| May 15, 2009 |  |
Allowance Deal Needs Improvement as Climate and Energy Bill Keeps Moving Forward
Policies in Deal Are a Mixed Bag for Economy, Environment
WASHINGTON (May 15, 2009) — Reps. Henry Waxman (D-Calif.) and Edward Markey (D-Mass.) today released details (pdf) of an agreement on auctioning and allocating emissions allowances in their proposed climate and energy legislation. The Union of Concerned Scientists (UCS) congratulated the two congressmen for steering this landmark piece of legislation toward passage. But experts at the science group cautioned that the some of the most recent draft allocation categories should be strengthened before finalizing the bill.
"How to allocate allowances is one of the toughest nuts to crack when it comes to energy and climate legislation," said Liz Perera, Washington representative for UCS's Climate Program. "Congressmen Waxman and Markey have done an admirable job satisfying a lot of competing interests. But now, as the bill moves forward, Congress needs to strengthen many of the bill's provisions to ensure that we dramatically cut emissions, save consumers money, and strengthen our economy with a well-designed climate and energy policy."
UCS reviewed the allocation categories listed by the committee. Below is the group's assessment, including its estimates of how much money Congress would allocate. (Note: Based on a projected carbon price of $17 per ton in 2020, when most emissions sources will be covered under the bill, each 1 percent of allowance allocation would be worth approximately $750 million.)
ALLOCATIONS THAT CUT EMISSIONS AND PROTECT CONSUMERS
The latest bill draft would initially set aside 5 percent of allowances for projects that would help prevent tropical deforestation. The allowance allocation would decline steadily to zero between 2026 and 2030. According to a UCS analysis, such an allocation could provide significant emissions reductions at a relatively low cost. Additionally, this provision would help bridge the gap between developing and industrialized countries during international climate negotiations at December's United Nations meeting in Copenhagen.
UCS supports a number of other allocations listed in the committee's summary, including those that would dedicate:
- 2 percent of allowances for domestic adaptation from 2012 to 2021. This is an important provision that recognizes the need to adapt to climate change we cannot avoid while we work to prevent its worst consequences by reducing emissions. The amount of allowances allocated for domestic adaptation will increase after 2022.
- 0.5 percent of allowances for worker and job training between 2012 and 2021 and 1 percent after 2022. While this allocation would increase over time, it could be even larger to help drive green job growth.
- 1 percent of allowances for "Clean Energy Innovation Centers." Research and development funding can foster innovation, create jobs, and deliver on the promise of break-through technology that can help reduce emissions.
- 15 percent of allowances to be auctioned each year, with the revenues distributed to low- and moderate-income families.
ALLOCATIONS THAT NEED IMPROVEMENT
UCS supports other proposed allocations that, if strengthened, would help protect the environment and the economy. Those allocations include one that would set aside 30 percent of allowances for local electricity distribution companies, whose rates are state-regulated. That allocation would decline to zero between 2026 and 2030. UCS energy experts say this allocation could be effective, but caution that Congress should require the companies to apply funding from these allowances to energy efficiency and renewable electricity development to maximize consumer savings, emissions reductions and green job creation. Additionally, funding for energy efficiency and renewable electricity could supplement the 10 percent of allowances that the current proposal would initially set aside for investment in deploying those technologies. On its own, 10 percent of allowances likely would not be enough to foster the level of technology deployment needed to dramatically reduce emissions within the electricity sector, according to UCS.
The other allocations that should emphasize cost-effective technology that delivers consumer and environment benefits include ones that would dedicate:
- 9 percent of allowances to local natural gas distribution companies, declining to zero between 2026 and 2030.
- 1.5 percent of allowances for programs to benefit uses of home heating oil and propane, declining to zero between 2026 and 2030.
- 3 percent of allowances for advanced automobile technology through 2017 and 1 percent from 2018 through 2025 for advanced automobile technology. UCS experts say the allowances which should be tied to cars and trucks that meet—or beat—state global warming standards.
- Finally, the 2 percent of allowances set aside for international adaptation and clean technology deployment could be larger. Setting aside more allowances for this purpose would improve the prospects for an effective international climate agreement.
ALLOCATIONS THAT SHOULD BE REWRITTEN OR DROPPED
UCS experts identified a few allocations that they say need to be rewritten or dropped altogether from the bill. Those include allowances set aside for deploying carbon capture and sequestration (CCS) technology: 2 percent from 2014 through 2017 and 5 percent of allowances from 2018 onward. According to UCS energy experts, this level of funding is not warranted unless and until CCS technology deployment has been demonstrated to work on a commercial scale. UCS does support funding for CCS demonstration projects, but pointed out that other provisions in the bill already are providing sufficient funding for this purpose. After the technology is proven at scale, it should compete for allowances or allowance auction revenues with other low-carbon energy technologies.
Two other allocations would give allowances to polluting industries that have long benefitted from taxpayer subsidies and the fact that the federal government has never pass policies to adequately address their global warming emissions.
The first allocation would give as much as 5 percent of the allowances to privately owned coal power companies whose electricity rates are not regulated. The allocation would zero out between 2026 and 2030. Owners of coal plants in competitive jurisdictions argue they will not be able to pass their costs on to ratepayers, and therefore need these allocations to cover their losses. However, many of these coal plants were purchased within the last few years, when it was already obvious that heat-trapping gas regulations were needed to fight climate change, so awarding allowances to such firms would amount to unjustified public compensation for a bad business decision.
The second allocation would give 2 percent of the allowances to oil refiners between 2014 and 2026. The oil industry, which has been making record profits in recent years, justifies such allocations by claiming that its expenses would increase if it is required to reduce its heat-trapping emissions and that it will pass those costs along to consumers. In fact, according to UCS, existing and proposed federal energy efficiency and clean vehicle policies will save consumers money, even if fossil fuel prices go up.
The Union of Concerned Scientists puts rigorous, independent science to work to solve our planet's most pressing problems. Joining with citizens across the country, we combine technical analysis and effective advocacy to create innovative, practical solutions for a healthy, safe, and sustainable future.
