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What We Need from the Energy/Climate Bill

It's been a rough road for the Kerry-Lieberman-Graham energy reform/climate change bill.  Having planned to release it on April 26, Senator Graham (R-South Carolina) - the key to making the legislation truly bi-partisan - pulled his support because Senate Democrats had announced that they would also take up immigration reform this year.  ("Graham is furious that Democratic leaders plan to push immigration legislation this year, claiming it will spark a divisive political battle that will sink prospects for the climate and energy measure," reports The Hill.)

Yet headlines report today that an unveiling of the energy/climate bill is "possible" next week, though it will likely be without Graham's support (reporters are now calling it the "Kerry-Lieberman bill").

What the proposed bill does

Highlights of the energy/climate bill, as reported by the Washington Post, include:

  1. The bill would take effect in 2013 and by 2020 would cut U.S. greenhouse gas emissions 17 percent compared to 2005 levels, and 80 percent by 2050. 
  1. According to the New York Times, the emission limits would apply "to different sectors of the economy at different times. Trade-sensitive manufacturers, for example, would start in the climate program six years after power plants."
  1. Two-thirds of the revenues generated by auctioning emissions credits to utilities would be returned to consumers.
  1. Oil companies will be subject to pollution allowances that will be retired over time, rather than a linked fee.  All diesel oil fuel revenues will be set aside and directed to the Highway Trust Fund.
  1. The bill will preempt both the states' and EPA's ability to regulate greenhouse gases under the Clean Air Act.
  1. The bill will contain a nuclear title providing loan guarantees and liability protections for the construction of up to 12 plants.
  1. The measure will provide $10 billion to the coal industry for "clean coal technology" that will capture emissions from coal-fired power plants, and it will provide an accelerated bonus for early deployment of this technology.
  1. It will provide financial incentives for natural gas and electric vehicles.
  1. The proposal will provide a hard price collar for the price of carbon, with both a ceiling and a floor.

What we need from an energy/climate bill

I've written a lot about the importance of energy technology to the new U.S. economy.  Someone's going to take the lead in the development of green energy technology.  Germany and China have already made long strides in that direction.  The U.S. can catch up, but we better get moving.

Providing government subsidies for the development of clean coal technology and financial incentives for natural gas and electric vehicles, this climate bill moves us in the direction of leadership in the energy technology revolution.  By making traditional means of energy production more expensive, the bill incentivizes the development of cleaner forms of energy production.  That will help the environment and, by encouraging innovation, will over time lower the cost of those alternative energy technologies.

In a number of important ways the bill also infuses some certainty into the uncertain world of energy production in an era of climate changes.  Utilities like APS and SRP (the Valley's largest) want - and need, and deserve - to know what the rules of the road will be. 

Transitioning to alternative means of energy production (which both APS and SRP have already begun doing) takes time.  Developing new technologies - to capture emissions from coal-fired power plants, for example - is expensive.  Having legislation in place that allows energy producers the time to transition to new technologies and some federal money to develop cleaner production methods is critical.

Another important provision of the energy/climate bill is that it would preempt state rules on greenhouse gas (GHG) emissions.  We desperately need that - we need to avoid state- or region-based, Balkanized GHG emissions plans.  A national plan would put all of the country's energy producers on an even playing field.

A step in the right direction

The Kerry-Lieberman energy/climate bill isn't perfect, of course.  But it accomplishes many of the big goals that we desperately need - like providing energy producers certainty about the rules of the road and creating a national plan to keep everyone on the same road and abiding by the same rules.

And the legislation doesn't have to be perfect in order to make a positive difference for the U.S. energy industry (and America's prospects for remaining a leader in the new global economy).  An article in the New York Times last week likened the bill to legislation passed to promote the transcontinental railroad.  "When you read [the railroad] history, you're reminded that large efforts are generally plagued by stupidity, error and corruption. But by the sheer act of stumbling forward, it's possible, sometimes, to achieve important things.  Energy innovation is the railroad legislation of today."

A big question mark that still remains is how the bill will affect the economy.  Last week the Energy Information Administration (EIA) announced that it had received enough detail on the bill to analyze its economic effects.  Unfortunately, results of the analysis likely won't be available for several months.  But if the Western Climate Initiative's effect on Arizona is any indication, the economic impact could be negative.

Yet as Tim James, who led an AIC-commissioned study on the economic impact of the WCI on Arizona has said, "The cost of controlling greenhouse gas emissions is small compared to the benefits. We won't be quite as wealthy if we pay to reduce GHG emissions, but we will have a habitable planet."

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Written on Friday, 07 May 2010 08:00 by Gary Yaquinto

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