Timing and Incentives Differentiate Senate and House Climate Bills

Although Senators Kerry (D-MA) and Lieberman’s (I-CT) recently released American Power Act and the American Clean Energy and Security Act, passed by the House in June 2009, call for identical reductions in greenhouse gas (GHG) emissions of 17% below 2005 levels by 2020 and 83% below those levels by 2050, they differ in several important respects:

• The American Power Act begins regulating GHG emissions from electric utilities, transportation fuels and refined oil products in 2013. The regulatory scheme expands in 2016 to include large industrial sources and natural gas distributors. Conversely, the House bill would begin regulating electricity production, transportation fuels, and refined oil products in 2012 and add industrial sources in 2014.

• All sources regulated by the House bill beginning in 2012 would be subject to a cap-and-trade system with a declining limit of annual GHG emissions. The Senate bill, however, requires producers or importers of gasoline, jet fuel, fuel oil and diesel to purchase separate, nontradeable allowances directly from the environmental protection agency (EPA). The price of those allowances would be pegged to the auction price of tradable allowances. This is the so-called “gas tax” for which conservatives are assailing the bill.
• The Senate bill restricts the market for GHG instruments to trading conducted on an exchange and cleared through a GHG clearing organization. Participants in the trading market are restricted to regulated GHG market participants and “registered” entities. The House bill contains no such constraints on market participation. The House bill prohibits states from implementing a cap and trade system between 2012 and 2017. The American Power Act prohibits all state cap-and-trade programs. As we previously reported, this will preempt California, and other states, from operating its own cap-and-trade program.
• The American Power Act provides 37.5% revenue sharing to coastal states for offshore oil and gas production; loan guarantees, federal insurance and accelerated depreciation for new nuclear plants; low interest loans through rural electric cooperatives for energy efficiency projects; and doubles the federal funding of the House bill to $2 billion for development and deployment of carbon capture, sequestration and conversion technologies. These incentives caused a recent Los Angeles Times editorial to describe the Senate bill as “loaded up with counterproductive handouts to utilities, polluting industries and individual senators that would limit its effectiveness and probably lead to a host of unforeseen negative consequences.”

The American Power Act has not even been considered in Committee, much less subjected to floor debate. Stay tuned.