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 on Global Climate Change Response to:
"Design Elements of a Mandatory
Market-Based Greenhouse Gas Regulatory System"
Issued by Sen. Pete V. Domenici and Sen. Jeff Bingaman
Question 1: Who is regulated and where?
Clarifying Question 1a
Is the objective of building a fair, simple, and rational greenhouse gas program best served by an economy-wide approach, or by limiting the program to a few sectors of the economy?
Pew Center Response
Download Response to Question 1 (pdf)
The Pew Center’s responses to these questions draw from two sources:
- An extensive body of analysis, conference and workshop proceedings, and other work undertaken by the Pew Center from 1998 to the present with input from the Center’s Business Environmental Leadership Council (BELC) , leading scholars, policymakers, and stakeholder groups. This work provides the foundation for the Pew Center’s positions on these design questions. Documentation of this work is available at the Pew Center website.
- Opinions expressed to the Pew Center in dozens of hours of discussion over several years with over 30 large corporations regarding design elements of a greenhouse gas (GHG) cap-and-trade program. The companies include several large utilities as well as companies in other sectors, ranging from primary fuels to manufacturing to retail. Although the Pew Center and the companies with which the Center has discussed design elements agree on the broad outlines of a cap-and-trade program, individual company opinions may or may not agree with the Center’s positions on particular issues.
As reflected in the Center’s 15-point Agenda for Climate Action, the Pew Center believes that mandatory GHG mitigation measures must cover the economy as a whole, equitably spreading responsibility for reducing emissions among large emitters, the transportation sector, and households. The companies surveyed unanimously supported this position.
Because emissions from electricity generation and transportation make up approximately 40% and 30% of U.S. GHG emissions respectively, it is critical to address these sectors sooner rather than later. However, these emissions need not be covered through the same system.
Large stationary sources should be addressed through a cap-and-trade program . A cap on emissions would send an economy-wide signal favoring reductions, and emissions trading would ensure that reductions are achieved at the lowest cost possible. Such a program should cover all GHGs in all major emitting sectors and include all measurable, verifiable reductions and offset measures, without restrictions on trading. An absolute cap for the national program should be set to achieve a modest level of emission reductions and announced sufficiently far in advance to allow for planning (e.g., a return to current levels within a five- to ten-year period). Further reductions should be phased in over time as new technologies come online and capital stock turns over. Because individual sectors have different sensitivities to the price of carbon and are growing at different rates, sector-specific emission limits or allowance allocations within the overall cap could be established.
At the end of a year, each emitter would be required to surrender allowances equal to its emissions. Emitters whose cost of abating emissions was lower than the allowance price could sell allowances or “bank” them for future use. Emitters whose cost of reducing emissions was more than the price of an allowance could buy allowances. This flexibility would allow for the most cost-effective emissions reductions.
The transportation sector is difficult to incorporate into a downstream cap-and-trade program, and should be addressed through requirements on vehicle manufacturers, for example by converting the Corporate Average Fuel Economy (CAFE) program into strengthened, tradable corporate average CO2 (or GHG) standards. Average fuel economy standards under the current CAFE program could be replaced by corporate average CO2 emission standards for each manufacturer’s combined sales of cars and light trucks. A manufacturer that “overachieves” (whose average emissions are below the standard) in a given year would earn allowances based on the reduction in projected lifetime emissions from vehicles produced in that year. These allowances could be banked, sold to other manufacturers or sold into the broader, economy-wide GHG cap-and-trade program. A manufacturer that does not meet its CO2 standard would purchase allowances to cover its shortfall.
In order not to penalize any vehicle manufacturer at the start, efforts of those who invested early and exceeded standards would be recognized (for example, through credit allocation) with adequate time provided for other companies to catch up, recognizing the time needed to develop and market new vehicles. Concerns about a lack of price-responsiveness within the transportation sector driving up costs of allowances for stationary sources could be addressed by keeping this program separate from the stationary source cap-and-trade program, or by requiring a certain amount of reductions from within the sector.
Since the energy services required by residential, commercial and industrial buildings produce approximately 43% of U.S. CO2 emissions , a comprehensive climate program must address this sector. Measures such as upgraded building codes and appliance efficiency standards are an important complement to a large-source cap-and-trade program. Incentives for technologies such as combined heat and power could move the country toward net zero-energy buildings.
While it is important to cover all major emitters, policies may address some sectors first – for example, by implementing cap-and-trade for the electric power sector before other sectors. Some of the utilities surveyed indicate a willingness to consider such an approach, provided the design of regulations is sensible and fair, in exchange for the regulatory certainty that a program would provide. Similarly, some companies state that, although GHG legislation ultimately needs to cover the economy as a whole, a cap-and-trade program initially needs to be as straightforward and easy to implement as possible. At least two major utilities, however, say they oppose a bill that excludes buildings and transportation. They state that the program otherwise would create a distortion that moves electricity generation away from the sector most able to make low-cost reductions to captive generation by large electricity users. Almost all the utilities note they have extensive experience and internal capacity gained over many years of compliance with other air regulations and, in many cases, are also experienced in emissions trading of other air pollutants, so they are well prepared to work within a GHG cap and trade system.
Finally, while the objective is to build “a fair, simple, and rational” program, it is important to recognize possible tensions between “fair” and “simple.” The Pew Center and all of the companies with which we have discussed design elements agree that fairness calls for all sectors to bear a fair share of the emissions reduction burden. However, implementing a cap and trade bill for large emitters could be a simpler first step than covering other sectors in the same bill. Establishing a large emitter cap and a U.S. GHG trading market could provide a simple, effective platform for integrating transportation, buildings, and other sectors into a GHG regime over time, rather than undertake measures for all sectors simultaneously.
Clarifying Question 1b
What is the most effective place in the chain of activities to regulate greenhouse gas emissions, both from the perspective of administrative simplicity and program effectiveness?
