take a bet on that. The oversight provision seems pretty solid to me.
Moreover, I expect most of the offsets sold will be domestic ones — if we get an international deal (which is really only possible if we can pass a climate bill), then I expect international offsets will be fairly pricey by 2020. And CBO said half of the domestic offsets are actual emission reductions in uncovered sectors.
The domestic offsets do represent the opportunity for some real income by farmers. Indeed, as this recent CP post explained, the bill creates “3 new paychecks for farmers”:
- A pay check for leasing a small portion of land for sustainable energy development like putting in a wind turbine that can earn them $3,000 to $15,000 per year
- A paycheck for sequestering carbon in their soils by engaging in more sustainable and productive farming practices, and
- A paycheck for producing 2nd generation biofuel crops.
The bill does set aside a considerable amount of allowances to improve energy efficiency and promote renewable energy.
The bill starts with capping the utility sector in 2013.
Industrial sources will not enter the program until 2016…. In 2016, energy-intensive and trade-exposed industries receive allowances to upset both their direct and indirect compliance costs. This assistance will be distributed in a way that rewards efficiency investment and make their manufacturing facilities more competitive.
There are provisions to encourage the use of natural gas, reduce transportation emissions, and fund clean energy R&D and demonstration.
There are a number of provisions to block market manipulation. Now, there really wasn’t much possibility of market manipulation even in the House bill — see “When Sen. Dorgan finds out what’s in the climate bill “” hint, hint, White House “” he might just support it.” It simply is very hard to corner the market and run up the price on a commodity that is highly fungible, like CO2 allowances, since in place of allowance you can reduce your energy use through efficiency, reduce your emissions through low carbon energy, fuel switch, buy a domestic offset, or buy an international offset. Now that the bill limits participation in the auctions and has a hard ceiling, the prospects that the market could be seriously manipulated vanish entirely.
The bill creates “annual incentives of 2 billion per year for researching and developing effective carbon capture and sequestration methods and devices.” It also provides “significant incentives for the commercial deployment of 72 GW of carbon capture and sequestration.” Since I don’t expect we will see 72 GW of CCS until well past 2030, this isn’t going to cost taxpayers very much money (see Harvard study: “Realistic” first-generation CCS costs a whopping $150 per ton of CO2 “” 20 cents per kWh!). And if somebody does figure out how to do CCS practically and affordably — preferably with biomass cofiring — all the better (see Is coal with carbon capture and storage a core climate solution?)
Finally, the bill does flush a fair amount of money down the toilet incentivizing nuclear power — one of the highest cost solutions (see “Intro to nuclear power“). The bottom line is there might be enough subsidies and risk insurance to get 12 new nukes. Then again, the possibility we were going to cut U.S. CO2 emissions 80% in four decades without building a dozen new was pretty small. Get over it.
So does it meet the criteria in “What to look for in the bipartisan climate and clean energy jobs bill“? That would require that the bill help ensure that by the 2020s that we have
- substantially dropped below the business-as-usual emissions path
- started every major business planning for much deeper reductions
- goosed the cleantech venture and financing community
- put in place the entire framework for U.S. climate regulations
- accelerated many tens of gigawatts of different types of low-carbon energy into the marketplace
- put billions into developing advanced low-carbon technology
- started building out the smart, green grid of the 21st century
- trained and created millions of clean energy jobs
- negotiated a working international climate regime
- brought China into the process
Yes, I think it does.
There really is no Plan B. Certainly leaving this to the EPA and a few states won’t achieve most of those, especially the crucial international deal.
Sadly, the conventional wisdom is that even this moderate bill has no chance — and I certainly think it doesn’t have very much chance if Obama doesn’t start pushing for it as hard as he pushed for healthcare (see “Is Obama blowing his best chance to shift the debate from the dirty, unsafe energy of the 19th century to the clean, safe energy of the 21st century?“)