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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
 

Pew Center urges vote for Waxman-Markey Clean Energy Bill (H.R.2454)

PDF Version

June 24, 2009

Dear Representative:

I write to express the support of the Pew Center on Global Climate Change for the American Clean Energy and Security Act of 2009 (ACES Act), H.R.2454.  The ACES Act will help tackle climate change, drive our economic recovery, and advance energy independence.  I strongly urge you to vote in favor of this landmark legislation.

The science is clear.  As the U.S. Global Change Research Program recently reported, human-induced climate changes are underway in the United States and are projected to grow.  We are already experiencing increases in heavy downpours, rising temperature and sea level, rapidly retreating glaciers, thawing permafrost, lengthening growing seasons, lengthening ice-free seasons in the ocean and on lakes and rivers, earlier snowmelt, and alterations in river flows. These changes are projected to grow.  In addition, climate change-related threats to human health are expected to increase, including heat stress, waterborne diseases, poor air quality, extreme weather events, and diseases transmitted by insects and rodents.

The ACES Act combines ambitious but achievable targets for reducing the greenhouse gas emissions that cause climate change with a market-based program that will reward business leaders for deploying clean energy technologies as quickly and inexpensively as possible.  Enactment of the ACES Act will allow the United States to help lead the efforts toward a global agreement in which the major economies of the world, both developed and developing, play their part to address the climate challenge.

Because of its market-based program and other cost containment measures, the ACES Act carries only a small cost.  The Congressional Budget Office estimates that the ACES Act would in 2020 have an average annual cost of $175 per household and that those households in the lowest twenty percent by income would actually receive a net benefit of $40 per year.  The Environmental Protection Agency projects that the bill would cost American households $80 to $111 a year.  For a comparison of these analyses, see the Pew website.  Neither of these estimates account for the benefit the ACES Act would provide to the U.S. public and economy by avoiding the costs of increased climate change.  Nor do they account for the fact that the ACES Act will help U.S. businesses lead the race underway to develop clean energy technologies – a race that will dominate the 21st century global economy.

In the days ahead, you will no doubt hear other views of the ACES Act, including many verging on mythology.  For example, according to one recently advertised myth, gasoline prices could rise by as much as 77 cents per gallon over the next decade.  In fact, EPA projects that under the ACES Act, gasoline prices would be only 25 cents per gallon higher by 2030 – an average increase of less than three pennies per gallon per year.  Meanwhile, gasoline prices have swung by more than two dollars per gallon over the last year alone.  For more of this myth-busting, see the attached Pew Center paper on “Eight Myths about the Waxman-Markey Clean Energy Bill.”  A debate this important should be based on fact, not fiction. 

The Energy and Commerce Committee has seized its opportunity to begin building a stronger U.S. economy and a better, safer world.  It will not be an easy task – but it is one we must begin now.  I urge you to build on this work by moving the bill forward.  If you have any questions, please have your staff contact Nikki Roy.

Sincerely,

Eileen Claussen
President
Pew Center on Global Climate Change

Cost of ACES Act Found to be Small According to Government Analyses

Climate Policy Memo #3: Cost of the American Clean Energy and Security Act of 2009 Found to Be Small According to Government Analyses

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June 2009

For more information on this subject and other memos in this series, click here.

Economic analysis by its nature is better suited to providing insights and not absolute predictions of the future and when these insights are confirmed by more than one analysis, the results are typically considered more credible.  With this in mind, two recent government analyses that looked at the costs of the cap and trade portion of the American Clean Energy and Security Act of 2009 (ACES) have found that the likely impact of this portion of the bill would be fairly small.  Taking into account the included cost containment provisions and that much of the revenue raised by the bill would be returned in some fashion to households, both EPA and CBO suggest that household impacts would be less than $200 per year. 

The following table and bullets are intended to provide a short summary of key results from these two analyses.

Key Results from EPA and CBO Analyses of American Clean Energy and Security Act1

   2020         2030        2050        
Allowance Price ($/tCO2e)                         

EPA         
CBO

$16        
$22
$26-27
n.a.
$69-70
n.a.
Annual Household Cost ($)EPA
CBO
$49-61
$175
$99-312
n.a.
$123-174
n.a.
Annual Economy-wide Cost (billions of $)*EPA
CBO
$100
$22
$100-200
n.a.
$500-700
n.a.

 

*EPA and CBO compute net economy-wide costs using different methodologies.  EPA’s cost estimates reflect the change in GDP from business-as-usual levels and are computed using general equilibrium models.  CBO’s cost estimate includes international offsets, production cost of domestic offsets, resource costs, and allowance value going overseas, and does not capture the entire impact on GDP nor certain general equilibrium effects.

 

Other Results

  • EPA results highlight the relatively small carbon price impacts on future gasoline prices ($0.13 in 2015, $0.25 in 2030, and $0.69 in 2050).  For context, EIA reports that in the past year alone, gasoline prices have swung over $2 per gallon.2 EPA also reports that that these small price impacts are not sufficient to significantly change consumer driving or vehicle choice behavior.  
  • EPA results suggest that with the energy efficiency provisions, allocation to local electricity distribution companies (LDC’s) and rebates to energy intensive manufacturers, electricity prices will be unchanged in 2020 but will increase 13% by 2030.  EPA also notes however, that if allocating to LDC’s shields consumers from all price impacts, the cost of the cap-and-trade policy will be more costly since other sectors of the economy will need to achieve greater emission reductions. 
  • CBO looked at how ACES would impact different household income groups.  They found that households in the lowest income quintile would see an average net benefit of $40 in 2020 from the program.  Households in the middle and top income quintiles would see a net cost of $235 and $245, respectively.  These net impacts reflect the cost of higher energy and goods prices and the share of allowance value returned to households in their roles as consumers, workers, and investors.
  • CBO has also estimated the budgetary impacts of Waxman-Markey.  For the cumulative period 2010-2019, the increase in estimated revenues would be $845.6 billion.  The increase in direct spending would be $821.2 for the same period.  The net impact for this period would therefore be a decrease in the deficit of $24.4 billion.  These changes in revenues and direct spending stem mainly from the process of auctioning and freely distributing allowances.  CBO also estimated that discretionary federal spending would increase by $49.9 billion over this period.
  • In these analyses all assessments of the cost of cap and trade, deployment of low carbon technology is critical.  Greater expansion of nuclear power, renewable generation, biofuels and carbon capture and storage capacity reduces the program costs.


