There’s little chance that Congress will pass legislation to reduce greenhouse gas emissions this year—and, in any case, next-to-zero chance that President Bush would sign it into law. The half dozen comprehensive bills proposed must, unfortunately, be viewed as attempts to kick-start the legislative debate for action when a new president takes over.

A new administration should begin, above all, by committing the United States to global negotiations leading toward a new treaty when the Kyoto Protocol expires in 2012.

The four major issues that prospective treaty will have to deal with are:

1. putting a price on carbon emissions, so pollution of the atmosphere is no longer considered a free good;
2. putting into place the most economically efficient mechanisms to transform the global energy system; 
3. creating an equitable and transparent global system for reducing global warming pollution; and 
4. supporting technological innovations and technology transfer, the conservation and rehabilitation of natural ecosystems, and mitigation of the worst affects of global warming on those least able to afford adaptation measures.

It will take leadership, good will and diplomatic tenacity to bring the developing nations like China, India and Brazil into a binding global agreement. The message coming out of those nations is clear: unless the United States and Europe are willing to set domestic policies toward seriously reducing their own global warming pollution, demands that China and the others do so will ring hollow. The world can ill afford another diplomatic failure to bring all nations under a global treaty.

In this context, American climate legislation will have to serve double duty as both a domestic policy and a clear international signal beckoning the developing nations into the fold.

The bills currently before Congress are all serious attempts to curb global warming pollution over a period of years by adopting nationwide policy tools developed in the states and abroad. Some provide better policy tools than others. It is to these tools we turn our attention here. Rather than choose a favorite, or argue in favor of one or another bill, since none is likely to emerge from Congress in anything like its original form, TEI has gone up one level to look at the common areas of climate policy that should comprise the moving parts, if you will, of legislation that Congress will, one day soon, enact.

In the course of this endeavor, TEI has vetted the following bills:

1. The Global Warming Pollution Reduction Act, sponsored by Sen. Bernie Sanders of Vermont and Sen. Barbara Boxer of California;
2. The Safe Climate Act, sponsored by Rep. Henry Waxman of California, the House companion bill to Boxer-Sanders;
3. The Global Warming Reduction Act, sponsored by Sen. John Kerry of Massachusetts and Sen. Olympia Snowe of Maine;
4. The Climate Stewardship and Innovation Act, sponsored by Sen. Joseph Lieberman or Connecticut and Sen. John McCain of Arizona;
5. The Electric Utility Cap and trade Act, sponsored by Sen. Diane Feinstein of California

Setting a cap on greenhouse gas emissions

All proposed legislation would require the Environmental Protection Agency to promulgate an annual national maximum of emissions of carbon dioxide and carbon dioxide equivalencies of other greenhouse gases, including methane, nitrous oxide, hydroflourocarbons, perflourocarbons, and sulfur hexafluoride. The cap may be thought of as an overall emissions budget. The national greenhouse gas emissions cap would decline over a period of years, according to a defined schedule in each of the various bills that would, it is hoped, keep carbon emissions in the atmosphere below levels that would cause abrupt or runaway climate change. The consensus targets in the proposed bills are preventing average global temperatures from increasing by more than 3.6 degrees Farenheit (2 degrees Centigrade) and preventing global atmospheric concentrations of greenhouse gases from exceeding 450 parts per million.

One major question is whether to base the cap on a nationwide measurement of the actual total amount of carbon and equivalency emissions, or to measure only emissions from certain entities covered by the legislation, such as large-scale power plants. Feinstein’s bill is specifically directed toward electric utilities. McCain-Lieberman would cover large emitters from electricity, transportation, industry and commercial sectors. Another significant issue is who does the measuring and monitoring and according to what method. Obviously, the more voluntary the reporting compliance the more risk of cheating and manipulation. Most of the bills create civil penalties for false reporting. Waxman’s contains a specific statement prohibiting windfall profits.

Setting a price on greenhouse gas emissions

Although a price on emissions could be set swiftly, simply and surely by taxing them and letting the markets offer polluters low-carbon alternatives (install new or more efficient technology = reducing carbon emissions = reducing tax burden) none of the bills currently proposed in Congress favor a carbon tax. This could change if Sen. Christopher Dodd of Connecticut, who is running for president, puts his carbon tax proposal into legislation.

Meanwhile, the current bills would either establish trading systems to set a market price on carbon emissions or allow for the establishment of such systems. There may not seem a great deal of difference between establishing and allowing the establishment of a trading system. But it is an important distinction, in the one case locking the economy in to a cap and trade before it has been seriously tested, in the other allowing for a variety of policy approaches, including taxation, regulation, business and consumer tax incentives and government partnerships to find the most effective blend. The Sanders-Boxer bill is the only one that allows for such policy flexibility.

