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The Center for Climate and Energy Solutions seeks to inform the design and implementation of federal policies that will significantly reduce greenhouse gas emissions. Drawing from its extensive peer-reviewed published works, in-house policy analyses, and tracking of current legislative proposals, the Center provides research, analysis, and recommendations to policymakers in Congress and the Executive Branch. Read More
 

Congressional Testimony of Elliot Diringer - International Aspects of the American Clean Energy and Security Act

 

Elliot Diringer
Vice President, International Strategies
Pew Center on Global Climate Change

Submitted to
the Energy and Environment Subcommittee
Energy and Commerce Committee
U. S. House of Representatives


April 23, 2009

International Aspects of the
American Clean Energy and Security Act

For a pdf version, please click here.

Chairman Waxman, Chairman Markey, Ranking Members Barton and Upton, members of the committee, thank you for the opportunity to testify on the international aspects of Waxman-Markey discussion draft of the American Clean Energy and Security Act. My name is Elliot Diringer, and I am the Vice President for International Strategies at the Pew Center on Global Climate Change.

The Pew Center on Global Climate Change is an independent non-profit, non-partisan organization dedicated to advancing practical and effective solutions and policies to address global climate change. Our work is informed by our Business Environmental Leadership Council (BELC), a group of 44 major companies, most in the Fortune 500, that work with the Center to educate opinion leaders on climate change risks, challenges, and solutions. The Pew Center is also a founding member of the U. S. Climate Action Partnership (USCAP) , a coalition of 25 leading businesses and five environmental organizations that have come together to call on the federal government to quickly enact strong national legislation to require significant reductions of greenhouse gas emissions.

For the United States to effectively address climate change, the enactment by Congress of mandatory market-based legislation to significantly reduce U.S. greenhouse gas emissions is of the utmost priority.  The Pew Center commends Chairman Waxman and Chairman Markey for significantly advancing this effort with their discussion draft.  An essential complement to strong domestic climate legislation is an effective international agreement ensuring that other major economies also contribute their fair share to what must be a global effort.  It is in the strong interest of the United States to ensure that domestic climate legislation is fashioned in ways that maximize prospects for such an agreement.  In the international negotiations now underway under the Bali Action Plan, the United States will be best able to lead efforts toward an effective global agreement if our domestic legislation:

  • Sets a solid foundation for a verifiable international commitment by the United States, and provides means for the U.S. to take additional actions that can encourage strong commitments by others;
  • Creates positive incentives for stronger emission reduction actions and commitments by the major emerging economies;
  • Dedicates resources to addressing the critical adaptation needs of poor and vulnerable countries;
  • Facilitates the linkage of the United States’ emissions trading system in a global greenhouse gas market; and
  • Includes transitional measures to address the potential competitiveness risks to energy-intensive, trade-exposed industries.

The Pew Center believes that, on the whole, the Waxman-Markey discussion draft would establish a strong foundation for effective U.S. engagement in the global climate effort.  In my testimony today, I would like to offer a number of suggestions for strengthening the proposed legislation to better ensure that the very considerable domestic effort it would initiate is maximally leveraged to achieve a fair and effective global climate agreement.

 

Foundation for a Verifiable International Commitment

An effective global response to climate change requires clear and verifiable international commitments by all major greenhouse gas-emitting nations.  Countries can be expected to deliver their strongest possible efforts only if they have confidence that their counterparts and competitors are delivering theirs as well.  The best means of instilling and maintaining this confidence is a treaty, or a set of international agreements, establishing mutual legal commitments with international accountability.  These commitments must be measurable, reportable, and verifiable.

Given the tremendous diversity among the major economies, it is reasonable that their commitments vary not only in stringency but in form as well.  In A Blueprint for Legislative Action, USCAP recommends a framework that would establish “binding absolute economy-wide reduction targets for developed countries while allowing developing countries a range of binding policy commitments, taking into account national capacities, circumstances, and policy approaches.”     