_____________________________________
1 EPA’s recent analysis of ACES can be found at http://www.epa.gov/climatechange/economics/pdfs/HR2454_Analysis.pdf and CBO’s recent analysis can be found at  http://www.cbo.gov/ftpdocs/103xx/doc10327/06-19-CapTradeCosts.htm.

2 EIA’s analysis of gasoline price movements is available at http://tonto.eia.doe.gov/oog/info/gdu/gasdiesel.asp.

 

 

This series was made possible through a generous grant from the Doris Duke Charitable Foundation, but the views expressed herein are solely those of the Pew Center on Global Climate Change and its staff.

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Myths about the Waxman-Markey Clean Energy Bill

Climate Policy Memo #2 – Eight Myths about the Waxman-Markey Clean Energy Bill

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June 2009

For more information on this subject and other memos in this series, click here.
 

No bill is perfect.  Certainly not one that contains a thousand pages and seeks to overhaul the way our nation uses energy.  But many of the recent attacks on the American Clean Energy and Security Act (ACES) proposed by Representatives Waxman and Markey go beyond fact-based policy disagreements and venture more into the realm of mythology.  Below is a list of a few of these myths, along with an attempt to set the record straight.

Myth #1.  By giving away emission allowances, the bill is less effective at protecting the environment.
Reality:  The cap in a “cap-and-trade” system determines its environmental stringency by setting the number of emission allowances that are available.  These allowances are equal to the amount of emissions that are permitted under the cap and their number declines over time as the cap is tightened.  From an environmental perspective, it doesn’t matter how the emission allowances are distributed.  They could be auctioned or freely distributed or any combination of the two.   All that matters is the total number of emission allowances that are distributed -- the environmental goal is determined by the cap itself and is not in any way impacted by whether the allowances are auctioned or distributed freely.

Myth #2. The Waxman-Markey bill will cost the average household thousands of dollars in higher energy costs.
Reality:  A few widely touted studies purport to show that climate legislation will impose costs of $1,600 - $4,300 per household.  But a closer look at these studies shows that they do not actually model the key provisions in the Waxman-Markey bill.  Others have suggested that the changes required under the bill would not cost consumers any money or would even save consumers hundreds or even thousands of dollars.  These claims also fail to fully account for costs.  One study that does specifically model the core elements of the bill concludes that household costs are likely to increase by $80-111 annually.

The Congressional Budget Office (CBO) testified before a Congressional hearing in May 2009 that household costs would be $1,600 per household.  But this number was based on a CBO study done nine years ago when energy prices and economic growth were very different. Nor did this statement take into consideration the potential to lower costs through the use of offsets and the use of allowance value to reduce household costs as specified in the Waxman-Markey bill.  In June CBO released a new analysis that states that costs in 2020 would average $175 per household and that those households in the lowest twenty percent by income would actually receive a net benefit of $40 per year.  A study by MIT is being used by some to argue that the climate bill would cost $3,100 per household.  But the author of this study has written that this number misrepresents the conclusions of his study and that estimated household costs would actually be far less.  Finally, the Heritage Foundation recently issued a memo claiming that the Waxman-Markey bill would cost households $4,300 annually.  But this analysis fails to consider many of the key provisions of the bill including its extensive use of offsets to reduce overall costs and its use of the value of emission allowances to reduce costs to consumers.

Others have claimed that the bill will have no cost impact, but this ignores the very real economic costs of shifting to a clean energy economy.  A study of the bill by the American Council for an Energy Efficient Economy concludes that the energy efficiency provisions would save consumers $750 per household in 2020 and $3,900 per household by 2030.  This study focuses only on the changes in energy use associated with specific energy efficiency provisions and doesn’t include other requirements contained in the bill.

One study that does seek to estimate the costs of Waxman-Markey was released recently by Environmental Protection Agency (EPA). This analysis takes offsets and the use of allowance value into consideration and concludes that costs could be on the order of $80-111 per household annually for the period from 2012-2050.

Given the limitations of economic modeling, no analysis should be assumed to give a correct answer.  But certainly it is critical that any credible analysis that is used in the policy debate should faithfully represent what is actually required by the bill.  

Myth #3. The Waxman-Markey bill will significantly increase gasoline prices.
Reality: According to one recently advertised myth, gasoline prices could rise by as much as 77 cents per gallon over the next decade.  In fact, EPA projects that gasoline prices would be only 25 cents per gallon higher by 2030 – an average increase of less than three pennies per gallon per year.  Meanwhile, gasoline prices have swung by more than two dollars per gallon over the last year alone.

Myth #4.  The bill creates windfall profits for industries by giving 85% of the total emission allowances available to them for free.
Reality: The bill does not give away most of the allowances freely for industry’s benefit.   The bill does provide emission allowances to help consumers, workers, businesses and communities transition to cleaner sources of energy.   Over the lifetime of the bill, about 80 percent of the total available allowances are used to protect consumers from higher energy prices and for other public purposes such as clean energy research and climate change adaptation efforts.  For example, 15 percent of allowances are returned as a rebate to low- and moderate-income households. In addition, over the period covered by the bill, approximately 22 percent of allowances are given to electric utility and natural gas local distribution companies, primarily in the early years of the program, expressly for the purpose of being passed on to consumers to offset higher energy bills.  The approximately 20 percent of allowances that are distributed freely to private industry includes about 12percent for energy intensive industries, oil refineries and merchant coal plants to facilitate their transition to clean energy technologies. But even here provisions are included stating that such allowances should not result in windfall profits.  Providing allowances to energy-intensive industries that compete in international markets also has an environmental objective.  It prevents emission leakage – the potential for increases in production and emissions abroad from competing companies not facing similar restrictions. The ability to use the value of emission allowances to offset price impacts on consumers and others impacted by efforts to shift away from fossil fuels is one important advantage of a cap-and-trade policy.

