Miscellaneous annoying stuff
A few items rise to the top of the heap, some directly related to cap-and-trade and some not.
State and regional cap-and-trade programs are suspended. That means no Western Climate Initiative, as well as no RGGI, no AB 32 in California, and no Midwest program. The bill does provide compensation for states that have functional cap-and-trade programs, which at this point only applies to the Northeast states in RGGI.
A truckload of giveaways and subsidies. In particular, nuclear power gets a federal loan guarantee of $54 billion; “regulatory risk insurance” for up to 12 reactors; and up to $500 million of cost recovery for each reactor. Additionally, it dedicates money for research and development on spent fuel recycling and other nuclear technologies, while it reduces some regulations and extends tax benefits, such as tax credits and a more advantageous depreciation schedule. The bill also provides some subsidies for carbon capture and sequestration at coal plants, a technology that has so far proved to be enormously expensive. I support federal funding for research on nuclear and CCS technologies, but such massive subsidies to implement them are bad policy. Which doesn’t make them bad politics. I’m willing to pay this price for other things in the bill.
The bill tries to thread the needle on offshore oil drilling. The principled thing to do would be to just stop it: No more drilling for oil off U.S. shores. But apparently the politically expedient thing is to provide both (1) a revenue-sharing carrot to states that allow drilling and (2) a veto to states where their own coastal waters, and those of their neighbors, are concerned. The bill includes some provisions for sorting out the sticky politics of oil spills which can, of course, cross state marine boundaries.
Energy efficiency language perhaps doesn’t go far enough. I haven’t evaluated the efficiency components of the bill myself, but that’s the word from the American Council for an Energy Efficient Economy (ACEEE), which is among the first places you should turn for insight on these issues. That said, and with all due respect to ACEE, I’m not sure this problem is worth stressing out about, for two reasons:
- Much of ACEEE’s criticism is based on the fact that Kerry-Lieberman awards more of the value of the carbon credits to consumer protection and less to energy efficiency programs. And while I’m a huge believer in efficiency investments, I think consumer protection is arguably even more important.
- It’s fixable. Wriggling out of the python-like grasp of subsidies to coal and nukes may prove next to impossible, but finding additional resources and regulation for energy efficiency should prove to be a do-able task for progressives.
Speeding up the cap?
Here’s something that usually gets overlooked. Despite all its flaws, there is some real reason for optimism that Kerry-Lieberman might actually reduce emissions faster than the cap requires.
That seems counter to the basic principles of cap-and-trade, but it’s not. No one can possibly know how hard or easy, how expensive or cheap, it will be to get off the fossil-fuel roller coaster. But there are lots of reasons to hope it may be easier and cheaper than we expect. For example, new natural-gas extraction techniques could drive coal out of the electric market more quickly than we anticipate. Energy efficiency programs such as Clean Energy Works in Portland could prove terrifically effective and spread widely, once everyone knows that carbon is going to cost steadily more over time. Huge public investments in energy R&D, already underway, could bring breakthroughs in thin-film solar, or battery performance, or advanced biofuels, or smart-grid technology—or any number of other things. A price on carbon could unleash unprecedented private investment in other breakthroughs.
Now, consider the price floor in Kerry-Lieberman. If squeezing carbon out of the economy proves easier than we expect, the price of carbon permits would likely fall below the floor — $12 in 2013, or $20 (adjusted for inflation) in 2030, and so on. As a result, not all the permits will get distributed. There won’t be enough buyers. Emissions will decline more than required by the cap.
Plus, the secondary market for carbon permits allows people and businesses to buy down the cap on their own. You or I or anyone else can buy and retire permits. We might even see a surge in the voluntary offsets market, currently hampered by the uncertainty surrounding offsets.
Plus, if fewer than one in five international offsets goes bad, we’ll be seeing more genuine carbon offsets deployed than there are emissions to cover.
Kerry-Lieberman in its current draft form gives us plenty of causes for heartburn, from the minor (international aviation exemption) to the major (the abundance of offsets). But it’s actually better than I had allowed myself to hope for. Remember, we’re talking about the U.S. Senate here, an institution that gives disproportionate influence to small-population states and then requires a supermajority. I had expected a bill that was substantially weaker and more compromised than the House’s Waxman-Markey. Kerry-Lieberman is not. Aside from the massive handouts it pays to the nuclear power industry, my initial read tells me that it’s mostly better than Waxman-Markey: better market regulation, better consumer protection, and better offsets rules.
A comprehensive energy and climate bill like this one is a game-changer. It marks a fundamental, and I think irrevocable shift, in our way of doing business. It puts a bounty on carbon, and it marks out a clear path to a world where carbon emissions are a curiosity.
In case you haven’t got your fill yet, here are some other good places to turn:
- Brad Johnson at the Wonk Room, who developed an awesome table to allow easy high-level comparison between this bill, Waxman-Markey and Obama’s proposal.
- David Doniger at NRDC has a lengthy “first read” of the bill.
- Doug Koplow at Earthtrack has a good, though dour, summary of the giveaways in the bill. (Keep in mind, however, that his analysis is based on a leaked summary, not the final bill.)
- Bradford Plumer at The New Republic has perhaps the best short summary comparing Kerry-Lieberman to Waxman-Markey.
This post originally appeared at Sightline’s Daily Score blog.