Pew Center Response
The Pew Center and most of the companies surveyed believe that allowance submission should be required “downstream” at the point of emission from large stationary sources, rather than “upstream” (e.g., on producers of coal, oil, and natural gas). To many, a program that applies a cap and trade to upstream producers functions for all practical purposes like a carbon tax, rather than a robust market. Moreover, some research suggests that carbon taxes must be very high and continuous to motivate a significant market response. It is more useful to apply regulation to those in a position to alter the behavior that results in emissions, rather than to apply a tax on firms that have no technology or process options to reduce emissions.
Regarding the special case of transportation emissions, the Pew Center recommends a focus on vehicles – changing the CAFE standard to a tradable emissions approach, as discussed in response to the Question 1a.
 The BELC is the largest U.S. based association of corporations focused on addressing the challenges of climate change, with forty-one members representing $2 trillion in market capitalization and over 3 million employees.
See also: Claussen, E., and R. Fri, co-chairs. 2004. A Climate Policy Framework: Balancing Policy and Politics. Ed. J. Riggs. Report of an Aspen Institute Climate Change Policy Dialogue, November 14-17, 2003. Washington DC: The Aspen Institute.
Nordhaus, R., and K. Danish. 2003. Designing a Mandatory Greenhouse Gas Reduction Program for the U.S., Arlington, VA: Pew Center on Global Climate Change.
 Brown, M., Southworth, F., Stovall, T. 2005. Towards a Climate-Friendly Built Environment, Arlington, VA: Pew Center on Global Climate Change.
The Pew Center on Global Climate Change Response to:
"Design Elements of a Mandatory Market-Based Greenhouse Gas Regulatory System"
Issued by Sen. Pete V. Domenici and Sen. Jeff Bingaman
In February 2006, Senate Energy and Natural Resources Committee Chairman Sen. Pete V. Domenici (R - New Mexico) and top Democrat Sen. Jeff Bingaman (D - New Mexico) issued a white paper on Design Elements of a Mandatory Market-Based Greenhouse Gas Regulatory System, which posed several detailed questions about the design of a GHG cap-and-trade system.
The committee invited all interested parties to respond to the questions by March 13. Read a summary of our response below and the full response using the navigation bar in the top right corner of this page. You may also download the entire response (pdf) or sections of the response below.
Selected respondents were invited to attend the Senate Energy and Natural Resources Committee's conference-style hearing, or "Climate Conference", on April 4. Read Pew Center President Eileen Claussen's opening statement given at the Climate Conference. Read also Eileen Claussen's statement on the event of the Climate Conference.
Summary of Response to "Design Elements of a Mandatory Market-Based Greenhouse Gas Regulatory System" from Eileen Claussen, President, Center for Climate and Energy Solutions
Pew Center applauds the Senate Energy Committee for its continued efforts to address the critical issue of climate change. The Center is responding to all four main questions, and submitting additional information on cost containment and recent climate science. Responses draw from an extensive body of analysis, conference and workshop proceedings undertaken by the Center with input from the Center’s Business Environmental Leadership Council, scholars, policymakers, and stakeholders; as well as opinions expressed to the Center in discussions with over 30 large corporations. Please note that the Center and most companies surveyed believe that, rather than focusing on any one design element in isolation, any bill must be evaluated as a whole, especially in minimizing the costs to covered entities and the economy.
1. Point of Regulation: Ultimately mandatory GHG mitigation measures should cover the economy as a whole, equitably spreading responsibility among large emitters, the transportation sector, and households. For large stationary sources, the submission of allowances would best be required “downstream” at the point of emission, rather than “upstream.” For the transportation sector, the Center recommends an approach that would cover vehicle manufacturers through use of tradable vehicle GHG emission standards.
2. Allowance Allocation: To assist with the transition to GHG regulation, a high percentage of allowances (e.g., 90% - 95%) should be allocated at no cost, rather than auctioned, at least in the initial years of a cap-and-trade system. A small initial auction can provide funds for transition assistance and technology deployment. Over time, the amount auctioned could increase. In providing federal funding for technology development, a competitive process, such as a “reverse auction,” allocating funding on the basis of emission reduction potential, can minimize costs. In the early years of the program, the highest priorities for allocation should be transition assistance and technology development; over time the priorities should shift toward rewarding low-emitting technologies and practices. Offsets are critical for minimizing program costs. Use of offsets to meet allowance submission requirements should not be restricted, as long as the offsets meet reasonable standards for real, verifiable emission reductions. Early action credit is important and could be provided by allowing emitters who document emission reductions earlier than the default baseline year to use an earlier baseline, resulting in a higher allowance allocation.
3. Linkage: A U.S. GHG program should be integrated with systems around the world. This is both environmentally and economically important. Linkage will minimize costs while expanding GHG mitigation and technology transfer opportunities. Use of a low safety valve will greatly complicate such linkage and minimize the incentive for technology transfer and innovation.
4. Encouraging Comparable Action: Different policies are needed to address two distinct but related objectives: (1) achieving adequate action by all major emitting countries, and (2) protecting U.S. firms in energy-intensive industries whose goods are traded internationally against competitiveness impacts. The first is best achieved through multilateral commitments; the second through overall cost containment and targeted support for the vulnerable sectors.
Cost Containment: A “safety valve” is just one cost containment method. Costs to regulated entities can also be minimized through offsets, allocation, linkage, etc.
Climate Science: The evidence of globally-distributed climate change impacts is mounting.
Download Sections of Our Response (all pdf)
Question 1: Point of Regulation
Question 2: Allowance Allocation
Question 3: Linkage
Question 4: Encouraging Comparable Action
Additional Topics: Cost Containment & Climate Science
Additional Topics: Cost Containment Chart
Agenda for Climate Action
Prepared by the Pew Center on Global Climate Change
Download report (pdf)
Eileen Claussen, President, Pew Center on Global Climate Change
Over the past seven years, the Pew Center has published more than 60 reports on the science, economics, solutions, and policy options related to global climate change. Over that time, the scientific consensus on this issue has only strengthened, but there is, as yet, no consensus on the appropriate portfolio of policies that are required to address global climate change successfully. This Agenda for Climate Action is C2ES’s attempt to fill that gap. It takes a comprehensive look at a suite of climate, energy, and technology policies that could provide meaningful reductions in greenhouse gas emissions throughout the economy.