Myth #5.  The bill relies heavily on a cap-and-trade regime, the same policy approach that was tried and failed miserably in the European Union.
Reality:  The European Union (EU) has instituted a cap-and-trade program as the cornerstone of its efforts for reducing greenhouse gas emissions. It began using this mechanism in 2005, starting with a 3 year trial period aimed at developing the institutions required for an effective trading system. This trial period demonstrated the importance of good emissions inventories and the need for consistent rules across all member nations making up the EU. Over time the EU’s trading system has tightened its emissions cap and is moving toward greater use of auctions.   The EU system has demonstrated that a market price for emission allowances will develop and serve as an incentive for achieving cost effective reductions in greenhouse gas emissions. It is currently effectively reducing emissions at 12,000 sources and enabling cost-effective compliance through the trading of millions of EU allowances. Because of its success, it remains the policy instrument of choice for the European Union.

A detailed experts’ review of the initial implementation of the European Union’s emissions trading system is available here.

Myth #6. The bill creates a new class of unregulated financial derivatives.
Reality:  Given the recent problems in the financial sector, due in part to unregulated mortgage-backed derivatives, some have suggested that the market in emissions allowances and the types of financial instruments that could be developed under the bill could lead to the same types of problems.  Creating a market that allows companies to hedge against the risk of future price changes can reduce costs over time and help manage the transition to a clean energy economy.  What it should not do is create a new unregulated market.  The bill contains extensive provisions calling for the Federal Energy Regulatory Commission to monitor and regulate developments in energy markets and for the Commodity Futures Trading Commission to play a similar role in monitoring and regulating derivatives that may develop under any cap-and-trade program. 

Myth #7.  The bill will result in huge job losses or, alternatively, will create thousands of new green jobs. 
Reality:  While these statements taken together may in fact be true, either one by itself is misleading. Given the size of our economy and the changes that occur over time, new jobs are constantly being created and existing jobs are constantly being lost.  Twenty years ago fewer jobs existed in the telecommunications industry, but there were more in the auto manufacturing industry.  This process of job creation and loss will continue whether the Waxman-Markey bill becomes law or not.  What is less clear is whether the net impact of the bill on total jobs will be positive or negative. None of the models used to look at economic impacts is well suited for predicting both the number of jobs lost and the number gained.  But for those losing their jobs, it is of little comfort that new jobs may be created elsewhere in the economy.  The Waxman-Markey bill contains provisions for assisting workers and communities in meeting the challenges of shifting to a clean energy economy. 

Myth #8.  Regardless of the costs of Waxman-Markey, the benefits in reduced climate change from the bill itself are so small it isn’t worth it.
Reality:  Climate change is a global problem and will require nations of the world to work together to reduce greenhouse gas emissions.  It is true that the United States has recently been overtaken by China as the largest source of greenhouse gas emissions, but the United States still contributes 20 percent of global emissions, so what we do is critically important.  It is also true that if the United States acts alone, we cannot solve climate change.   The key point is that all major emitting nations must contribute to those efforts and the bill both lays out what actions domestically the United States would pursue, while also providing a framework which encourages other nations to act.    Nor is the United States alone in moving forward in this process.  Other nations are at various stages of developing and implementing national programs and all are also actively engaged in international treaty negotiations under the United Nations Framework Convention on Climate Change.   The reductions from the Waxman-Markey bill are a significant step in reducing emissions from the United States, but should be viewed in the context of what all nations must do to contribute to this global effort to limit climate change.

 

This series was made possible through a generous grant from the Doris Duke Charitable Foundation, but the views expressed herein are solely those of the Pew Center on Global Climate Change and its staff.

 

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Press Release: Wind and Solar Electricity: Challenges and Opportunities

Press Release- June 23, 2009
Contact: Tom Steinfeldt, (703) 516-4146 


REPORT EXAMINES POTENTIAL OF WIND AND SOLAR ELECTRICITY
New Policies Needed to Spur Significant Growth in Wind, Solar in U.S.

WASHINGTON, D.C. – Wind and solar power could become a major source of electricity for the United States, but only if the nation adopts new policies that promote renewable energy and that place a price on carbon, according to a new report from the Pew Center on Global Climate Change. 

The report, “Wind and Solar Electricity: Challenges and Opportunities,” cites figures showing that renewable energy sources currently provide only a small fraction of U.S. electricity (8 percent of the total including conventional hydro power, and only 2 percent excluding hydro).  A business-as-usual forecast suggests that renewables will supply 14 percent of U.S. electricity by 2030, with non-hydro renewables providing only 6 percent. 

However, Congress currently is considering policies that could lead to a significantly larger role for renewables in meeting the United States’ energy needs.  Such policies include a cap-and-trade program for greenhouse gases and a national renewable portfolio standard (RPS) that requires increased production of energy from renewable sources.  The Pew Center report, which includes a detailed analysis of the costs of wind and solar vs. other power sources, suggests that such policies could provide a critical boost in overcoming barriers to the more rapid development and deployment of renewables. 

“Wind and solar power are two of our most promising renewable energy technologies, but without a price on carbon – they will face significant barriers to widespread market penetration,” said Eileen Claussen, President of the Pew Center on Global Climate Change.  “Acting now to regulate carbon through a cap-and-trade system and changing the way we plan and manage our electricity grid can help to make these cleaner energy sources a more significant part of the climate solution.” 

“Wind and Solar Electricity: Challenges and Opportunities” examines three primary obstacles to deployment of wind and solar power: cost, variability of generation, and lack of transmission. The paper, authored by Dr. Paul Komor of the University of Colorado at Boulder, explains these challenges, explores policy options for addressing them, and describes the implications of future scenarios that entail significantly higher levels of electricity generation from wind and solar power.   