All the rest would implement carbon trading systems. Once a national cap has been set, every ton of carbon emissions hypothetically attains a certain value; the right to emit that carbon, known as an allowance, can be traded among polluters. All trading systems proposed use 1 metric ton of carbon dioxide or equivalent greenhouse gases as the trading unit—the equivalent of one share of stock in a corporation. The principle factor determining how trading systems would operate is whether allowances would be “allocated” (given out) or auctioned (sold). The allocation of allowances to launch the European trading system appears to have all but eliminated the price-setting goal of carbon trading, and reduced the effectiveness of the scheme in reducing emissions to zero.

Other factors affecting trading include whether allowances could be carried over into future years; whether states would be allowed to package their own emissions controls into allowances recognized by the feds; who would allocate the allowances and under what rules; whether carbon allowances in one country could be offset with investments in developing countries.

The various bills before Congress delight in the creation of a new market for trading pollution derivatives so complex they are likely to undercut the fundamental and worthy idea that tradable permits within an overall cap would allow investment capital to move to the most efficient emission reductions.

It’s worth pondering that the most liberal carbon market designs would allow the wealthiest corporations to buy their way out of changing the way they do business to reduce greenhouse gases—making equity between the global rich and the global poor an issue in a carbon-constrained world. Although this might, at best, mean a vast investment in clean energy technology in developing nations, it could also mean, at worst, an exacerbation of the global division between the affluent and the impoverished.

It seems ironic, but a conventional wisdom favoring carbon trading has already descended on the American political elite, before a single ton of carbon has actually been mitigated. The apparent political reason is to hide from consumers the true and substantial costs of curbing carbon emissions—and the hard work that will go with the challenge—and to allow corporations the right to buy their way out of reducing their emissions. Some bills, such as Feinstein, would limit carbon trading to the electric utility industry. Others would make carbon trading so widespread that NGOs and even individuals would be able to participate.

Emissions standards for electric generation units

Different from cap-and-trade, which looks wholistically at the nation’s emissions, an emissions standard would actually set a limit to emissions levels from individual fossil fuel-powered electric generating plants. Since more than half of greenhouse gas emissions come from the generation of electricity by fossil fuels, an emissions standard would bring current power plants up to standard by a target date and ensure against utilities building new high-emissions plants and simply offsetting their pollution by investing in carbon markets.

Only the Sanders-Boxer bill contains an emissions standard for power plants. It requires that all electric generating units that begin operation after 2011 cannot emit more greenhouse gases than a comparable combined cycle natural gas generating unit, and that by 2030 all power plants meet the standard. Since combined cycle natural gas plants are the cleanest technology currently available, the standard essentially requires that all fossil fuel electric plants use it or better it.

The absence of such emissions standards in the other bills appears to be either an ideological bent against regulation or an inducement to get the utilities on board a cap and trade system. The McCain-Lieberman bill contains no performance standards for utilities. It’s true that attempts to impose a best available technology standard for air pollution under the Clean Air Act set off decades of lumbering legal battles that the neoliberal wing of the environmental movement views as counterproductive and not useful to repeat in climate legislation. The electric power industry has never given up its recalcitrance. Yet it is also beyond dispute that the tough emissions standards of the Clean Air Act were responsible for vast progress eliminating air pollutants over a relatively short period of time.

Emissions standards for vehicles

Efforts to regulate tailpipe carbon dioxide emissions have been focused on the legal battle over California’s tailpipe emissions law. In 2002, the California Legislature became the first state to adopt a vehicles emissions standard, requiring “the maximum feasible and cost-effective reduction of greenhouse gas emissions from motor vehicles.” The auto industry sued to overturn the legislation, arguing that the federal Corporate Average Fuel Economy (CAFÉ) standards pre-empted state law. The Bush administration advocated on the side of the auto industry, while at the same time refusing to update the CAFÉ standards to include SUVs, and arguing that the federal government did not have the authority to regulate vehicles’ greenhouse gas emissions under the Clean Air Act.

In April, the U.S. Supreme Court turned down the administration’s argument concerning regulation under the Clean Air Act, and a reluctant president ordered the Environmental Protection Agency to start studying greenhouse gas regulations. While the California case is still being decided, other states have followed California’s lead and passed similar legislation regulating tailpipe emissions. As might be expected from a Californian, Waxman’s bill would set the national standard at or above the California state standards. Kerry’s bill ditto. Sen. Boxer, another Californian, has somewhat similar vehicle emissions standards in her bill with Sanders, but not as clear as the simple “California, here we come” standard. McCain-Lieberman has no performance standards for vehicles.

Renewable portfolio standard

A renewable portfolio standard requires electric utilities to obtain a certain portion of their electricity from renewable energy sources by a certain target date, but leaves it up to the utility to decide what sources. Renewable sources commonly include solar, wind, hydro, biomass, geothermal and wave, but in some definitions also may include methane from landfills.