The Pew Center believes the Waxman-Markey discussion draft would create a very strong foundation for U.S. participation in such a framework.  The emission reduction targets it proposes are ambitious and achievable, and would represent a very credible contribution by the United States toward the ultimate goal of safely stabilizing greenhouse gas concentrations in the atmosphere.  In establishing mandatory targets through 2050, the legislation would provide the basis in domestic law for a corresponding commitment, or series of commitments, at the international level.  To be meaningful, these international commitments must be legally distinct from, and in addition to, the domestic law in which they are rooted.  If countries are merely to pledge national actions – even if these actions are “binding” under domestic law – they are accountable only to themselves.  International commitments create international accountability, and the willingness of the United States to assume such a commitment is the only basis on which it can expect the same of other sovereign governments. 

The emission targets set under cap-and-trade legislation will fundamentally guide any U.S. targets agreed internationally.  The United States will have greater leverage in international negotiations, however, if it has the flexibility to take additional actions that can encourage stronger commitments by others.  One way to do this is by committing support for mitigation and adaptation efforts in developing countries, as is discussed below.  Another way is through  mechanisms facilitating emission reductions outside the United States above and beyond those required under domestic cap-and-trade legislation (i.e., not as international emission offsets used for domestic compliance).  The discussion draft would establish one such mechanism by setting aside a portion of emission allowances to support supplemental emission reductions from reduced deforestation in developing countries. We encourage the Committee to consider broadening these provisions to allow the use of allowance value to facilitate other types of mitigation actions in developing countries, or to acquire emission credits meeting U.S. offsetting criteria, and then retire them.

 

Incentives for Developing Country Mitigation

To achieve an effective international agreement, the United States and other developed countries must be prepared to provide effective incentives and support for stronger action by the major emerging economies.  Under the 1992 U.N. Framework Convention on Climate Change, developed countries committed to provide financial and technological assistance to developing countries. This commitment is underscored in the Bali Action Plan adopted in 2007 by the United States and other Convention parties. In framing negotiations toward a new climate agreement, the Bali plan states that future mitigation actions by developing countries are to be “supported and enabled by technology, financing and capacity-building.” Early and sustained action by the United States to deliver this support will greatly enhance prospects for an effective post-2012 agreement.  Broadly speaking, this support can be delivered as direct assistance, either bilateral or multilateral, and through market-based mechanisms.

 

Public Finance

There is broad recognition that the majority of investment for mitigation will come from private financial flows, in part through greenhouse gas markets, as discussed below. But additional public finance is needed to supplement these market flows.  We believe the United States must be prepared to commit such support, and that these incentives will be most effective if: a) the support provided is adequate and predictable; and b) it is structured as a phased-in program providing some immediate assistance for capacity-building and technology deployment, and greater support for technology deployment once countries commit to effective climate policies. This assistance should be provided through bilateral programs and multilateral mechanisms, including the Clean Technology Fund recently established at the World Bank.

We believe the International Clean Technology Fund proposed in the discussion draft could be an important element of an effective funding strategy.  It would allow support to be delivered through both bilateral programs and multilateral mechanisms, and would establish eligibility criteria providing a clear incentive for developing countries to adopt and commit to effective climate mitigation policies.  However, we would recommend strengthening the provision in several respects.

First, it is critical that a clear, reliable, and predictable source of revenue be designated for these purposes.  We believe the legislation should authorize immediate appropriations for two purposes: a) to support capacity-building activities, as discussed further below; and b) to fulfill the United States’ pledge to help fund the World Bank’s new Clean Technology Fund.  These efforts would immediately demonstrate the United States’ commitment to support developing countries and would help position those countries to undertake stronger efforts.  For the longer term, the legislation should designate a portion of allowance value to provide sustained support for technology deployment.  As proposed in the discussion draft, this further support should be conditioned on a recipient countries’ ratification of an effective international climate agreement, or on the President’s determination that it is undertaking nationally appropriate mitigation activities.  The funds generated through this portion of allowance value could be held in reserve until such time as these eligibility criteria are met.

Second, we believe as a general matter that support for technology deployment should be technology-neutral, so that each dollar invested can achieve maximum return in emissions reduction.  We are concerned that, as written, the discussion draft may exclude funding for more efficient coal-fired electrical generating facilities.  Given the very strong likelihood that many countries will continue to rely on coal as a major energy source, and will continue building substantial new coal-fired generating capacity, we favor using technology support to ensure that these new facilities are as efficient, and least GHG-intensive, as possible.  Eligibility criteria should require that supported facilities deploy the best available combustion technologies and achieve substantial efficiency improvements and emission reductions beyond business as usual.