Key sections of the paper include:

  • An overview of wind, solar photovoltaic, and solar concentrating power technologies; 
  • An explanation of the key challenges to deploying wind and solar power—namely, higher cost, variability of generation, and inadequate transmission;
  • Policy options for making wind and solar cost-competitive, overcoming transmission constraints, and managing variability; and
  • An evaluation of the implications of “high wind” and “high wind and solar” scenarios for future U.S. electricity production.
    For more information about global climate change and the activities of the Pew Center, visit www.c2es.org.

###

The Pew Center was established in May 1998 as a non-profit, non-partisan, and independent organization dedicated to providing credible information, straight answers, and innovative solutions in the effort to address global climate change. The Pew Center is led by Eileen Claussen, the former U.S. Assistant Secretary of State for Oceans and International Environmental and Scientific Affairs.

Wind and Solar Electricity: Challenges and Opportunities

Wind and Solar Electricity: Challenges and Opportunities

June 2009

BY: Dr. Paul Komor


Wind and solar power could become a major source of electricity for the United States, but only if the nation adopts new policies that promote renewable energy and that place a price on carbon.  The report cites figures showing that renewable energy sources currently provide only a small fraction of U.S. electricity (8 percent of the total including conventional hydro power, and only 2 percent excluding hydro).  A business-as-usual forecast suggests that renewables will supply 14 percent of U.S. electricity by 2030, with non-hydro renewables providing only 6 percent. 

Wind and Solar Electricity: Challenges and Opportunities examines three primary obstacles to deployment of wind and solar power: cost, variability of generation, and lack of transmission. The paper, authored by Dr. Paul Komor of the University of Colorado at Boulder, explains these challenges, explores policy options for addressing them, and describes the implications of future scenarios that entail significantly higher levels of electricity generation from wind and solar power. 

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Press Release

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Paul Komor
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New Administration Puts Carbon Reduction on the Agenda

Featured in MetalMag's June edition.  See page 66.

New Administration Puts Carbon Reduction on the Agenda

By Andre de Fontaine

During the past decade, climate change steadily has moved up the political agenda. Now, with a new administration in Washington, D.C., that has demonstrated a clear commitment to action, comprehensive climate-change legislation appears ripe for passage within the next couple years. As a result, many industries are appropriately wondering what the new regulatory environment will mean for their businesses.

First, it is important to note that reducing greenhouse-gas (GHG) emissions will impose a cost to society, though that cost is likely to be small and manageable within the context of the overall economy. These costs must also be balanced against the costs of unabated climate change, which are projected to be much greater than taking action now. Still, there likely will be distributional impacts as the U.S. transitions to a low-carbon economy, with certain industries being able to handle the transition with greater ease than others.

The green-building industry widely is expected to be a major beneficiary of public policies to reduce greenhouse-gas emissions because policymakers recognize two related facts. First, the country’s existing buildings are major contributors to climate change, accounting for about 43 percent of U.S. GHG emissions; and second, a number of low-cost mitigation options available involve improving the efficiency of new and existing buildings. Additionally, as the nation is mired in a serious economic downturn, efforts to stimulate the economy are increasingly focused on green buildings as a major source of new jobs in the coming years.  For example, the recently enacted American Recovery and Reinvestment Plan of 2009 contained billions for weatherization assistance for low-income households, grants for states to improve the efficiency of residential, commercial and government buildings, and tax credits for energy efficiency improvements to existing homes.

While these stimulus provisions will benefit the green building sector in the near term, longer-term policy, in the form a cap and trade system for GHGs is also on the horizon. How does a cap-and-trade program work? The government sets an annual cap on allowable emissions, which declines over time. It then distributes allowances to entities– free of charge, through an auction, or a combination of the two – to entities included in the program. These typically are major emitters, like power plants and large manufacturing facilities. The total number of allowances distributed must match the total emissions allowed under the cap. 

Regulated firms must hold and submit to the government one allowance for each ton of GHGs they emit. This creates a market for allowances—a carbon market—and an economic incentive for firms to reduce emissions. Those that easily can cut emissions can position themselves to purchase fewer allowances and/or sell excess allowances to firms that face higher reduction costs.

Buildings would not be directly regulated under the cap, but they could be impacted by increases in electricity and fuel costs attributable to the price of carbon. These higher energy prices will, over time, make investments in efficiency more attractive in the buildings sector.

This year the prospects for aggressive government action appear better than ever. President Obama has made clear his commitment to cap-and-trade legislation and related clean-energy policies, and key members of the U.S. Congress have pledged fast action in moving climate change legislation forward. Adding to the momentum for action is a strong push from the business community. This especially is noticeable in the advocacy efforts of the U.S. Climate Action Partnership, a unique coalition of 25 businesses and five nongovernmental organizations that is calling on Congress to pass comprehensive climate legislation this year.

Even as the country faces a significant economic challenge, business and political leaders increasingly are vocal about their commitment to addressing climate change--not at a later date, but right now. The green-building industry uniquely is positioned to ride this wave and make a major contribution in the country’s transition to a low-carbon future.


Andre de Fontaine is a Markets and Business Strategy Fellow at the Pew Center on Global Climate Change.  He works with the Center's Business Environmental Leadership Council (BELC), a group of 43 largely Fortune 500 corporations that have partnered with the Pew Center to address issues related to climate change.  He also engages in Pew Center analytic work on climate-related markets and investment issues.

 

(See page 58 for the article)by Andre de Fontaine, Markets & Business Strategy Fellow— Appeared in Eco-Structure magazine, June 2009
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Outlook on Climate Policy: Answering a U.S. and Global Imperative

OUTLOOK ON CLIMATE POLICY: ANSWERING A U.S. AND GLOBAL IMPERATIVE


Keynote Speech by Eileen Claussen
President, Pew Center on Global Climate Change
Carbon Finance North America
New York, New York

June 11, 2009

It is an honor to be here to present your keynote address this morning. We are here to talk about emissions trading … and forgive me for saying that I wouldn’t trade this opportunity for anything.  I was wondering about something this morning, and realized I should have checked with the conference organizers on this: If my speech ends up shorter than advertised, would it be possible for me to sell the unused minutes to someone who is much more verbose?