This report finds six areas in which the U.S. must take action: (I) science and technology research, (II) market-based emissions management, (III) emissions reductions in key sectors, (IV) energy production and use, (V) adaptation, and (VI) international engagement. In the areas of science and technology research, we call for increased stable funding for both, along with innovative approaches to distribute funds efficiently. We propose a mandatory GHG reporting system, which can form the basis for tracking voluntary reductions, accompanied by a large-source, economy-wide cap-and-trade program for greenhouse gases. This combination of technology investment and market development will provide for the most cost-effective reductions in greenhouse gases, as well as create a market for GHG-reducing technologies.
While these broader efforts are critical, sector-specific actions are also needed. To address emissions from the transportation sector, we propose converting the struggling Corporate Average Fuel Economy (CAFE) program into a more ambitious but tradable GHG standard, along with increased support for low-emission vehicles and fuels. For the industrial sector, we encourage greater outreach and incentives for improvements in process efficiency and the manufacture of low-GHG products. In the agriculture sector, biological sequestration programs in Farm Bill legislation must receive proper funding and prioritization. Because energy is at the heart of this issue, we tackle this sector separately, making recommendations for each major energy source. To enable continued use of coal in a climate-friendly manner, we promote aggressive research and development on carbon separation and capture technologies, development of a regulatory framework for geologic sequestration, and advanced generation coal plants. Natural gas is an important transition fuel, and we support the expansion of natural gas transportation infrastructure and production. We propose extending incentives for renewable fuels and electricity generation, an increased focus on biomass, and federal-level support for renewable credit-trading programs. We also support continued use of nuclear power generation, pending resolution of issues such as safety and waste storage. There are vast opportunities for improving efficiency on an economy-wide basis, so we promote improved efficiency in electricity production (through distributed generation, combined heat and power technologies), in electricity transmission (through test beds for an advanced grid), and during energy use (through building codes, product standards, and manufacturing process improvements).
Because none of these efforts will fully prevent all potential effects of climate change (indeed, many impacts are already being observed), we propose the development of a national adaptation strategy and the funding of early warning systems. Last but not least, while the Agenda focuses on domestic actions, it argues for greater participation by the U.S. in international negotiations to engage all major emitters in a global solution.
Despite the specificity of many of the steps included here, there is still much room for ongoing refinement and elaboration of these recommendations. While we have consulted with many stakeholders in the development of this report, we look forward to building upon the suggestions described here through further outreach and consultation.
This report follows the publication of International Climate Efforts Beyond 2012: Report of the Climate Dialogue at Pocantico, an examination of options for advancing the international climate effort post-2012. Taken together, these two documents offer a promising path forward for the U.S. and the world in tackling global climate change.
Climate change is one of the most complex issues that the world will face in this century. Concentrations of greenhouse gases in the atmosphere have already reached levels unprecedented for hundreds of thousands of years, causing changes not only in global temperature, but also in observable impacts throughout the world, and these changes are happening more quickly than expected. The broad consensus of established scientific experts both internationally and domestically is that most of the warming in recent decades can be attributed to human activities. In addition, the rate and severity of these changes will increase without significant steps to reduce greenhouse gas emissions (GHGs). Stabilizing greenhouse gas concentrations will require a fundamental shift in our energy system, but this transition will have other benefits as well, including improved competitiveness, security, air quality, public health, and job creation. This transition will not be easy, but it is crucial to begin now.
This Agenda is the Pew Center's attempt to develop and articulate a responsible course of action for addressing climate change. It identifies fifteen actions that should be started now, including U.S. domestic reductions and engagement in the international negotiation process. It includes both broad and specific policies, combining recommendations on technology development, scientific research, energy supply, economy-wide markets, and adaptation with critical steps that can be taken in key sectors. While reductions across sectors and sources of emissions are key, these steps are not likely to happen simultaneously, nor without costs. However, these recommendations have been designed to be both cost-effective and comprehensive.
Invest in science and technology research.
1. Ensure a robust research program though the Climate Change Science Program.
2. Offer long-term, stable funds—in the form of a reverse auction—to GHG-related technology research and development.
Establish mandatory limits on greenhouse gas emissions and harness market mechanisms for economy-wide reductions.
3. Create a mandatory GHG reporting system as a basis for an economy-wide emissions trading program.
4. Implement a large-source, economy-wide cap-and-trade program for greenhouse gases.
Stimulate innovation across key economic sectors.
5. Transportation: Convert the Corporate Average Fuel Economy (CAFE) program into strengthened, tradable corporate average emissions standards. Support biofuels, hydrogen, and other low-GHG fuel alternatives.
6. Manufacturing: Provide outreach and incentives to manufacturers for improvements in industrial efficiency and low-GHG technologies, and support the production of low-GHG products.
7. Agriculture: Raise the priority and funding levels for Farm Bill programs and other federal initiatives on carbon sequestration.
Drive the energy system toward greater efficiency, lower-carbon fuels and carbon capture technologies.
8. Coal and Carbon Sequestration: Provide funding for tests of geologic carbon sequestration and for research, development and demonstration (RD&D) projects on separation and capture technologies, in combination with advanced generation coal plants. Establish an appropriate regulatory framework for carbon storage.
9. Natural Gas: Expand natural gas transportation infrastructure and production.
10. Renewables: Significantly “ramp up” renewables for electricity and fuels, including an extension and expansion of the production tax credit, a uniform system for tracking renewable energy credits, and increased emphasis on biomass.
11. Nuclear Power: Provide opportunities for nuclear power to play a continuing role in a future low-carbon electricity sector.
12. Efficient Energy Production and Distribution: Support the development and use of combined heat and power installations, distributed generation technologies, and test beds for an upgraded electricity grid.
13. Efficient Energy Usage: Reduce energy consumption through policies that spur efficiency, including appliance and equipment standards, building R&D and codes, and consumer education.
Begin now to adapt to the inevitable consequences of climate change.
14. Develop a national adaptation strategy through the Climate Change Science Program and Climate Change Technology Program, and fund development of early-warning systems for related threats.
Engage in negotiations to strengthen the international climate effort.
