It is the Senate’s turn to evaluate climate change legislation and carbon pricing mechanisms. On June 26, 2009 The House of Representatives narrowly passed H.R. 2454, the American Clean Energy and Security (ACES) Act, with a vote of 219 to 212. The bill was co-sponsored by Representatives Henry Waxman (D–Cal) and Ed Markey (D–Mass); it is often referred to as Waxman-Markey. Title III of Waxman-Markey articulates a carbon pricing structure through a cap on emissions of the nation’s largest emitters using emission allowance permits. The trading of permits is intended to develop a market for efficiently reducing anthropogenic greenhouse gas emissions in the United States.
(For more information on H.R. 2454 read, “The Road Ahead for Energy and Climate Policy: An Overview of Possible Directions and Their Impact on Business,” by Dan Bailey at Sieben Energy Associates.)
Nearly 10 months after H.R. 2454 and following a riveting debate on healthcare, the Senate now has the opportunity to turn their attention toward climate legislation. Yet the environment is becoming muddled by both lingering and recent events in Washington.
The national economy is still in flux from one of the nation’s deepest recessions. Job creation is on the minds of many. On April 9, 2010 U.S. Supreme Court Justice John Paul Stevens announced that he plans to retire this summer. The process for replacing him will compete with various bills for the limelight on the Senate floor. And, the November 2010 elections will arguably have a hefty influence on how Congress votes; incumbents are likely to tread cautiously around controversial issues.
With an already foggy path to date for climate legislation, it is not encouraging that the expected champions for such a bill, Senators John Kerry (D-Mass), Lindsey Graham (R-S.C.), and Joe Lieberman (I-Conn), currently do not have a proposal. However, the much anticipated document is expected to be released soon – April 26th according to climateprogress.org. The question is how will they (re)envision putting a price on carbon?
It is anticipated that a proposal will include a slight divergence from the cap-and-trade outlined in H.R. 2454. Taking into account the economy and jobs, many are anticipating that the proposed legislation will regulate only electric utilities in the short-term and will later cover other large direct stationary emitters, with some exceptions.
Opponents to the prospective legislation insist that it will have a negative impact on the economy regardless of anticipated modifications to lighten any perceived burden in the short-term. However, an article, “Don’t think that cap-and-trade is over” by James Kanter on April 11, 2010 in the International Herald Tribune and reposted by the World Business Council on Sustainable Development excels at combating such an attack. The article is not a comprehensive defense of cap-and-trade, but it provides a compelling case to acknowledge the ability to raise additional funds as a key motivator for governments to adopt cap-and-trade. “That means carbon trading should soon look like manna from heaven for cash-strapped treasuries.” The take-away message, based on empirical attestations, is that cap-and-trade is not likely to fall into the recycling-bin any time soon based on fiscal concerns.
To supplement Kanter’s oberservations, I ask the question, “Does a price on carbon affect the bottom line for companies not just the government?”
After leading a recent scenario analysis for Sieben Energy Associates on the affects of carbon-pricing for a Fortune 100 corporation using data from the DOE: Energy Information Administration, our analysis determined that a cap-and-trade mechanism requiring electric utilities to purchase allowances in the short run with the addition of other larger emitters in later years will have an insignificant effect on corporate energy budgets. The increased cost passed through to the end-user could be mitigated with relatively low or no cost energy efficiency measures. Such measures even have the potential to reduce future costs below potential costs with a price on carbon. Additionally, with a price on carbon, energy efficiency projects are even more attractive with an improved internal rate of return (IRR), thus making it possible to proceed with projects that were previously on-the-fence.
So, a price on carbon via cap-and-trade (with electric utilities regulated first) equals more funds in the government coffers. It will have an insignificant increase to corporate energy budgets. With strategic energy management, a corporation could use this opportunity to leverage additional energy efficiency projects to flatten their energy cost curve and gain a competitive advantage. And perhaps more importantly, a corporation implementing new energy efficiency projects will also help to create new jobs.
To learn more or show support for cap-and-trade and/or a price on carbon, read more about the two organizations found below. Let the Senate know what you think they should do.
Sieben Energy Associates is a member of the Chicago Climate Exchange and has been carbon neutral since 2004.