Just imagine the possibilities if we could create a system like this.  It would be a whole new market in public speaking credits.  And, to the delight of conference-goers everywhere, perhaps we could once and for all address a very different emissions problem – yes, I am talking about far too many speakers going on for far too long.   

In all seriousness, the conference organizers have put together a very impressive and packed agenda for the next two days.  And I cannot imagine a more opportune time to be having this discussion.

These are exciting times in the energy and climate world.  We have a President and Cabinet that are fully committed to addressing climate change – with cap and trade legislation being their preferred approach.  We have an EPA that is poised to regulate greenhouse gas emissions – in response to the recent Supreme Court ruling in Massachusetts v. EPA.  We have a number of state and regional initiatives in place and operational. We have teams of negotiators around the world preparing for the December meeting in Copenhagen, and we have ever increasing  numbers in the business community that are ready – really ready for the certainty that regulatory frameworks will offer them.

Most recently, on May 21st, the House Energy and Commerce Committee achieved something extraordinary – passage of a climate and energy bill that has the potential to set the United States on a path to tackle climate change in a serious way.   This bill could reach a vote by the full House as early as the end of this month – but almost certainly before the fall.

Einstein once said that “the only reason for time is so that everything doesn’t happen all at once.”  But right now, it seems that everything is happening all at once. 

And our job here at this workshop is to try and make sense of all these simultaneous goings-on – and to look ahead to another time, not far in the future, when cap and trade becomes an integral part of our national economy, a fait accompli.

What will this system look like?  When will it take hold?  And what does it mean for the organizations you represent, for American business in general, and for the American consumer?  These are the questions you are here to explore over the next two days.  And you will be hearing from a remarkable line-up of experts on finance, policy, trading and other topics. 

My role this morning is to kick things off with a brief overview of where we stand today on the climate issue from a political and policy perspective.  The Pew Center, both in its own right and as a participant in the U.S. Climate Action Partnership, remains very deeply engaged in the work of helping to forge domestic and international solutions to climate change.  And I want to share with you some reflections based on this work, and some ideas about where this issue may be headed in the weeks and months ahead. 

Please understand, however, that the climate issue is still very much in flux.  Therefore, I will borrow from the latest statement I received from my investment advisor and say that this speech “contains forward-looking statements that reflect our beliefs, judgments and current expectations … these statements are not guarantees of future performance.”

And you can take that straight to the bank!

With that caveat out of the way, I want to start with some observations on how far we have come on this issue in what is actually a fairly short amount of time.  For those of us in the trenches, of course, it feels like we have been at this forever.  Trying to get our elected leaders, the general public, business executives and other audiences engaged in the work of addressing this enormous problem, and coming up with creative solutions that use the power of markets to reduce emissions, has required years of exertion, frustration and worse.  But when you look at where we were just ten years ago, and then at where we are now, you see a transformation in how we think about this problem of climate change, and also in how we think about solving it. 

And, of course, the main reason why we are thinking differently about the climate problem today is because the science is clear: there is no longer any doubt that climate change is real, that it is largely caused by humans, and that addressing this problem must be an urgent priority.

The Nobel Prize-winning Intergovernmental Panel on Climate Change said in its landmark 2007 report that the warming of the climate system is – I quote – “unequivocal.” In just the two years since the IPCC issued that report, it has become increasingly clear that the impacts of climate change are happening much sooner than scientists had projected.  There is also growing concern among scientists that the 2007 estimates understate the potential level and pace of climate change, and that these changes will not happen gradually but potentially in fits and starts that will give the world far less time to adapt. 
 
For example, projections from recent studies indicate a total rise in sea level of anywhere from one-and-a-half to six-and-a-half feet, compared to the maximum of two feet in the IPCC report.  Recent studies also indicate that the melting of the Greenland ice sheet is accelerating, and that ice shelves in the Antarctic, which help prevent the rapid flow of land-based ice into the sea, are collapsing more rapidly than expected. To our North, the dramatic decline in Arctic summer sea ice has stunned scientists, who had not expected to see this level of ice loss for decades.  These sorts of changes are happening right now and they are happening faster than anyone predicted.

The bottom line is that the science shows we have no choice but to take action on this issue.  And it is largely because of the science that public opinion on this issue has shifted in recent years. 

A national survey conducted earlier this spring found that 77 percent of voters now favor action to reduce greenhouse gas emissions.  Further evidence of the shift in public opinion came in another spring poll showing that 59 percent of voters believe efforts to tackle global warming will create new American jobs. 

Now, my intention is not to stand up here and paint a completely rosy scenario of public support for climate action. While public opinion has shifted over the past decade – there is still some pretty significant polling that shows we have a ways to go. 

For instance, earlier this year, in a widely touted poll, global warming ranked last in a survey of the nation’s top 20 policy priorities. Among Republican voters, only 16% considered it a priority. And while this polling has gotten a lot of mileage in particular policy circles – what is important to know is this:  In the same survey, 60% identified energy as a top policy concern – a 20% increase from six years ago. And as we know, energy and climate change are inextricably linked – so I am OK with 60% of respondents listing energy in the top three priorities – a win for energy could well be a win for climate.   So part of our challenge has been to help make the energy-climate connection more clear to more people.


Yet another factor in the growing support for climate action in the nation’s capital is a profound change in the stance of leading businesses toward this issue.  I mentioned the U.S. Climate Action Partnership already.  With leadership from a range of Fortune 500 companies, in partnership with the Pew Center and other NGOs, USCAP has become a powerful advocate for strong and swift action on climate change. 