15. Review options for a new or modified agreement to ensure fair and timely action by all major emitting countries, and participate in negotiations to establish binding climate commitments consistent with domestic interests.
These fifteen recommendations are not the only means of achieving a lower-carbon future, but taken together, they would chart a climate-friendly path for the U.S.. Putting the Agenda into practice will take political will and policy action. All recommendations require government leadership, private sector commitment and time. Nonetheless, the details of specific recommendations in this Agenda are less critical than the compelling need to get started. Further delay will only make the challenge before us more daunting and costly.
Agenda for Climate Action
February 8, 2006
National Press Club, Washington, DC
Remarks made by business representatives at the release:
Group Climate Change Adviser
Shell International Limited (pdf)
Director for Federal, Governmental and Regulatory Relations
PG&E Corporation (pdf)
Western Hemisphere Health, Safety, Security, and Environment Director
Vice President of Federal Affairs and Environmental Safety
Vice President, Environmental Health and Safety
Holcim (US) Inc. (pdf)
Vice President, Government Relations
Whirlpool Corporation (pdf)
Supporting statements: Agenda for Climate Action
The Pew Agenda is an example of the kind of big picture, integrated thinking that is needed to tackle the climate issue. We're pleased that the Agenda makes the point that climate solutions should be market based while covering all parts of the economy and resolving regulatory uncertainty. These are all vital as the utility industry prepares to build the next generation of power plants needed by our growing economy.
James E. Rogers, Chairman, President, and Chief Executive Officer
The changes needed in our energy infrastructure to meet future demand and respond to climate change will not happen by chance - a clear, long term framework will give business the necessary incentive and confidence to invest further.
John D. Hofmeister, President and US Country Chair
Shell Oil Company
Holcim is pleased with the leadership that the Pew Center has taken with regard to greenhouse gas reduction policies and the depth of research that comprises the foundation of this report. Importantly, the Pew Center recognizes the necessity of market-based solutions and that various sector needs must be taken into consideration if we are to have consensus in what must be done to contain and ultimately reduce the generation of greenhouse gases.
Patrick Dolberg, President & Chief Executive Officer
Holcim (US) Inc.
Through its association with the Pew Center, Alcan has identified another avenue through which to actively address climate change and its effects on the long-term sustainability of the Company. This report sends a clear message, calling on all stakeholders to broaden their investment in tackling the economic, social, and environmental issues that climate change presents.”
Daniel Gagnier, Senior Vice President, Corporate and External Affairs
Intel supports Pew's efforts to advance the national discussion on climate change by proposing options that merit careful consideration. Intel agrees that climate change is a serious issue, and has been actively working to mitigate its own climate impact through aggressive programs to reduce energy consumption and emissions of global warming compounds.
Dane Parker, General Manager of Environmental Health and Safety
February 8, 2006
Contact: Katie Mandes, (703) 516-0606
PEW CENTER ON GLOBAL CLIMATE CHANGE RELEASES FIRST COMPREHENSIVE APPROACH TO CLIMATE CHANGE
All Sectors Must Share in Solution
WASHINGTON, D.C. – The Pew Center on Global Climate Change released the first comprehensive plan to reduce greenhouse gas emissions in the United States. The Agenda for Climate Action identifies both broad and specific policies, combining recommendations on economy-wide mandatory emissions cuts, technology development, scientific research, energy supply, and adaptation with critical steps that can be taken in key sectors. The report is the culmination of a two-year effort that articulates a pragmatic course of action across all areas of the economy.
The report calls for a combination of technology and policy and urges action in six key areas: (1) science and technology, (2) market-based programs, (3) sectoral emissions, (4) energy production and use, (5) adaptation, and (6) international engagement. Within these six areas, the Agenda outlines fifteen specific recommendations that should be started now, including U.S. domestic reductions and engagement in the international negotiation process. All the recommendations are capable of implementation in the near-term.
The report concludes that there is no single technology fix, no single policy instrument, and no single sector that can solve this problem on its own. Rather, a combination of technology investment and market development will provide for the most cost-effective reductions in greenhouse gases, and will create a thriving market for GHG-reducing technologies. To address climate change without placing the burden on any one group, the report urges actions throughout the economy.
“Some believe the answer to addressing climate change lies in technology incentives. Others say limiting emissions is the only answer. We need both,” said Eileen Claussen, President of the Pew Center.
Emissions in the United States continue to rise at an alarming rate. U.S. carbon dioxide emissions have grown by more than 18% since 1990, and the Department of Energy now projects that they will increase by another 37% by 2030.
Joining the Pew Center at the announcement were representatives from the energy and manufacturing sectors. Speaking at the release were: David Hone, Group Climate Change Adviser, Shell International Limited; Melissa Lavinson, Director, Federal Environmental Affairs and Corporate Responsibility, PG&E Corporation; Bill Gerwing, Western Hemisphere Health, Safety, Security, and Environment Director, BP; John Stowell, Vice President, Environmental Strategy, Federal Affairs and Sustainability, Cinergy Corp., Ruksana Mirza, Vice President, Environmental Affairs, Holcim (US) Inc.; and Tom Catania, Vice President, Government Relations, Whirlpool Corporation.
While actions are needed across all sectors, some steps will have a more significant, far-reaching impact on emissions than others and must be undertaken as soon as possible.
- A program to cap emissions from large sources and allow for emissions trading will send a signal to curb releases of greenhouse gases while promoting a market for new technologies.
- Transportation is responsible for roughly one-third of our greenhouse gas emissions, and this report addresses this sector through tradable emissions standards for vehicles.
- Because energy is at the core of the climate change problem, the report makes several recommendations in this area: calling for increased efficiency in buildings and products, as well as in electricity generation and distribution. Incentives and a nationwide platform to track and trade renewable energy credits are recommended to support increased renewable power. In recognition of the key role that coal plays in U.S. energy supply, the report calls for the capture and sequestration of carbon that results from burning coal. Nuclear power currently provides a substantial amount of non-emitting electricity, and is therefore important to keep in the generation mix. The report recommends support for advanced generation of nuclear power, while noting that issues such as safety and waste disposal must also be addressed.