Third, we believe the legislation should provide explicit and immediate support for a range of capacity-building activities in developing countries.  These should include:

  • Emissions measurement – Strengthening capacity to accurately monitor and measure GHG emissions in key sectors and, ultimately, economy-wide as a basis for policy development, crediting and other market-based responses, and assessing progress.
  • Economic modeling – Strengthening capacity to project emissions and economic conditions under different scenarios, and to evaluate the costs and emission reduction potentials of alternative mitigation approaches.
  • Policy development – Strengthening capacity to design, implement, and enforce nationally appropriate policies that would contribute to emission reduction and could form the basis of international commitments.
  • Technology assessment – Strengthening capacity to assess available mitigation
    technologies and to identify those best suited to national circumstance.

 

Market-based Incentives

Access to the U.S. greenhouse gas market can provide another important incentive for stronger action by developing countries.  The Pew Center strongly supports the use of international emissions offsets, both as an incentive for developing country action and as a mechanism to contain costs in a U.S. cap-and-trade system.  EPA’s recent modeling analysis of the Waxman-Markey discussion draft found that the exclusion of international offsets could increase allowance prices by 96 percent.

USCAP recommends allowing up to 1.5 billion tons of international offsets per year within the cap-and-trade system.  Criteria must be established for all offsets, domestic and international, to ensure they are environmentally additional, verifiable, permanent, measurable, and enforceable.  In the case of international offsets, USCAP recommends that EPA be directed to establish a process to evaluate and approve proposed offsets, and that over time developing countries be required accept climate mitigation commitments to remain eligible for GHG crediting.  In addition, USCAP favors the use of emission offsets from reduced deforestation to supply a strategic emissions reserve available to covered entities to help reduce compliance costs. The overall aim of these recommendations is to encourage developing countries to move rapidly to curb their emissions, while providing verifiable emission offsets to help contain costs for U.S. emitters. 

Although the discussion draft allows fewer offsets (domestic and international) than favored by USCAP, the Pew Center believes that it is in many ways consistent with these recommendations.  Its offsetting provisions would provide a strong positive incentive for developing countries to undertake stronger efforts and to assume reasonable climate commitments.  By allowing crediting on a sectoral basis, the proposed legislation would help mobilize larger-scale reduction efforts in key sectors, while the provisions on reduced deforestation would establish the safeguards needed to ensure the integrity of forest-based offsets. 

Importantly, the draft would allow for the recognition of credits issued by an international body under the UN Framework Convention, or a new climate agreement, provided they meet U.S. offsetting criteria.  A well-functioning international crediting mechanism is important to the efficiency of the global greenhouse gas market.  By potentially allowing offsets from an international mechanism, Congress would help position the United States to strongly influence the restructuring of the existing Clean Development Mechanism or the design of a successor mechanism.

 

Supporting Adaptation Efforts

As noted in the discussion draft, the United States committed under the UN Framework Convention and the Bali Action Plan to provide “new and additional” resources to help poor and vulnerable countries adapt to climate change, and such assistance must be predictable and sustainable.  Consensus among governments on the appropriate means and levels of adaptation support will be critical to achieving a comprehensive climate agreement.

Conceptually, the discussion draft would provide a sound basis for significantly enhanced U.S. support for adaptation efforts in the least developed countries, small island states, and other especially vulnerable countries.  It would establish a stronger framework for delivering direct bilateral assistance, and importantly, it would reserve 40 percent to 60 percent of the support available for U.S. contributions to any international adaptation funds established or designated under a new climate agreement.

To be effective, and to help secure a strong climate agreement, the legislation must establish a clear, predictable, and sustained source of funding for these international adaptation efforts.  The Pew Center strongly supports designating an appropriate portion of allowance value for these purposes.

 

Linking Trading Systems

Emission reduction efforts in the United States and elsewhere will be more cost-effective if linked through a global greenhouse gas market.  It is critical, therefore, that domestic U.S. legislation anticipates and facilitates the linkage of a U.S. cap-and-trade system to existing and emerging market-based systems in other countries and regions, provided they are of comparable environmental integrity. 