A decade ago, it would have been unimaginable for so many leading businesses to sign on to an agenda advocating cap-and-trade and other measures to achieve dramatic reductions in U.S. emissions.  But the USCAP Blueprint for Legislative Action is part and parcel of a campaign that has engaged CEOs from companies such as Alcoa, GE, Duke Energy, Shell and many others to become active and very visible supporters of mandatory climate solutions.  Their plea for strong action and regulatory certainty on this issue has found a very receptive audience in Washington and has provided a vital push for Congress.

Another push has come from the states, which continue to act on their own in the absence of a federal program to reduce emissions.  The first regional effort, of course, is the Regional Greenhouse Gas Initiative, under which ten Northeastern and Mid-Atlantic states will cap and reduce emissions from the power sector by 10 percent by the year 2018.  But the Western states, and the states in the Midwest are also getting ready to implement cap and trade programs.  And in May, a coalition of Governors of 27 states and three U.S. territories signed an agreement calling on Congress to enact energy efficiency and clean energy legislation and to cap greenhouse gas emissions to levels that scientists consider necessary to protect the climate.

So the pressure for action is coming from all directions: from the science, from public opinion, from business leaders and from the states.  And it is therefore no wonder that we’ve seen Congress and the Administration engage on this issue in such a determined fashion this year.

But make no mistake – there are still some very real obstacles to cap-and-trade becoming law in the U.S., and there are also considerable obstacles to overcome before we will see effective international action on this issue – and I will address that later.  But as never before, the stars are aligned for the United States and the world to finally develop solutions to tackle this problem. 

With that, I want to get to exactly what’s been happening on this issue over the past few months, and what it means as we look ahead.  Domestically, the Obama administration and Congress have made climate and energy policy a signature issue.  And I say this not just because of where we are with cap and trade.  It’s easy to forget that President Obama, in his first months in office, made some crucial decisions that will result in real reductions in U.S. emissions of greenhouse gases, and real changes in how we produce and use energy in the decades ahead. 

The economic stimulus package signed by the President in February included more than $80 billion in new spending and incentives for everything from smart-grid technologies to renewable energy development to coal with carbon capture and storage to energy efficiency improvements and mass transit.   This investment represents a down payment on building the clean energy infrastructure that we need to keep our economy strong for decades to come. 

And then there was the President’s budget proposal, which called for an economy-wide cap-and-trade program to reduce U.S. emissions 14% below 2005 levels by 2020, and 83% below 2005 levels by 2050.  Then, in response to a Supreme Court ruling, the EPA in April opened the door to regulation of greenhouse gases with its proposed finding that greenhouse gases contribute to air pollution that may endanger public health and welfare.  And, one month later, the White House forged a groundbreaking agreement to increase the average fuel efficiency of cars and light trucks by 30 percent by 2016.

In his statements, his appointments, his stimulus plan, and his early executive actions, President Obama has given every indication that he understands the urgency of the climate challenge and is determined to meet it. 

And the President’s engagement has been reciprocated on Capitol Hill.  The most obvious evidence of this is the May vote of the House Energy and Commerce Committee on the American Clean Energy and Security Act.  This bill combines ambitious but achievable greenhouse gas emission reduction targets with a market-based cap and trade program.  It passed the Committee after roughly 37 hours and 94 amendments, by a vote of 33 to 25.  It is a good bill – it protects consumers and provides the certainty businesses need to invest in a clean energy future for America.  And now it will go before other committees – primarily the Agriculture Committee and Ways and Means -- for their consideration before it is taken up by the full House this summer.  Given the support it received in Energy and Commerce – where Members represent a broad range of geographic regions with coal, oil, auto, and manufacturing concerns – the prospects are good for the bill’s passage by the full House.

Of course, the Senate is an entirely different matter.  Majority Leader Harry Reid and Senator Barbara Boxer, who chairs the Environment and Public Works Committee, have made cap-and-trade legislation a priority for 2009.  But action in the Senate will be far more difficult than in the House, and while Senator Reid has said he hopes for a vote this year, it’s nowhere near certain that this will happen.  Although a bill can pass the House along partisan lines, this is not a possibility in the Senate.  And so the White House will have to play a much more prominent role in mobilizing support from both Republican and Democratic senators.   

The main challenge to fast action on this issue, of course, is the state of the U.S. and global economies.  We should keep in mind that everything I have discussed is happening in the context of a serious economic downturn. In my view, President Obama is absolutely right when he says that tackling energy and climate change will not only help with the immediate challenge of economic recovery, but also will provide a new foundation for strong, sustainable economic growth.  But the fact that he is right does not necessarily make our challenge easier to overcome.  The opponents of strong climate action are using current economic conditions as reason for delay – and they are sure to ratchet up their opposition, and their rhetoric, as Congress continues its work. 

In fact, the debate over climate policy in the U.S. in the coming months will in reality be a debate over costs – we will hear a lot about overall costs to the economy, costs for households, and possible job losses.  And so the task facing those of us who support climate solutions is to do our best to make sure the debate is comprehensive and honest. 

We cannot accept the numbers that are cited as the costs of the Waxman-Markey bill when they are not based on what is actually in the bill. We cannot accept cost estimates where the assumptions in the models used to generate those estimates are not transparent.  And we need to make sure that the costs of solving this problem are balanced against the ultimate costs of the problem itself; that the clean energy jobs we will create as we transition to a lower-carbon economy are also accounted for; and that the costs of deferred investments in new technologies because of the uncertainty created by a lack of policy are not ignored.  Only then will we be able to win the arguments against the opponents of serious action on this issue.  And only then will we be able to develop policies that face up to the true scope of the climate problem.    

These have to be our talking points in the weeks and months ahead as Congress continues to debate cap-and-trade and other measures.  We must not let the debate rest solely on the costs of moving forward with these measures, although, of course, there will be costs.  But we need to be honest about what these costs might be, and we need to array them against the benefits of acting  – for workers, businesses, investors and, of course, the general public for whom climate change poses very serious consequences now and in the future. 

Consider the costs of drought and other weather extremes.  Reductions in water availability in the Central Valley of California could cost farmers $3 billion by 2050 and increased wildfires in the State could cost homeowners an additional $2 billion annually.