- While most of the recommendations focus on mitigation efforts, the report acknowledges that some impacts are inevitable and are already being seen. As a result, it proposes development of a national adaptation strategy to plan for a climate-changing world.
- Finally, despite the importance of efforts by individual countries on this issue, climate change cannot be addressed without engagement of the broader international community. The report recommends that the U.S. participate in international negotiations aimed at curbing global greenhouse gas emissions by all major emitting countries.
Other recommendations include: long-term stable research funding, incentives for low-carbon fuels and consumer products, funding for biological sequestration, expanding the natural gas supply and distribution network, and a mandatory greenhouse gas reporting program that can provide a stepping stone to economy-wide emissions trading.
The full text of this and other Pew Center reports is available at http://www.c2es.org.
The Pew Center was established in May 1998 by The Pew Charitable Trusts, one of the United States’ largest philanthropies and an influential voice in efforts to improve the quality of the environment. The Pew Center is an independent, nonprofit, and non-partisan 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.
In a major address before the UN Security Council on February 6, 2006, Senator Richard G. Lugar (R-Indiana), Chairman of the U.S. Senate Foreign Relations Committee, called for the United States to return to negotiations under the Framework Convention on Climate Change to achieve a comprehensive international approach to global warming. He said a "roadmap to this outcome" is contained in the recent report of the Climate Dialogue at Pocantico convened by the Center.
Excerpt from Senator Lugar's address:
"...[Fossil fuel] dependence also presents huge risks to the global environment. With this in mind, I have urged the Bush Administration and my colleagues in Congress to return to a leadership role on the issue of climate change. I have advocated that the United States must be open to multi-lateral forums that attempt to achieve global solutions to the problem of greenhouse gases. Climate change could bring drought, famine, disease, mass migration, and rising sea levels threatening coasts and economies worldwide, all of which could lead to political conflict and instability. This problem cannot be solved without international cooperation.
The time is ripe for bold action by the international community because much has changed since talks first began in 1992 on what became the Kyoto treaty. For one, China and India, who won exemptions from the treaty’s emission-cutting requirements, have enjoyed rapid growth. They are now much greater sources of greenhouse gases than anticipated, but also far stronger economies, more integrated into the global system.
Our scientific understanding of climate change has also advanced significantly. We have better computer models, more measurements and more evidence -- from the shrinking polar caps to expanding tropical disease zones for plants and humans -- that the problem is real and is caused by man-made emissions of greenhouse gases, including carbon dioxide from fossil fuels.
Most importantly, thanks to new technology, we can control many greenhouse gases with proactive, pro-growth solutions, not just draconian limitations on economic activity. Industry and government alike recognize that progress on climate change can go hand in hand with progress on energy security, air pollution, and technology development.
A roadmap to this outcome is contained in a recent report from the Center, a non-partisan organization, which assembled representatives from China, India and other countries and from global industrial companies, as well as from the U.S. Senate Foreign Relations Committee staff. This diverse group agreed on the need for fresh approaches beyond Kyoto. They said the U.S. must engage all the major economies at once, including India and China, because experience has shown that countries will not move unless they can be sure their counterparts are moving with them.
The United States, the world’s richest country and the largest emitter of greenhouse gases, should seize this moment to make a new beginning by returning to international negotiations in a leadership role under the Framework Convention on Climate Change. I believe that the United States is prepared to do that. Our friends and allies should embrace this opportunity to achieve a comprehensive international approach to global warming...."
Full text of Senator Lugar's address to the Security Council
More on the report of the Climate Dialogue at Pocantico
Additional resources on international climate policy, including text of the Sense of the Senate resolution, S. Res. 312 (pdf), proposed by Senator Lugar with Senator Joseph R. Biden, Jr. (D-Delaware), calling for U.S. participation in international negotiations under the Framework Convention on Climate Change
The 2014 election changed the balance of power in the United States Congress, with significant gains by Republicans in both chambers. The 114th Congress (2015-2016) convened on January 6, 2015, and Republicans now enjoy their largest majority in the House since the Truman Administration. They also captured a majority in the Senate. However, even with their majority, Senate Republicans will require Democratic votes to reach the 60 votes needed to overcome filibusters.
Republican leaders listed a number of energy issues they want to address, including approving the Keystone pipeline, spurring fossil fuel development, and curtailing environmental regulations such as proposed limits on carbon emissions from power plants. President Obama has reiterated that climate change is a top priority and made clear he’s willing to use his veto power.
Here are some of the issues likely to get attention in the 114th Congress:
- Keystone XL pipeline. Congressional leaders moved swiftly to approve the long-delayed Keystone XL pipeline. President Obama has promised to veto such legislation and continue the administrative process to determine the fate of the pipeline. Without an early legislative or administrative resolution, Keystone approval may continue to be the topic of amendments and debate throughout the session.
- Energy efficiency legislation. Energy efficiency legislation has found widespread bipartisan support, even in partisan times. Senators Rob Portman (R-OH) and Jeanne Shaheen (D-NH) have introduced legislation to promote energy efficiency in the past several congresses only to see it held up for substantive and procedural reasons. Such legislation is likely to be taken up in this Congress.
- Environmental Protection Agency regulations. As the Obama Administration continues developing court-mandated regulations of the power sector, opponents and supporters in Congress are likely to react through standalone legislation, amendments, riders in the budget and appropriations process, or the Congressional Review Act. At the forefront of the debate will be regulation of carbon dioxide emissions from new and existing power plants, which will be finalized by midsummer. Other regulations, such as tightened standards for ozone, regulations of methane emissions from oil and gas wells, and stricter fuel economy standards for large trucks and other heavy-duty vehicles, may also prompt reaction from Congress.
- Transportation. Current authority to collect and spend gasoline tax revenues for highway and public transportation spending expires in May, and a new highway bill is a key order of business. Ongoing debate over whether to raise gasoline taxes, which affect energy use and emissions, will continue in this Congress. If gas prices stay low, longstanding opposition to an increase may soften.
