E2 Law Blog : Environmental Lawyers & Attorneys : Greenberg Traurig Law Firm : Climate Change, Energy Legislation

The justification for cap and trade, centerpiece of both Waxman-Markey and the American Power Act, is that placing a price on carbon emissions makes solar, wind, and other sources of alternative energy cost-competitive with fossil fuels.   However, as James Kanter of the New York Times reports, the EU's experience with carbon trading suggests that carbon must be priced at approximately $76 per ton to make alternative energy economically viable.  He writes:

Each permit, representing a ton of carbon, currently costs around $19, but most experts agree that permits need to cost around four times as much to make them cost-effective enough to build cleaner systems, like offshore wind farms and solar power plants.

To minimize economic dislocation, Waxman-Markey prices carbon emissions using a "soft collar" of $28 per ton going to 60% above three-year-average market price.   The American Power Act prices carbon emissions using a  “hard” collar between $12 and $25 per ton, floor increases at 3%+CPI, ceiling at 5%+CPI, plus permit reserve auctions.   Yet, if Kanter's reporting is correct, then neither Bill prices carbon anywhere near the level needed to make solar and wind cost-competitive.  The result?  The worst of both worlds, it seems.  Big economic pain without any environmental gain.  

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From Sherry Spiers, GT Tallahassee.  Thanks and Welcome to Sherry!

Title VI of the Power Act, titled "Community Protection from Climate Change Impacts," seeks to comprehensively address climate change impacts on fish, wildlife, plants and associated habitats, and coastal systems at the federal level by requiring development of a Natural Resources Climate Change Adaptation Strategy to be implemented by all federal departments and agencies with natural resource management responsibilities through development of specific agency plans consistent with the Strategy, and through environmental reviews, programs, and activities, with updates to the Strategy and the agency plans every five years. 

Title VI creates the National Climate Change and Wildlife Science Center within the US Geological Survey to assess current physical and biological knowledge, conduct necessary research, develop approaches and models to address the impacts of climate change, and provide standardized data to all federal agencies and the states.  Funding is available to states to develop state plans that meet detailed criteria in the bill.

Title VI should be costly to the federal government in several respects. Developing and periodically updating the new Natural Resources Climate Change Adaptation Strategy required by Section 6004 of the bill will require significant effort and expense. Significant effort and expense will also be required to develop, periodically update, and implement the federal agency adaptation plans required under Section 6006 of the bill. 

Title VI also will burden States and Indian Tribes that elect to seek federal funding for climate change mitigation activities because, to be eligible for funding, Section 6007 of the bill requires development and adoption of a separate state or tribal adaptation plan to be approved by the Secretary of Commerce and the Secretary of the Interior.  Among other things, the state adaptation plan must establish programs for long-term monitoring of the impacts of climate change on the ocean and coastal zone; assess and adjust adaptive management strategies; and consider and, if appropriate, integrate goals and measures in other designated federal, state and Indian plans and insurance programs, all of which requires funding to implement. 

Title VI, Section 2006(d), requires that the agency adaptation plans be implemented through existing or new plans, policies, programs, activities, and actions.   Accordingly, the Power Act will be costly to regulated companies and individuals who must now address climate change issues consistent with the applicable agency adaptation plan in order to obtain federal permitting for development activities on their properties.  Implementation of an additional layer of state or tribal adaptation plans will only increase both the time and expense of development that supports economic growth in all US States and territories.

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Title II creates an economy-wide, comprehensive GHG cap and trade system. (When Sen. Graham said cap and trade is dead, he apparently meant only the term and not the program.)  The Power Act's cap and trade provisions are immensely complex and thus it is very difficult on a first pass to meaningfully summarize this Title.  Here is an overview - a more detailed analysis of all relevant subtitles will follow in a few days. 

To begin with, the Power Act will substantially increase energy costs, perhaps 8 - 10% or more per year for each year between 2013 and 2030.  Title II sets a shrinking cap on CO2 emissions - which are, after all, only a surrogate for energy consumption - that will by 2020 require the US to emit no more than 83% of the CO2 emitted in 2005.   By 2050, the US must emit no more than 17% of the CO2 emitted in 2005.  The Power Act empowers the federal government to throw billions and billions of dollars into subsidies for "alternative energy" projects.  However, the Power Act's drafters do not rely on new technology to meet the self-imposed energy consumption cap.  Instead, they ensure compliance by raising energy costs so substantially that the average consumer cuts his or her energy consumption by the requisite amount (17% by 2020, 83% by 2050).    

Consequently, the Power Act will increase costs and lead to job losses across the board as businesses, farmers, trucking companies, landlords, utilities, and gasoline refiners, among others, pass along the higher costs of energy to consumers, and consumers devote more of their disposable income to energy-related expenses.  The potential cost increases will likely run into the trillions of dollars over the next ten to fifteen years.  High energy costs generally correlate with a reduction in economic activity.  Therefore, there is good reason to believe the Power Act will, at least in the short term, depress US economic performance to a significant but uncertain extent.  

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The coal provisions of  the Power Act appear to be designed to substantially increase the cost of coal and other forms of fossil fuel-based energy in the immediate near term, and, given the limits of available and anticipated carbon capture technology, to close down coal-fired power plants ten years from now. 

Title I, Subtitle C, titled "Coal" has three key provisions.  First, in Section 1415, it directs the Department of Energy to levy a $2 billion tax on "all fossil fuel-based electricity sold to electric consumers."  In other words, all electricity is taxed unless it is generated by nuclear, wind, solar, or hydroelectric plants. The tax will be paid by utilities but the bill is designed to allow utilities to pass-through the cost to consumers.  

Second, in Section 1441, the Power Act amends the Clean Air Act to set strict performance standards on coal-generated power plants, mandating CO2 emission reductions of either 50% or 65%, based on the date the plant is "permitted," beginning no later than January 1, 2020.   Given the state of carbon capture and sequestration technology, this will require coal-based electricity generating plants to reduce production or shut down, thereby reducing energy supplies and increasing consumer costs.  

Third, the Power Act generally confers EPA with extremely broad powers to regulate coal use in the United States.  Notably, the Power Act, in Section 1413, creates a "Council" to hand out federal funds to "support projects to accelerate the commercial availability" of carbon capture technology.  This "Council" will be a political body.  Its members must include, among others, "nonprofit organizations", "consumer groups", and unions.   Notably, private companies are not eligible for federal research funding, but "nonprofit organizations" are.

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