The discussion draft appears to lay the necessary foundation for linkage to other market-based systems.  It would establish sound criteria for determining qualifying programs, including the requirement of absolute emission limits, and of comparable stringency with respect to compliance, enforcement, and offset quality.  By also allowing the recognition of allowances from programs establishing sectoral targets, the draft would provide another strong incentive for stronger efforts by countries not yet prepared to take on economy-wide targets.

 

Addressing Competitiveness Concerns

In recent testimony before the Energy and Environment Subcommittee, Pew Center President Eileen Claussen outlined our views and recommendations concerning potential competitiveness impacts on trade-exposed, energy intensive industries.   In brief, our analysis indicates that these potential competitiveness impacts are modest and manageable through a range of policy options. 

We believe that in the long term, concerns over competitiveness and associated emissions leakage are best addressed through effective international climate commitments, and that the overriding objective should therefore be to facilitate their establishment.  In the interim, we favor the use of transitional measures such as output-based emission allocations or rebates to vulnerable industries, and transition assistance to affected workers and communities.  We strongly discourage the use of unilateral trade measures.  Such measures would not fully counter competitiveness risks; as they would apply only to imports to the United States, they would not help “level the playing field” in the larger global market where U.S. producers may face greater competition from foreign producers.  Further, they risk retaliatory trade measures, and put climate relations on the path to confrontation rather than cooperation.

On the whole, we believe the discussion draft takes a very sound approach to addressing competitiveness concerns.  As we favor, it relies primarily on an output-based approach to compensate firms in qualifying sectors for the direct and indirect costs of greenhouse gas regulation.  Also consistent with our recommendations, the draft would: structure the compensation so as to provide an incentive for investments in energy efficiency; phase down the level of compensation over time; provide for Presidential review to slow this phase-down if necessary; and end compensation if 70 percent of global output is subject to commensurate greenhouse gas regulation.  We believe this approach addresses the transitional competitiveness concerns likely to arise under a mandatory cap-and-trade program, while maintaining the environmental integrity of the program and providing an ongoing incentive for producers to improve their GHG performance.

Critically, the draft contemplates the use of trade measures against other countries only as a last resort if the President finds that, despite the rebate program, regulatory costs have harmed production or employment by energy-intensive U.S. manufacturers, or that emissions from competitors in countries without commensurate climate obligations have increased.  This approach preserves trade measures as an option, but defers their use to allow a reasonable period to assess the efficacy of the rebate program and to achieve effective international agreements.

In conclusion, the Pew Center believes that the Waxman-Markey discussion draft would provide the foundation for a strong U.S. contribution to the global climate effort, and that with further refinements, the proposed legislation would well position the United States to lead efforts toward an equitable and effective international agreement.  We appreciate the opportunity to provide our input on the discussion draft, and look forward to working with the Subcommittee and the Committee as this critical legislation moves forward.  

Press Release: USCAP Testifies on Waxman-Markey Discussion Draft

USCAP

For Immediate Release
Contact: Tad Segal (202) 667-0901, Tad.Segal@widmeyer.com
April 22, 2009

 


USCAP to Congressional Panel: Clarity on Climate Policy Will Spur Economic Investment

Washington, D.C. (April 22, 2009) – American businesses stand ready to invest billions of dollars in critical infrastructure and next-generation clean energy technologies but first need clarity on future regulation of greenhouse gases, members of the U.S. Climate Action Partnership (USCAP) told members of the House Energy and Commerce Committee during a hearing on pending climate legislation today.

Backing an economy-wide cap-and-trade approach to reduce greenhouse gas (GHG) emissions, the members of USCAP urged the Committee to produce well-crafted and balanced national climate legislation that establishes clear rules of the road. Companies in many industries today cannot make prudent large-scale, long-term investment decisions without first understanding how climate protection efforts will be structured and implemented going forward, the USCAP members said. Resolving this uncertainty will free companies to begin deploying capital and spending more on badly needed research and development.

“Long-lasting climate change legislation must be based on three equal tenets – protecting the environment, the economy and consumers,” said Jim Rogers, President and CEO of Duke Energy. “The sooner Congress acts on climate change to provide the regulatory clarity business and industry needs to move ahead with major capital projects, the more rapid our economic recovery will be.”

