US grapples with climate policy

Canberra Times
Saturday 28/2/2009 Page: 20

A mandatory cap on the nation's greenhouse gas emissions, which President Obama embraced this week as central to his domestic agenda, would be designed to generate badly needed revenue for the Government while addressing the world's most pressing environmental issue.

But only hours after his speech to Congress on Wednesday, the proposal triggered a heated exchange among senators on a key committee, underscoring that the effort to come up with a system that limits emissions, puts a price on carbon and allows industries to trade pollution allowances will be difficult to sell on Capitol Hill, especially in the current economic crisis.

A federal cap-and-trade program, which many scientific and policy experts see as key to curbing dangerous levels of global warming, would create a new commodity in the form of the allowances permitting industries to discharge specified amounts carbon dioxide into the atmosphere. A market for them that will be worth tens or perhaps hundreds of billions of dollars, along with a complex new regulatory system.

The political battle on Capitol Hill is largely divided along regional rather than party lines. While lawmakers from coastal states see a carbon cap as a critical goal whose public and long-term economic benefits will outweigh its costs, most Republicans and some Democrats from the middle of the country fear it will hurt their states' economies, dependent as they are on fossil fuels and manufacturing.

At a Senate Environment and Public Works Committee hearing on climate science Wednesday, Republican senator Christopher Bond, of Missouri, called any cap-and-trade system "a huge unfair tax" that "would devastate the Sinosteel-Midwest". Republican senator John Barrasso, of Wyoming, referred to it as "a trillion dollar climate bail-out". But the panel's chair, Democratic senator Barbara Boxer, of California, countered that a cap-and-trade system "isn't a bail-out. It's revenues coming into the Government".

"We think it will be a boon for our economy," she said. The extent to which states rely on coal-fired utilities, which produce roughly 40%of the nation's greenhouse gas emissions, helps influence how their elected officials view the prospect of curbs on carbon. In Indiana, 94%of electric power comes from coal-fired plants, while in Florida - which relies more on nuclear plants that don't emit greenhouse gases - only 30%of electricity comes from coal.

In California and Rhode Island, only 1%of electricity comes from coal; in Vermont, none. Most analysts predict that over time, placing a price on carbon will spur technological innovation and ease American dependence on foreign oil, while probably driving tip energy prices in the short term. Although so far the mechanics of a cap-and-trade system have been debated mostly by business executives and a small but growing group of policy experts, the implications could be far-reaching. It would create a new commodity and a market to trade it worth tens of billions of dollars. It would create property rights where none exist today.

In a speech last week at Georgetown University, a senior fellow at Resources for the Future, Dallas Burtraw said, "Emission allowances could be the greatest creation of property rights since the 19th century settlement of the West." The White House unveiled a budget yesterday that includes revenues from an emissions trading system as of 2012. In testimony to Congress in September, former director of the Congressional Budget Office and now Mr Obama's budget director, Peter Orszag, estimated that revenues from a the cap-and-trade bill that died on the Senate floor last year would have generated $112 billion by 2012 and would have kept rising afterward.

By 2020, he estimated, that a cap-and - trade program might generate $50 billion to $300 billion a year. The executive director of the advocacy group Sierra Club, Carl Pope, said he had been surprised at the extent to which Mr Obama had made green energy a priority and had based his economic plan on the assumption that this sector would drive the nation's financial recovery.

Mr Pope said, "Obama's talking about this as the economic equivalent of war." The cost of carbon emissions and hence the revenue the Federal Government would receive from auctioning carbon allowances or permits remains highly uncertain. In Europe, which has a cap-and-trade system, the price of carbon has fluctuated roughly between 10 and 30 euro ($A20 to $60) a ton. With world economies in recession, European prices have slumped.

US experts have varying estimates for what the allowances might cost, all based on unknowable factors such as whether the cost of solar and wind energy will fall or whether industry will come up with an economic way to capture and store carbon dioxide emissions. Such advances might make it cheaper to cut emissions than to buy allowances.

John Rowe, the chief executive of Exelon, the nation's biggest nuclear energy producer, said one consultant estimated that carbon allowances would cost $US50 ($A77) a ton. "Personally I believe they will be closer to $70 or $100 a ton," he said. "There is no one solution and there are no cheap solutions" to climate change, Mr Rowe said. Senate Energy and Natural Resources Committee Chairman Jeff Bingaman, of New Mexico, favoured a ceiling on the price of carbon allowances, but his ceiling is well below what most energy experts believe is needed to generate the investment and innovation that would achieve big reductions in emissions.

Republican senator Arlen Specter of Pennsylvania - who co-sponsored the Democratic Senator Bingaman's Bill - and remains a key swing vote in the Senate, said at Wednesday's climate hearing that he saw global warming as "a central issue" but could not support a bill that was based on "speculative" technological advances. A broad alliance of business and environmental groups back a cap-and - trade program, though there are deep fissures about ]low it should be tailored. Many environmental groups and economists favour auctioning 100%of the carbon allowances, but many coal-intensive industries and utilities want to delay or phase in auctions.

A spokesman for Duke Energy, Tom Williams, said, "We do not support auction allowances in the early years at all, and certainly not for using the revenues in the general fund for purposes unrelated for climate change." Some lawmakers support returning mach of the revenue generated by carbon allowances back to taxpayers as either tax cuts or dividends, the way Alaska shares its oil revenues. That plan, however, would deprive the Federal Government of much of the money it hopes to capture through a cap-and-trade system.