Making this discussion balanced and honest will not be easy. Given the severity of the economic crisis we are in, the debate about the costs of domestic action on climate will be a high-volume, highly contentious affair.   As a result, even if we work very hard to pass national climate legislation in 2009, I do not believe we can count on a bill reaching the President’s desk this year.  We can try, and we must.  But at the same time, we also must be realistic about what’s possible to achieve in the current political climate here in Washington.   And so my prediction – and remember: this is a forward-looking statement and not a guarantee – is that climate change legislation will pass Congress and be signed by the President sometime in 2010. 

When this occurs, the implications for carbon markets will be profound.  I know you will be discussing this throughout the conference, but let me just say that effective oversight of carbon markets will be essential to the success of any domestic cap-and-trade system.     We need to make absolutely certain this market delivers what it promises: real reductions in overall emissions. 

Our current economic conditions have caused many to rightfully question the future role of markets. So more than ever, we must ensure that a market for greenhouse gases is created with the rules and enforcement necessary to prevent manipulation and abuses. Getting it right from the start is critical, and much progress is already being made to ensure its success.  As a member of the Energy and Environmental Markets Advisory Committee of the Commodity Futures Trading Commission, I look forward to consulting with many of you as we set out to design an effective carbon trading system for the U.S.

Under a mandatory national climate program, the U.S. will have the largest carbon market in the world. Considering the size of the carbon market is important, because as the cap-and-trade program’s scope increases, so do opportunities to lower the overall program costs for the economy. Containing costs, and protecting consumers and businesses from price volatility, is critical both for the economy and for the program’s political viability.
 
It’s no surprise, then, that cost containment mechanisms are critical to the Waxman-Markey bill. In addition to sensible rules for banking and borrowing allowances, the legislation allows up to 2 billion tons of offsets to be used for compliance—up to 1 billion tons domestic and 1 billion tons international. Offsets availability is one of the most important tools for containing the cost carbon allowance prices—indeed, EPA’s analysis of the Waxman-Markey discussion draft found that without international offsets, allowance prices would be 96% higher.  And above all else, we must ensure that offsets, whether international or domestic, deliver real, verifiable and additional emission reductions.

This is especially true when considering international offsets.  One advantage of international offsets is their ability to engage developing countries in climate change mitigation.  And these countries do need to be engaged proactively in developing and implementing measures and programs to reduce emissions.    

And this leads us to a discussion of where we stand in the international negotiations on this issue.  The Pew Center believes that, ultimately, a multilateral treaty is not only the best solution, but is a requirement if we are going to seriously address climate change.   Over the past two weeks, officials from 182 countries for the first time debated the “draft text” for a Copenhagen agreement. Their goal is extremely ambitious: they want to reach a new global climate agreement this year.  And this is where we can see a clear connection between domestic and international action on climate change.  Because without a solid blueprint for domestic action, it will be difficult for the United States to help craft an international plan to reduce emissions. 

We simply cannot afford to repeat the mistake we made in negotiating the Kyoto Protocol.  Despite the fact that the Clinton administration signed Kyoto in 1997 with much fanfare, it was never sent to the U.S. Senate for ratification.  The problem was that there was a major disconnect between our domestic and our international policy.  We were promising things on the international stage that we simply were not prepared to deliver at home. 

Does this mean we should sit out today’s international negotiations until the President signs a comprehensive domestic climate bill?   Of course not.  The world can make substantial progress in Copenhagen.  With a lot of hard work, I believe it is possible to achieve an interim agreement, one that sets the stage for a ratifiable agreement in 2010.  But the chances for such an agreement will improve markedly to the extent that the United States is engaged in a serious discussion of what we intend to do here at home, and to the extent that we reach consensus this year on such critical issues as domestic targets and the assistance we are willing to provide to developing countries as they tackle this challenge. 

Todd Stern, the U.S. special climate envoy, understands the delicate balance the United States must strike, and the challenges we face.  He knows that we have to balance our interest in achieving an effective post-2012 global climate agreement with a realistic appraisal of what the world can expect from the U.S. in terms of mitigation commitments and financial support.  The next 6-12 months will require the ultimate in political and diplomatic skill.

Stern has repeatedly highlighted the need for the U.S. to enact a domestic cap-and-trade program and invest in clean energy technologies that can help drive economic growth in the 21st century – suggesting – I believe rightly so –  that the United States’ leverage in the negotiations will depend heavily on the pace of domestic climate legislation. The Waxman-Markey bill will allow the United States to help lead the efforts toward a global agreement in which the major economies of the world, both developed and developing, play their part to address the climate challenge.

But, in the same way that we must be honest with ourselves about the prospect of completing work on national legislation this year, we also must also be honest with ourselves about the prospect of wrapping up work this year on an international agreement.  Reaching even an interim global agreement presents its own set of very serious challenges.  What target levels are appropriate for the United States and other developed countries as they set out to reduce their emissions, especially in the midst of a global economic downturn?  What’s the best way to ensure that developing countries like China and India are doing their part?  How can we make certain that developing countries have the resources they need to invest in clean energy and other emissions-reducing technologies?

These are not easy questions.  Answering them in a way that yields real progress toward an effective international climate agreement will take perseverance and a lot of hard work.  And we will not get far, as I said, unless the United States is working hard to address this issue here at home. 

Ultimately, we need a legally binding, post-2012 global agreement that includes commitments from all major economies, while respecting the common but differentiated responsibilities of developed and developing countries. The good news is that the major developing economies are indeed making progress on this issue – including China, India, Mexico, South Africa, and Brazil.  But in the context of an international agreement, it’s critical to ensure the efforts of these countries are verifiable, and that they put the world on a path to stopping and reversing the growth in global emissions.  Binding emissions targets are out of the question for developing countries at this time.  And so the central challenge is to determine how to incorporate and enhance their national policies and actions, such as renewable energy and energy intensity targets, efficiency standards, and forestry goals, into an effective international framework.