- Appropriations. Funding for federal agencies expires at the end of September. By then, Congress must approve new designated funding for agencies for the next fiscal year or approve a continuing resolution to keep the government operating at the same funding level. Congressional leadership has pledged to allow regular order in legislating appropriations bills for the first time in many years. Funding for Department of Energy research and investment programs on clean energy technologies; Environmental Protection Agency regulatory monitoring, enforcement, and voluntary programs; international climate finance funds; and other agency efforts related to climate change and clean energy will all be a part of the appropriations process. Some opponents of climate action have suggested targeting climate-related programs and regulations in the appropriations process by eliminating their funding or including policy riders.
- Tax reform. Leadership of both parties in Congress and President Obama support significant reform of the tax code. Such a reform would necessarily affect tax incentives for various parts of the energy industry, including oil and enhanced oil recovery using man-made carbon dioxide, wind, and solar energy, as well as alternative fuel vehicles. A comprehensive discussion may also include the imposition of a price on carbon through the tax code.
- Oversight and investigations. Congressional leadership has promised increased scrutiny of federal agency actions and policy through hearings and other types of oversight.
Two proposals for mandatory programs on greenhouse gases have recently been discussed in the Senate. Their targets and likely effects are discussed here along with projections for the Kyoto Protocol and the existing Bush Administration Climate Change Plan, two commonly discussed alternative approaches. Senator Bingaman has offered a proposal based on recommendations made by the National Commission on Energy Policy. (See Summary of Bingaman Climate and Economy Insurance Act of 2005.) Senators McCain and Lieberman reintroduced a modified version of their Climate Stewardship Act. (See Summary of McCain-Lieberman Climate Stewardship and Innovation Act of 2005.) A cornerstone of both proposals is an economy-wide tradeable permits system, which imposes mandatory targets for large emitters and a market based system for meeting those targets. Such a system was used by the Clean Air Act to deal with acid rain, and is central to the Kyoto Protocol. It is, however, not part of President Bush’s Climate Initiative, which relies on voluntary action and nonbinding targets.
Senator Bingaman’s proposal differs from previous proposals that sought to impose mandatory targets in two distinct areas. First, absolute emission reduction targets are set based on emissions intensity – emissions per million dollars of GDP. Initially the goal is to reduce emissions intensity by 2.4% per year until 2019, after which the target becomes more stringent and increases to 2.8%. Despite this reduction in intensity, absolute emissions would actually grow. The Climate Initiative proposed by President Bush also set an intensity target but did not translate this target into an absolute level of mandatory reductions. (See Analysis of President Bush's Climate Change Plan.) The McCain-Lieberman proposal, in contrast, has sought to stabilize emissions at a specific level – as such it requires a greater scale of reduction as our economy continues to grow. The second significantly different element in the Bingaman proposal is a “safety value”, or price cap on the cost of greenhouse gas permits. A cost (or price) cap ensures that large emitters with targets will not have to pay more than some specified price for permits. Bingaman’s proposal sets the price cap at $7/TCO2 initially but increases this cap by 5% nominally each year (assuming a 2% rate of inflation, this implies that the price would only rise by 3% in real terms). As a point of reference, permits in the European greenhouse gas market have been trading during the summer of 2005 for over $25 USD/TCO2. A price cap gives emitters with targets some assurance about the cost of compliance but like a tax, does not ensure any specific level of reduction will occur. The EIA projects that allowance prices would reach the safety valve by 2016, causing emissions to exceed the cap after this time.
Balancing the cost of a new policy while ensuring that sufficient reductions occur to address the issue is crucial for the selection of the appropriate climate policy approach for the U.S.. The various climate policy proposals that have come forward to date have a wide range in cost, but also considerable differences in the resulting emissions reductions. The following table compares and contrasts the significant elements of current proposals that include targets - the Climate and Economy Insurance Act (proposed by Bingaman), the Climate Stewardship and Innovation Act (proposed by McCain and Lieberman), the Bush Climate Initiative, and the Kyoto Protocol. More detailed descriptions of these proposals as well as economic modeling cost projections are available on our website.
Climate Policy Proposal Comparison
Program Element/Result [i]
Bingaman Proposal [ii]
Climate Stewardship and Innovation Act
Climate Initiative Bush Administration[v]
Mandatory / Voluntary
Absolute based on 2.4% intensity improvement 2010-2018, after 2019 target increases stringency to 2.8%
Absolute emissions 2000 emissions level after 2010
7% below 1990 levels by 2012
Intensity target goal 18% reduction by 2012
Offsetting Emissions Allowed for Compliance
Not to exceed 3%
not to exceed 15% of allowance allocation
no limits specified through Kyoto, though implementing countries have discretion
Yes - $7
(12% above 2010 levels in 2020)
(12% above 2000 levels by 2012)
EIA Estimated Emissions Reductions 2025
EIA Estimated Permit Price 2025 ($/TCO2)[x]
EIA Estimated Impact on real GDP
($135 billion in 2020)
[i] This table compares EIA’s analysis of only the greenhouse gas-trading program contained in each policy options. It does not include other policy elements, like technology incentives, that may be contained in each proposal
[ii] As modeled by EIA in Impacts of Modeled Recommendations of the National Commission on Energy Policy, April 2005, for the Cap and Trade component of the NCEP proposal.
[iii] Because the bill does not change the significant provisions related to carbon limits, this review summarizes the analysis of the previous McCain-Lieberman proposal as voted on in the U.S. Senate on October 30, 2003, Amendment 2028: The Climate Stewardship Act of 2000. A summary of the bill is available at http://wwww.c2es.org/federal/analysis/congress/108/summary-lieberman-mccain-climate-stewardship-act-2003. Results are from EIA’s (2004), assessment of http://www.eia.doe.gov/oiaf/analysispaper/sacsa/pdf/s139amend_analysis.
[iv] Described and analyzed by EIA (1998), Impacts of the Kyoto Protocol on U.S. Energy Markets and Economic Activity, Report SR/OIAF/98-03, available at http://www.eia.doe.gov/oiaf/kyoto/pdf/sroiaf9803.pdf. Reduction and price estimates are taken from the “1990-3%” scenario and are based on an auction approach for GHG permits with revenue recycling through tax policy.