This is the second time in the past three months that USCAP has testified before the House Energy and Commerce Committee on the subject of climate protection legislation. On January 15th, USCAP members presented the Committee with their Blueprint for Legislative Action, which lays out a comprehensive and integrated set of policy recommendations.

The Blueprint calls for reductions of GHG emissions of 80 percent by 2050, compared to 2005 levels. In addition, USCAP has called for domestic and international offset provisions that will help lower GHG emissions from non-capped entities, cost containment measures to protect consumers and industries, and other complementary measures that enhance the effectiveness of any emissions reduction program and increase investment in new technologies.

"With leadership and foresight, we can strengthen our economy by reducing pollution. Inaction is simply not an option," said Frances Beinecke, President of the Natural Resources Defense Council. "By increasing energy efficiency and moving to clean, renewable energy, we can create millions of jobs, save consumers billions of dollars, and increase our energy security. We have an opportunity to be the global leader in low-carbon technology if we act wisely and swiftly."

USCAP said that any legislation must also protect consumers, vulnerable communities and businesses while ensuring economic sustainability and environmental effectiveness.

“Swift enactment of a well-crafted cap-and-trade program will encourage the critical private
sector investment in low-carbon technologies required to protect our environment, while at the same time protecting consumers and our domestic industries,” said David Crane, President and CEO of NRG Energy.

Last month, USCAP hailed the introduction of the Waxman-Markey discussion draft as a strong starting point for national climate protection legislation. Commenting on the draft, USCAP members said it addresses many of the core issues and policy recommendations identified by USCAP in its Blueprint, which were agreed upon only after significant discussion and debate within the group.

"I believe that this may be the single greatest opportunity to reinvent American industry, putting us on a more sustainable path forward,” said Charles Holliday, Jr. Chairman of DuPont. “A federal climate program has the potential to create real economic growth through innovation."

###

United States Climate Action Partnership (USCAP) is a group of businesses and leading environmental organizations that have come together to call on the federal government to quickly enact strong national legislation to require significant reductions of greenhouse gas emissions.

USCAP Members:
 Alcoa  Boston Scientific  BP America  Caterpillar  Chrysler  ConocoPhillips  John Deere  Dow  Duke Energy  DuPont  Environmental Defense Fund  Exelon  Ford  FPL Group  GE  GM  Johnson & Johnson  Marsh  Natural Resources Defense Council  The Nature Conservancy  NRG Energy  PepsiCo  Pew Center On Global Climate Change  PG&E  PNM Resources  Rio Tinto  Shell  Siemens  World Resources Institute  Xerox 

Statement: EPA Issues Proposed Endangerment Finding

-On the occasion of the EPA's issuance of a proposed endangerment finding for greenhouse gases.-

Statement of Eileen Claussen
President, Pew Center on Global Climate Change


April 17, 2009

I applaud the EPA for officially recognizing that greenhouse gas emissions are a danger to our public health and welfare that, if unchecked, could have potentially serious impacts to our environment and well-being. Today's announcement is a major milestone for the U.S. and signals clearly that any further delay of action will only prove more costly for both our environment and our economy. All eyes are on Congress now as it considers legislation that will move the country toward a cleaner and more sustainable energy future.    

EPA press release

More information from EPA

2009 Climate Legislation Briefings

The Pew Center presents Congressional briefings on a variety of critical climate change policy issues. From this page, users can access these briefing materials, including web videos of the proceedings and related presentations and summaries.

The Pew Center also offers a series of Congressional policy briefs that walk policymakers through important design choices for a cap-and-trade program and key complementary measures to reduce greenhouse gas emissions.
To learn more about the Congressional Policy Briefs, click here.

2009 Briefings

May 1, 2009
Briefing on Carbon Market Design & Oversight

April 24, 2009
Briefing on International Offsets

March 27, 2009
Briefing on Allowance Value

March 6, 2009
Briefing on Domestic Offsets

 

-Supported by a Generous Grant from the Doris Duke Charitable Foundation-

Summary of the American Recovery and Reinvestment Act (ARRA)

Download a pdf version of our ARRA summary.   