At the same time, we also need to resolve the pressing question of financing for developing country efforts.  There is an enormous need for technology and new investments in developing countries’ capacity to reduce emissions and adapt to climate change.  But right now, given the state of the global economy, as well as the increasing portion of public monies dedicated to economic stimulus in the United States and many other nations, it is hard to see where the money comes from. 
Whether the developed world, in 2009, will be able or willing to agree to mechanisms for providing dependable funding to developing countries on this issue remains unclear at best.  And so money, as is so often the case, is perhaps the major challenge we will face as we move into serious negotiations on a post-2012 global climate agreement.  Add to that the other challenges I have mentioned, and it’s clear that negotiators have their work cut out for them in the run-up to the Copenhagen meeting later this year. 

Of course, the other complication when it comes to international action on climate change is the nature of the U.S. relationship with China.  Of all the bilateral relationships on this issue, this is perhaps the most critical, and the most delicate. While China has shown a greater willingness to engage in climate discussions, and is sensitive to its new standing as the world’s largest greenhouse gas emitter, the Chinese do not want their country cast in a spotlight. So, rather than making an issue of what the Chinese must do to rein in emissions, a better approach for the U.S. at this moment is to pursue closer collaboration on clean coal technology and other energy and climate challenges.  This could produce practical benefits for both countries, build trust, and help pave the way for a multilateral agreement.

In closing, I want to note that I have identified an array of challenges to domestic and international action on the climate issue, a whole host of potential hurdles.  But I want to leave no doubt that I remain optimistic.  The United States is moving ever closer to adopting a domestic cap-and-trade system, and international negotiators are engaged in a determined effort to forge an effective global climate agreement.  We must succeed in both of these endeavors.  And this is something that more and more of our leaders, more and more of the people of this world, understand.  They have seen the science.  They know that the time for action on this issue is now.  And they understand like all of you that, if we do this right, we will leave future generations not only a safer climate but also a stronger economy that rewards innovation and that drives investment to industries and projects that will benefit us all.

I hope I have not gone over my allotted time, and if I have, then perhaps one of your other speakers will allow me to buy a few extra minutes. 

Thank you very much.

Eileen Claussen discusses the costs of cap and trade

OnPoint Interview with Eileen Claussen
Tuesday, June 9th, 2009

Watch the interview here.
Watch Video

With a number of studies showing varying statistics on how much a federal cap-and-trade program will cost the average American, how can Congress accurately assess the true impact? President of the Pew Center on Global Climate Change, Eileen Claussen, breaks down the numbers and discusses disparities among the studies. She explains why she does not believe there is an economic argument against cap and trade and gives her take on how inaccurate numbers and modeling may negatively affect Americans' perception of climate legislation.

 

Maintaining Carbon Market Integrity: Why Renewable Energy Certificates Are Not Offsets

Maintaining Carbon Market Integrity: Why Renewable Energy Certificates Are Not Offsets

A brief by the Offset Quality Initiative
June 2009

 

 


Brief

Executive Summary

This brief explains how and why renewable energy certificates (RECs) differ from greenhouse gas (GHG) emission offsets (offsets). While the Offset Quality Initiative (OQI) is a strong supporter of renewable energy and believes it has a critical role to play in addressing climate change, OQI does not believe that RECs sold in voluntary green power or mandatory renewable energy portfolio standard (RPS) markets should be treated as equivalent to GHG offsets. REC programs fail to meet two basic definitional requirements of emissions offsets: First, they do not adequately establish a clear and unambiguous claim of ownership to emission reductions. Second, they fail to adequately establish that RECs are associated with offsetting emission reductions. Specifically, REC programs do not ensure that emission reductions are additional to what would have occurred in the absence of a REC market.

In order to ensure that markets for RECs function appropriately and do not undermine the effectiveness and integrity of markets for GHG emissions reductions, OQI recommends the following:

  • RECs should not be treated as equivalent to GHG offsets.
  • The definition of a REC should be clearly established and consistently applied. A suggested definition would be the following: “A Renewable Energy Certificate (REC) is the unique and exclusive proof that one megawatt-hour of electricity has been generated from a qualified renewable resource connected to the grid.”
  • It is inappropriate to treat RECs as an environmental commodity that conveys ownership of indirect “emission attributes” such as GHG emission reductions. OQI strongly recommends against the inclusion of indirect or derived “environmental attributes” or “benefits” in any definition of a REC, including those used in the various certificate tracking systems (e.g., Generation Attribute Tracking System [GATS] and Western Renewable Energy Generation Information System [WREGIS]).
  • Purchasers of RECs should not make GHG emission reduction claims associated with the retirement of RECs.



In addition to the Pew Center on Global Climate Change, OQI members include The Climate Trust, Climate Action Reserve (formerly CCAR), Environmental Resources Trust/Winrock International, Greenhouse Gas Management Institute, and The Climate Group. OQI was founded in November 2007 to provide leadership on greenhouse gas offset policy and best practices. OQI is a collaborative, consensus-based effort that brings together the collective expertise of its six nonprofit member organizations.

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Bonn Side Event: U.S. Climate Change Policy Update

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The Pew Center on Global Climate Change held a Side Event at the Bonn Climate talks. The event features perspectives on the latest developments on cap-and-trade legislation and federal regulatory actions, and implications for the international climate negotiations.

Pew Center Side Event at Bonn Climate Talks:
Update on U.S. Climate Change Policy

Monday, June 8 from 7:30-9:00PM

Ministry of Transportation - Room RAILThe event features perspectives on the latest developments on cap-and-trade legislation and federal regulatory actions, and implications for the international climate negotiations.

Presenters include:

  • MANIK ROY, Vice President for Federal Government Outreach, Pew Center (Download Presentation)
  • LEIF HOCKSTAD, U.S. Environmental Protection Agency
  • MARK HELMKE, Foreign Relations Committee, U.S. Senate

Moderated by ELLIOT DIRINGER, Vice President for International Strategies, Pew Center

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