[v] As announced on February 14, 2004, available at www.whitehouse.gov/news/releases/2002/02/climatechange.html
[vi] The Bingaman (NCEP) proposal calculates the target level of reductions in terms of emissions intensity based on expected future GDP growth; this target, however, is translated into an absolute emission target but because it is based on a growing economy the target grows over time. Should GDP differ from the forecasted level, the target is not affected. Utilization of the safety valve, in addition, will result in emissions above the target level of emissions reductions.
[vii] Assuming that the U.S. could meet some of its target through the use of biological sinks, the numbers represented here are those associated with EIA’s modeling of 3% below 1990 emission levels.
[viii] Estimated emission reductions have been adjusted to reflect a consistent baseline using EIA’s AEO2005 baseline assumptions. Adjustments are based on predicted percentage change applied to AEO2005 baseline levels. For example, EIA analysis suggested that McCain Lieberman reductions in 2025 would be 7,997 (-22%) million metric tonnes carbon dioxide equivalent (MMTCO2e) below their AEO2003 base case level of emissions. Utilizing the lower AEO2005 emissions baseline and assuming that a reduction of 22% implies emissions are reduced by approximately 2,180 MMTCO2e.
[ix] To convert from MTCO2 to MTC divide by 3.67.
[x] All dollars converted to $2004 constant dollars utilizing CPI.
[xi]The safety-valve permit price rises from $6.26 per metric ton in 2010 to 8.73 in 2025 (in 2004 dollars).
[xiii] Table 29 Impacts of the Kyoto Protocol on U.S. Energy Markets and Economic Activity, Report SR/OIAF/98-03. Assuming revenue recycled through an income tax rebate.
H.R.6 E.N.R.: The Energy Policy Act of 2005, as enacted (also referred to as Public Law 109-190) is intended primarily to increase the supply of energy, largely by providing subsidies, but also by setting standards that would increase the use of certain types of energy and energy-saving technologies. The energy sources and technologies promoted by the law include some that are climate-friendly and some whose use will result in large emissions of carbon dioxide (CO2). Among the provisions of the law specifically mentioning greenhouse gases (GHGs) are those that promote the deployment of GHG-intensity-reducing technologies, both domestically and in developing countries; authorize programs to promote the development and deployment of technologies that would capture and sequester CO2 emissions; and commission a National Academy of Sciences study of fuel cell technologies. Among the provisions that do not specifically mention GHGs, but would nevertheless promote climate-friendly technologies and activities are provisions that:
- Establish a national biofuel standard mostly in the form of ethanol for gasoline. This will increase the biofuels from 4 billion gallons per year in 2006 to 7.5 billion gallons per year in 2012.
- Increase the requirement for the purchase of renewable power by the federal government to 3% in 2007 and 7.5% in 2013.
- Establish new efficiency standards for 15 new commercial and residential products.
- Extend, through the end of 2007, the renewable electricity production credit of 1.9¢ per kWh during the first ten years of operation.
- Create a new tax credit for residential investments in solar power and fuel cell systems of 30% at an estimated $31 million.
- Increase the credit for commercial solar installations from 10% to 30% for two years at an estimated $222 million.
- Provide for investment tax credits for improving residential energy efficiency at an estimated $556 million.
- Allow for deductions for commercial buildings that cut their energy consumption by 50% for an estimated $243 million.
- Provide credits to manufacturers of energy efficient appliances ($180 million) and for building contractors that meet certain efficiency standards ($28 million).
- Offer tax incentives for the purchase of alternative fuel vehicles beginning in 2006 for an estimated cost of $874 million.
- Provide a 30% credit to alternative refueling installations at both residential and commercial properties.
- Authorize a $200 million annual clean coal initiative to go primarily towards coal gasification projects.
- Create three new investment tax credits for clean coal facilities with an expenditure cap of $1.612 billion. (20% for industrial gasification projects, 20% for IGCC, 15% for other electricity producing projects)
- Authorize a $1.25 billion fund for the Next Generation Nuclear Plant at Idaho National Laboratory to produce both electricity and/or hydrogen.
- Provide a tax credit of 1.8¢ per kWh for new nuclear power facilities during their first eight years of operation.
- Provide financial support for to up to six new nuclear power reactors in case of unforeseen construction delays.
Action: 8/8/05: Signed into law as Public Law 109-190.
The Climate Stewardship and Innovation Act of 2005 (S.1151) introduced by Senators John McCain (R-AZ) and Joseph I. Lieberman (D-CT), would limit, from 2010 on, the total greenhouse gases (GHG) emitted by the U.S. electricity generation, transportation, industrial, and commercial sectors to the amount emitted in 2000. The affected sectors represented approximately 85% of the overall U.S. emissions in the year 2000. The bill also would provide for the trading of GHG emission allowances and reductions.
Target: The bill would cap the 2010 aggregate emissions level for the covered sectors at the 2000 level. The bill's emissions limits would not apply to the direct emissions of the agricultural and the residential sectors. Certain subsectors would be exempt if U.S. Environmental Protection Agency (EPA) determined that it was not feasible to measure their GHG emissions. The U.S. Department of Commerce would biennially re-evaluate the level of allowances to determine whether it was consistent with the objective of the United Nation’s Framework Convention on Climate Change of stabilizing GHG emissions at a level that will prevent dangerous anthropogenic interference with the climate system.
Allowances: An entity that was in a covered sector, or that produced or imported synthetic GHGs, would be subject to the requirements of this bill if it (a) owned at least one facility that annually emitted more than 10,000 metric tons of GHGs (measured in units of carbon dioxide equivalents – MTCO2E); (b) produced or imported petroleum products used for transportation that, when combusted, would emit more than 10,000 MTCO2E; or (c) produced or imported HFC, PFC and SF6 that, when used, would emit more than 10,000 MTCO2E. Each covered entity would be required to submit to the EPA one tradeable allowance for each MTCO2E directly emitted. Each petroleum refiner or importer would be required to submit an allowance for each unit of petroleum product sold that, when combusted, would emit one MTCO2E. Each producer or importer of HFC, PFC, and SF6 would be required to submit an allowance for each unit sold that, when used, would emit one MTCO2E. The EPA would determine the method of calculating the amount of GHG emissions associated with combustion of petroleum products and use of HFC, PFC, and SF6.