The American Recovery and Reinvestment Act (ARRA) included a total of $787 Billion in new spending and tax incentives. The new spending involves about $42 billion in energy related investments, $21 billion in vehicles/transportation spending (transit assistance, energy efficient fleets, etc.), and about $570 million in climate science research spending. In addition, there are about $21 billion in energy-related tax incentives such as extending the renewable energy production tax credit and an additional $1.6 billion in Clean Renewable Energy Bonds.

The Administration released a memo to Heads of Departments and Agencies that served as the first installment of government-wide guidance for carrying out the programs and activities funded by the ARRA. 
Click here to read the memo. 

Information on how agencies and states will be using their funds

The American Clean Energy and Security Act (Waxman-Markey Bill) Discussion Draft

The discussion draft of the American Clean Energy and Security Act (ACES Act), released on March 31, 2009 by Representatives Waxman (D-CA) and Markey (D-MA) includes four distinct titles: I) clean energy, II) energy efficiency, III) reducing global warming pollution, and IV) transitioning to a clean energy economy. Title I contains provisions related to a federal renewable electricity standard, carbon capture and storage technology, performance standards for new coal?fueled power plants, a low carbon fuel standard, and smart grid advancement. Title II includes provisions related to building, lighting, and appliance energy efficiency programs, as well as efficiency standards for mobile sources and other transportation programs. Title IV includes proposals designed to preserve domestic competitiveness and support workers, provide assistance to consumers, and support domestic and international adaptation initiatives while transitioning to a clean energy economy. The following is a brief overview of the proposed greenhouse gas (GHG) cap-and-trade program contained in Title III.

Waxman-Markey Discussion Draft Materials

EPA Preliminary Analysisof Discussion Draft

Assessing the Benefits of Avoided Climate Change

Promoted in Energy Efficiency section: 
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This workshop considers what useful insights can be gleaned now about quantifying the benefits of reducing greenhouse gas emissions. The workshop’s objectives are to develop a set of practical recommendations that decision makers can employ in the near-term and to outline a research path to improve decision making tools over time.

Workshop: Assessing the Benefits of Avoided Climate Change: Cost-Benefit Analysis and Beyond
May 2010

Statement: Waxman-Markey Climate Discussion Draft

-On the occasion of the release of a discussion draft of climate and energy legislation from House Energy and Commerce Committee Chairman Henry Waxman (D-CA) and Energy and Environment Subcommittee Chairman Edward Markey (D-MA)-

Statement of Eileen Claussen 
President, Pew Center on Global Climate Change

March 31, 2009

Today’s proposal from Chairmen Waxman and Markey marks a bold new beginning for U.S. climate and energy policy. The Waxman-Markey discussion draft calling for an economy-wide, greenhouse gas cap-and-trade system and critical complementary measures is an ambitious, but achievable approach to our energy and climate future. The draft bill includes aggressive emission reduction targets as well as measures that will protect U.S. consumers and workers, and deploy low- and zero-emitting technologies.

While there is still work to do on a number of issues, including allowance allocation, this draft bill indicates that the Chairmen understand the importance of balancing both the environmental and economic goals of our nation. We look forward to working with the Chairmen and other members of the Energy and Commerce Committee to advance this critical climate and energy legislation.

Read the Discussion Draft here

Op-Ed: Goals Can Be Met Without Auctioning Emission Allowances

By: Eileen Claussen and Jim Rogers
March 31, 2009

This article originally appeared in the National Journal's Energy & Environment Experts Blog.

Let’s get one thing straight: Though not perfect, we like the way President Obama and his team are addressing the potential catastrophe of climate change.

The Administration unequivocally accepts the underlying science. They realize that the cost of not acting will be far greater than the cost of taking responsible action – and that the longer we wait, the greater the costs will be for American consumers. Their emissions goals are ambitious but achievable, as is the timetable to meet them. And we agree that cap and trade is the right way to go. It’s based on common sense capitalism: it puts a price on carbon and rewards facilities that can reduce carbon dioxide and other greenhouse gases at the lowest cost, even as it provides incentives for others to find more economic ways to reduce their own emissions.

