Putting the US in a Strong Position to Secure an International Climate Agreement: Waxman-Markey Bill
The Waxman-Markey “American Clean Energy and Security Act” (HR 2454) is now out (see here for the full bill and here for NRDC’s top line summary of the entire bill). The House Energy and Commerce Committee is focused this week on intensive sessions to pass the bill (you can watch it all live on the Committee’s website).
Passage of a cap on global warming pollution – THIS YEAR – will put the US in a solid position to help secure a strong international global warming agreement in Copenhagen, Denmark this December. And as my colleague David Doniger said, this bill will begin a week-long marathon to pass long-overdue clean energy and climate legislation.
We have very few tools to help secure a strong agreement, so we have to use them effectively. And this bill does just that! It arms the US negotiators with a powerful set of tools. In some cases those tools aren’t quite big enough to get the job done, so we’ll have to work hard to make them more powerful as the bill progresses through Congress.
This bill uses the same five key tools to help secure a strong international agreement as were in the discussion draft but added more detail in several places. The most significant change was to spell out the specific amount of allowance value that would be dedicated to the clean energy export and international adaptation provisions. But they also made noticeable changes to the deforestation crediting provisions.
I’ll discuss each of those tools in more detail below and any changes that were made from the discussion draft. This post should be read alongside my post from the discussion draft.
The five key tools that have been included are:
- A cap on global warming pollution to drive energy and global warming solutions;
- Designing international carbon market access rules to encourage unilateral actions from developing countries before they can sell credits into the US market;
- Creating incentives for exporting clean energy technologies to developing countries that take on their own actions to reduce emissions;
- Providing both dedicated funds and access to the carbon market for credible deforestation emissions reductions; and
- Supporting the most vulnerable developing countries in adapting to the impacts of global warming.
Driving energy and global warming solutions. This discussion draft proposes a set of energy and climate policies which will result in US emissions sources being reduced to:
- 17% below 2005 levels in 2020 (4% below 1990 levels);
- 42% below 2005 levels in 2030 (32% below 1990 levels); and
- 83% below 2005 levels in 2050 (80% below 1990 levels).
The 2020 target was changed in the negotiations with other Members from a 20% cut from 2005 levels (7% below 1990 levels).
And, this bill adds to these emissions reductions in two ways:
- Providing “supplemental funding” to incentive deforestation emissions reductions in developing countries-this is estimated to increase the US reduction effort by 10% in 2020; and
- Requiring that international offsets provide “extra reductions”.
The discussion draft proposed that all offsets provide these extra reductions, but this was changed to only require that international offsets must generate 5 tons of reductions for every 4 tons that a company used to comply with its cap.
The combination of these efforts is estimated to produce emissions reductions resulting in US emissions being 28-33% below 2005 levels in 2020 (or 17-22% below 1990 levels) – according to analysis by the World Resources Institute.
International carbon offset access rules. International offsets will be issued only to developing countries that are part of a multilateral or bilateral agreement with the US. International offsets may be issued from an international body (e.g., the UN Framework Convention on Climate Change) if they meet the same requirements as established in the Act. This will provide an important safeguard against less stringent rules and an incentive for the international community, working with the US negotiators, to design strong provisions for international credits.
There are three different ways that international offsets are designed.
Sector-based program. The Act would have the EPA Administrator in consultation with the Secretary of State and Administrator of the Agency for International Development identify sectors of specific countries where emissions credits can be generated only on a sectoral basis (as I discussed in the discussion draft). The program could be applied to the same sectors as covered by the US cap so this would include electricity, industrial sources, and transportation.
Deforestation. Offset credits can be generated from deforestation emissions reductions, as I’ll discuss in more detail below.
Other offset types. Sectors not covered by the sectoral regulation would still be available to generate credits, if the Administrator determines the offset category eligible. These sources wouldn’t have to be controlled at a sectoral level before they can generate credits.
These provisions create important tools to help encourage emissions reductions by developing countries and to help reduce global emissions.
Incentives for reductions in deforestation emissions. The bill contains two incentive mechanisms — dedicated set aside of allowances and carbon offsets — to reduce emissions from deforestation (as in the discussion draft, with some changes). These two provisions will play a critical role in beginning to address the global warming pollution from deforestation. And NRDC just released principles with a major coalition of businesses, environmental NGOs, conservation, and development groups to support these efforts as the progress through Congress.
Market readiness and emissions reductions through the “supplemental”. The bill sets aside 5% of allowances to aid in achieving deforestation reductions from 2012-2025. The amount declines to 3% from 2026-2030 and 2% for 2031-2050. This dedicated source of funding for deforestation will help provide needed incentives to slow the loss of the world’s tropical deforestation and the associated 20% of global warming pollution from its loss. And this funding will help to supplement emissions reductions achieved by the cap.
