Senior Market Analyst, Commodities and Energy
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Jun 11, 2009

White House to continue allowing mountaintop mining

The White House continues to disappoint environmentalists hoping for a maximalist line on climate change and energy issues. 
 
The Washington Post reports the U.S. Environmental Protection Agency (EPA) is set to allow mountaintop coal mining to continue.  The issue is an emotive one for environmental groups since it involves removing surface soil and blasting tops from mountains to recover coal, often dumping the overburden into neighbouring valleys, causing substantial changes to the landscape (or damage, depending on your view point). 
 
Mountaintop mining projects need multiple permits, including from the federal government.  EPA’s announcement earlier this year that it would review all 200 pending permit applications over six Appalachian states encouraged some environmental groups that the administration would declare a moratorium, to demonstrate its commitment to conservation and its opposition to increased use of coal as a source of energy high in CO2 emissions. 
 
But coal is plentiful and does not have to be imported.  It is too important an energy source for the administration to agree to a “no more coal” strategy as some green groups would prefer.  It is vital to the economies of states in Appalachia that the administration needs to retain for President Barack Obama’s re-election bid in 2012, and from which he needs support in the Senate to reach 60 votes to pass climate change legislation to establish a cap and trade programme. 
 
So the administration is backing away from an outright prohibition towards continued mountaintop mining, albeit under even more strict conditions designed to placate environmental groups.

May 26, 2009

Log-rolling in the Waxman emissions bill (HR 2454)

The climate change bill is a spectacular example of log-rolling and special interest lobbying by the firms on K-Street. 
 
The attached chartbook is a first attempt to analyse the impact of the cap and trade programme set out in the American Clean Energy and Security Act 2009 (HR 2454) as approved by the Energy and Commerce Committee of the House of Representatives last week. 
 
http://graphics.thomsonreuters.com/ce-insight/EMISSIONS-BILL-HR2454.pdf
 
The bill is very complex and almost unreadable in its current form (a cynic might suggest the complexity is a deliberate attempt to obscure the bill’s impact in as a strategy to get it through Congress). 
 
It does not help that the bill is largely drafted as an amendment to the Clean Air Act (CAA).  The cap-and-trade programme would be enacted as a new Title VII to the CAA. 
 
The programme is set out as Sections 311-321 of the American Clean Energy and Security Act 2009.  But if it is passed into law, it will be referred to as Sections 701-793 of the Clean Air Act.  The result is that all the parts of the bill have two (alternative) numbers.  Be warned! 
 
Shorn of the detail, though, the bill is fairly straightforward. 
 
It sets out a list of “covered industries” that would be required to buy emissions allowances to cover their annual emission of greenhouse gases (mostly electricity producers, natural gas suppliers and industries that are intensive users of fossil-fuel derived energy). 
 
It also establishes an annual number of allowances that will be issued (each permit grants the right to emit one metric tonne or carbon dioxide or equivalent).  The number of allowances issued gradually tapers down to ensure emissions are reduced to 97% of their 2005 level by 2012, 83% by 2020, 58% by 2030 and just 17% by 2050. 
 
Allowances can be traded, banked and borrowed in a free market. 
 
But the interesting aspect of the bill lies in the INITIAL allocation of allowances (see Charts 3-6 in the attachment). 
 
The government could have allocated allowances in proportion to the volume of carbon dioxide emitted by different industries and firms in the baseline period (2005-2010) and then gradually reduced the allocations pro rata.  That would have been the “neutral” approach. 
 
Instead the bill opts for a discretionary allocation of emissions allowances that reflects a complex mix of environmental objectives and the need to secure support from coal-producing and heavy industrial states. 
 
By divorcing the initial allocation from emissions in the baseline period, the bill has in effect created a new form of “currency” and an alternative “carbon budget” that can be used to reward particular industries by granting them valuable emissions rights that can be used to support business activity or sold for conventional dollars. 
 
The largest part of this “currency” is being used to shield electricity, gas and heating oil consumers from the impact of rising emissions prices until well beyond 2020 (see sub-sections (a) to (c) in Charts 3-6). 
 
A small fraction is being used to offset the impact of higher emissions and energy prices on industries that are especially energy intensive and open to international trade (see sub-section (e) ). 
 
Some of the permits are being auctioned (sub-section (d) ). 
 
But large quantities will be used to further a range of “clean energy objectives” — in effect granting valuable, saleable rights to companies promoting new technologies such as carbon sequestration and storage, energy efficiency and renewables, and clean vehicle technologies (sub-sections (g)-(l) ).  These technologies will receive as much as 10 percent of the initial permit allocation over the next decade.

    • About John

      "John joined Reuters in 2008 as one of its first financial columnists, specialising in commodities and energy. While his main focus is on oil markets, he has written broadly on the emergence of commodities as an asset class, regulatory issues and macroeconomic themes. Before joining Reuters, John spent seven years as a senior analyst for Sempra Commodities (now part of JP Morgan) covering base metals and crude oil. Previously, he worked as an analyst on world trade, banking and financial regulation for consultancy Oxford Analytica."
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