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.
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.