Allocation of Allowances: The Commerce Department would determine the amount of allowances to be given away or "grandfathered" to covered entities and the amount to be given to the Climate Change Credit Corporation established by the bill. The Commerce Department's determination would be subject to a number of allocation factors identified in the bill. The Corporation would use proceeds from the sale of allowances to reduce energy costs of consumers, assist disproportionately affected workers, help low income communities and individuals, disseminate technological solutions to climate change, and aid fish and wildlife in adapting and mitigating the impacts of climate change.
Flexibility Mechanisms: Covered entities would have flexibility in acquiring their allowances. In addition to the allowances grandfathered to them, covered entities could trade with other covered entities to acquire additional allowances, if necessary. Also, any entity would be allowed to satisfy up to 15% of its total allowance requirements by submitting (a) tradeable allowances from another nation's market in GHGs; (b) a net increase in sequestration registered with the National Greenhouse Gas Database established by the bill; (c) a GHG emission reduction by a non-covered entity registered with the Database; and (d) allowances borrowed against future reductions (as described below). A covered entity that agreed to emit no more than its 1990 levels by 2010 would be allowed meet up to 20% of its requirement through (a) international credits, (b) sequestration, and (c) registered reductions, but not (d) borrowed credits. An entity planning to make capital investments or deploy technologies within the next 5 years would be allowed to borrow against the expected GHG emission reductions to meet current year requirements. The loan would include a 10 percent interest rate.
National Greenhouse Gas Database: The EPA Administrator would be required to implement a comprehensive system for GHG reporting, inventorying, and reductions registrations. Covered entities would be required to report their GHG emissions and non-covered entities would be allowed to register GHG emission reductions and sequestration. The National Greenhouse Gas Database would be, to the maximum extent possible, complete, transparent, accurate, and designed to minimize costs incurred by entities in measuring and reporting emissions. The Commerce Department, within one year of enactment, would be required to establish, by rule, measurement and verification standards and standards to ensure a consistent and accurate record of GHG emissions, emissions reductions, sequestration, and atmospheric concentrations for use in the registry.
Penalty: Any covered entity not meeting its emissions limits would be fined for each ton of GHGs over the limit at the rate of three times the market value of a ton of GHG.
Research: The bill would establish a scholarship program at the National Science Foundation for students studying climate change. The bill would also require the Commerce Department to report on technology transfer and on the impact of the Kyoto Protocol on the U.S. industrial competitiveness and international scientific cooperation.
The bill also would make changes to the U.S. Global Change Research Program, establish an abrupt climate change research program at the Commerce Department, and establish a program at the National Institute of Standards and Technology in the areas of standards and measurement technologies.
Innovation: The bill would rename the Technology Administration, within the Commerce Department, the Innovation Administration. The responsibilities of the Commerce Department would be expanded to include the development of climate change innovation policies. The bill would establish a variety of programs and studies focused on fostering climate change innovation ranging from grade school education and university programs to technology transfer and patents.
The bill would establish additional research and demonstration programs for cleaner transportation, retooling of vehicle manufactures for advanced low-GHG-emitting vehicles, energy efficiency, and managing and monitoring agricultural and geological sequestration, among other concerns.
Technology: Revenues generated from the sale of allowances granted to the Climate Change Credit Corporation (see above) would be used to promote three different aspects of technology innovation and deployment: (1) first-of-a-kind engineering, (2) construction of the first generation of facilities that use substantially new technology, and (3) the marketing and procurement of low/no-GHG-emitting power or low-GHG-producing products. Projects for first-of-a-kind engineering and construction support would be selected according to the extent to which they reduce greenhouse gas emissions, are a substantially new technology, and attain cost effectiveness and economic competitiveness, among other criteria. The construction loan program for new facilities that meet the criteria would include at most three advanced coal power-generating facilities that combine Integrated Gasification Combined Cycle (IGCC) and carbon capture technologies with geological storage of greenhouse gases; three nuclear reactors (one of each new certified design); three large-scale biofuels facilities that maximize cellulosic biomass use; and three large-scale solar power facilities, and would be open to other unspecified technologies meeting the environmental and economic criteria.
Funding provided for first-of-a-kind engineering would be reimbursed to the Climate Change Credit Corporation by facilities that made subsequent use of the engineering and design supported by this program. Financial support for construction would be in the form of secured loans or loan guarantees that would be paid back to the Corporation. The reimbursed funds could be placed in a revolving fund to continue these programs as long as the Corporation deemed appropriate. Support for the marketing and procurement of low/no-emitting end products would be funded directly from the proceeds earned by auctioning 50% of the Corporation’s allowances. This program would be designed to evolve as innovation and technology moved forward.
For more information, see our Comparison of Climate Policy Proposals.
Statement of Eileen Claussen, President
Pew Center on Global Climate Change
November 15, 2005
The Pew Center enthusiastically welcomes the climate change resolution introduced by Senator Lugar and Senator Biden calling for the United States to participate in negotiations under the Framework Convention on Climate Change to establish mitigation commitments by all major greenhouse gas-emitting countries.
The timing of such a clear message from the leadership of the Senate Foreign Relations Committee is especially important coming on the eve of the Montreal climate negotiations, where governments will decide on launching a process to consider next steps in the international effort. Parties to the Kyoto Protocol are obligated to begin considering post-2012 commitments for those developed countries with commitments under the Protocol. It is critical that a parallel process be launched under the Framework Convention, which includes the United States, to consider a broader range of possibilities that can engage all major economies. We urge the Administration to support such a process as a step toward a more inclusive and effective international climate effort.
The current U.S. policy on climate change, both domestically and internationally, is wholly inadequate. The Lugar-Biden resolution is an important complement to the Bingaman resolution passed earlier this year by the Senate calling for mandatory market-based limits on U.S. greenhouse gas emissions. It is critical that as we move forward to establish a meaningful domestic effort, we also work with other nations to strengthen the international framework and ensure that all other major emitting countries also contribute their fair share to this global effort.