Where we temporarily part ways is when it comes to the Administration’s proposal calling for a full auction of emission allowances. How these allowances are distributed doesn’t change the overall environmental goal set by the cap. We believe it is critical that a number of them be used to reduce price impacts on households and businesses – in the early years of the program.  Just this week Chairmen Waxman and Markey released a discussion draft of energy and climate legislation that leaves open how we can best address this critically important issue.

In all states, electricity is distributed by local companies regulated by public service commissions whose fundamental purpose is to protect consumers and keep electricity rates low.  We recommend protecting households and businesses that purchase electricity from utilities by providing allowances to the regulated distribution companies during a transition period.

There is little question that an auction, in which allowances to emit specified amounts of carbon are sold to the highest bidders, will result in a price spike for electricity in some regions. That price spike will hit households and businesses the hardest, and for some, it will be very tough to manage.

We believe we need a climate change plan that protects against price spikes in electricity bills. Our plan would effectively curb carbon, limit the risk of price volatility, target relief to those who need it most, and take advantage of the distribution companies’ and public service commissions’ ability to deliver energy efficiency.

During the transition period from granting allowances to a full auction, there would be no windfall for utility companies or their investors. The legislation itself and actions by public service commissions would guarantee it.  On the flipside, there would not be huge price increases for electricity in coal-fueled states and a much smoother transition to a cleaner economy. If this approach is not taken, the whole argument for climate change legislation could be moot – senators and representatives from those states might effectively kill legislation mandating cap and trade.

Overall, we think a cap-and-trade system that shifts from granting allowances to a full auction over time will provide the most reasonable transition to the low-carbon and thriving economy we all desire.  To help ensure a smooth transition, granting allowances and auction revenues should be used to help cushion workers, households, and vulnerable industries from volatile prices.  It should also support the development of critical low-carbon technologies like carbon capture and storage, and assist in efforts to better adapt to the climate change we are already beginning to experience.

With a price on carbon, energy companies will more rapidly invest in clean technologies, as long as they can be certain that future regulations neither bankrupt them nor mandate that they bet on specific untried technologies. It will also help them look deeper into renewable sources of energy, be they solar, wind, hydropower, or even agricultural waste. They will rethink nuclear power which, despite its scary image, is actually a safe, clean way to generate electricity.

We know that some of those technologies still need the kinks worked out, and that others remain prohibitively expensive. But this is where the government could use some of the revenues that it gets from auctioning allowances to other emitters now, and to utilities and competitively challenged manufacturers down the road.

We’re not ostriches, and we’re not Pollyannas. We know there is a cost to addressing climate change, and that this cost will filter down to big business, to small business, and to households. Utilities that buy carbon allowances or shift to lower-carbon generating options will have to increase their rates, but energy efficiency can lower customer bills even in the face of rate increases. And there will be far less economic upheaval if higher prices come gradually, which our transition program would ensure.

Appeared in the National Journal Energy & Environment Expert Blog— by Eileen Claussen and Jim Rogers

Climate Policy Hill Briefing on Allowance Value

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This briefing presents views on the use of allowance value in a GHG cap-and-trade system.

Briefing on Allowance Value in a Greenhouse Gas (GHG) Cap-and-Trade System

March 27, 2009

The Pew Center held a Congressional Briefing on the use of allowance value in a GHG cap-and-trade system.  No matter what final form an eventual cap-and-trade system takes, its emissions allowances will represent significant value for decades. The panelists presented different views on how that value should be used, and the key mechanisms for distributing it.

Panelists:

  • Judi Greenwald, Vice President for Innovative Solutions, Pew Center on Global Climate Change
    Moderator
    Presentation Slides     Windows Media Video    
  • Peter Molinaro, Vice President, Federal and State Government Affairs, Dow Chemical Company
    Using Allowance Value to Address Competitiveness
    Windows Media Video    
  • Chad Stone, Chief Economist, Center on Budget and Policy Priorities
    Using Allowance Value to Compensate Consumers
    Windows Media Video     
  • Melissa Lavinson, Director, Federal Environmental Affairs and Corporate Responsibility, PG&E
    US Climate Action Partnership views on Allowance Distribution
    Windows Media Video   
  • Question and Answer Session: Windows Media Video   

 

Related Materials

Brief on Allowance Allocations

More climate change policy briefs

Back to list of Briefing Videos

 

 

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