In addition to achieving emissions reductions, the program is designed to prevent emissions leakage where deforestation shifts from participating to non participating countries. And it is to prepare developing countries to participate in international offset systems for deforestation. The program i
s designed to support a variety of activities, including supporting national and subnational emissions reduction activities, forest governance, illegal logging prevention, and enforcement.
Funds generated through this program may be distributed to an international fund to reduce deforestation emissions or through bilateral assistance.
Carbon credits for deforestation reductions. International offsets may be issued from efforts that reduce deforestation emissions. As in the discussion draft, the program allows offsets to be generated for national level deforestation reductions. Countries that generate credits must have established a baseline that declines to zero net emissions after 20 years, account for nationally appropriate mitigation commitments, and cover all significant sources of deforestation emissions. Eligible countries also are required to have developed a “land use or forest sector strategic plan”.
This bill adds a new program that allows subnational emissions reductions. In countries that are significant sources of greenhouse gas emissions from deforestation, subnational crediting is only allowed for states and provinces that reduce their state/province deforestation emissions. For smaller emitters, projects and programs that generate emissions reductions are eligible to generate carbon credits provided that they meet strong environmental criteria. Subnational emissions reductions are phased out in order to ensure a transition to a national crediting system, with the possibility of extending the program for an additional time period for the least developed countries.
The program can be extended to other sources of forestry emissions (e.g., degradation and peatland carbon loss, as appropriate).
Incentives for clean energy export to developing countries that take on their own commitment. The bill includes the creation of an International Clean Technology Fund by dedicating a defined portion of the allowances to support the export of clean technologies to developing countries and encourage developing country actions. The amount of allowances dedicated is 1% from 2012-2021, increasing to 2% from 2022-2026 and 4% 2027-2050.
This investment will help provide tools for US global warming negotiators to secure strong actions from major emitting countries and create opportunities for US companies to export our clean technologies to these markets. This is an important signal of the need for this effort. It will need to be built upon as the climate bill progresses this year in order to help secure a strong agreement in Copenhagen.
The program recognizes that protecting Americans from the impacts of global warming requires global reductions and outlines a program to:
- encourage countries to adopt policies and measures that substantially reduce emissions;
- assist in the widespread deployment of technologies that reduce emissions; and
- increase the demand for clean energy products and open up new markets for US companies.
In order to receive incentives, the developing country has to: (1) have entered into a multilateral agreement where they undertake measurable, reportable, and verifiable emissions reduction actions; (2) have put in place national policies and measures to reduce their emissions; and (3) developed a mitigation strategy that seeks to achieve substantial emission reductions. Least developed countries are excluded from these eligibility criteria.
An interagency group, overseen by the Secretary of State, designs the implementation of this program. It is to be designed to encourage countries to undertake sector-based and cross-sector policies and measures and only to support programs that achieve substantial emissions reductions. The program can support: carbon capture and storage technologies to retrofit existing facilities and pay the incremental cost of new facilities, renewable electricity, energy efficiency, reductions in transportation emissions, black carbon reductions, and capacity building activities.
Funding can be provided through bilateral assistance or multilateral funds and institutions agreed under the international climate agreement. If funding goes to an international fund or institution the program can only be used for the eligible countries and activities specified. No more than 15% of bilateral assistance is to go to any single country.
The costs of the supported activities are to be shared by the developing country recipient, private sector, or multinational development bank. This cost-share is not required for least developing countries recognizing their different circumstances.
The supported activity is to be subject to a system to monitor and evaluate its performance. An annual report is to be submitted that details the amount of funding distributed, the activities supported, and an estimate of the emissions reductions achieved.
Developing country adaptation and reducing national security threats. The bill sets aside a dedicated source of allowances for an International Climate Change Adaptation Program. The amount starts at 1% of allowances from 2012-2021, increases to 2% for 2022-2026 and 4% for 2027-2050.
This investment will provide some needed resources to help reduce future national security challenges expected to arise from the impacts of global warming (as a new study from retired senior military officers and national security experts points out), help the most vulnerable populations adapt to global warming, and provide some funding necessary to secure a strong agreement in Copenhagen. More will need to be dedicated to these efforts, but this is an important signal of the need for these resources.
Funding can be provided through bilateral assistance or multilateral funds and institutions agreed under the international climate agreement. Between 40 and 60% of the allowances dedicated for this program are to provided to a multilateral fund or institution.
Multilateral funds or institutions receiving funding have to meet certain program requirements. These programs have to be governed by a body that includes representatives from the most vulnerable developing countries, protects local communities and indigenous peoples in areas that receive funding, and provides an annual report on the support activities.
As one of our advertisements said at the beginning of the year: “It is time to get working“! Get working on clean energy solutions, a cap on global warming pollution, and the tools necessary to help secure a strong agreement in Copenhagen, Denmark later this year.
As this debate unfolds, we will be working to help provide the necessary tools for US global warming negotiators as they go into Copenhagen.