Already well developed in more than two dozen states, renewable standards are meant as a market mechanism to both reduce emissions by substitution and drive investment in renewable technologies. Renewable energy standards provide two ways for ordinary citizens to participate in curbing carbon emissions from electric generation, through so-called renewable energy credits and by becoming small-scale electricity generators themselves and feeding electricity to the grid.

Renewable energy credits are not a carbon offset, but based on a consumer's direct purchase of clean energy, which is then counted toward the utility's quota. Under the Public Utilities Regulatory Policies Act, utilities must buy surplus electricity from micropower producers, and this electricity would also be counted toward the renewables standard. Neither Feinstein nor McCain-Lieberman contains renewable standards.

Energy efficiency performance standards

Near-term efforts to decouple growth in consumer demand for electricity from a parallel increase in carbon emissions will have to rely, in large part, on efficiency measures. In its broadest sense, efficiency measures include both bringing more efficient products and services to the market and removing the price and behavioral barriers for consumers to accept energy efficient goods and services.

However, the bills before Congress that have an energy efficiency standard component have predetermined that the best way to achieve energy efficiencies is to work through the electric utilities, creating annual performance standards they must meet in terms of reducing retail electric use and peak load reductions. Such a standard could be met, for example, by a utility installing energy-saving devices or technologies, or by capturing for reuse the heat generated by power plants. None of the bills currently in Congress deal with opportunities for energy efficiency by end users, such as providing incentives for the purchase of highly efficient appliances.

McCain-Lieberman, while not setting efficiency standards, contains two fresh energy efficiency initiatives. One involves creation of a national “Lessons Learned” and best practices program to ensure that innovations in energy efficiency (and greenhouse gas emissions reductions in general) are available to the public. A second would create a national program to provide energy audits to large commercial electric consumers. Such energy audits would give companies an inventory of potential energy efficiency measures, including appropriate technologies and their cost savings over time.

Geologic capture and storage

Coal-fired power plants are the single largest source of manmade carbon dioxide, accounting for one quarter to one third of the entire world’s total of greenhouse gas emissions. Coal fuels 90 percent of China’s electricity demand. If all the more than 1,000 new coal power plants being planned worldwide use conventional technology—the planet is toast.

Given the abundance of global coal resources and a growing demand for electricity, even with efficiency and renewables, the best chance we have of avoiding runaway climate change is to develop and deploy technologies to capture carbon dioxide in the process of creating power from coal and then store it in geological formations like saline aquifers, nonworking mines, depleted oil and gas fields and the ocean’s subfloor so that it never reaches the atmosphere.

Carbon sequestration has been demonstrated to work in various commercial applications, but is far from mature as a technology that can be applied on the very large scale necessary. The National Energy Act of 2005 committed the U.S. to building one large demonstration project called FutureGen, but development and deployment of carbon sequestration will not only require the carrot of federal subsidies but the stick of mandatory carbon controls and a major national commitment.

Among the issues involved, according to the McCain-Lieberman bill, are:

1. a national assessment of geological storage capacity for carbon dioxide;
   
2. developing national, regional and local databases on the practices of injecting greenhouse gases in underground aquifers;
   
3. developing standards for monitoring carbon dioxide stored underground;
   
4. developing standards for identifying suitable storage sites;
   
5. establishing guidelines for risk assessment and insurance instruments of inadvertent greenhouse gas release from storage sites;
   
6. a national geological survey of storage capacity in subsurface sedimentary basins; and
   
7. early identification of opportunities for matching carbon dioxide sources and sinks for deployment of zero-emissions plants. McCain-Lieberman would authorize $15 billion for these activities alone, not counting actual demonstration projects, covered below under innovation.

Sanders-Boxer would create a competitive grant program for five deployment projects of geological disposal of carbon dioxide in five distinct geological settings, and require the EPA to promulgate standards and rules for the safe geological disposal of carbon dioxide, addressing site selection, permitting, monitoring and public participation.

Kerry-Snowe and Feinstein do not deal directly with carbon capture and storage. Sen. Feinstein’s bill, however, would prohibit new coal plants lacking “advanced clean coal technology” from receiving allocated carbon allowances, making such plants pay for carbon credits. Advanced clean coal technology would make the plant adaptable to sequestration technology, but retrofitting an operating power plant to capture and store carbon dioxide emissions would be more expensive than a planned approach to deploying carbon capture and storage technology in construction. Sen. Kerry has introduced separate legislation specifically requiring that all new coal-fired power plants be equipped with such advanced technology.

Innovation and investment in low-carbon technologies

How best to ramp up innovation and investment in clean energy technologies, which has actually been falling for 20 years, before the very recent turnaround prompted by high oil prices and media reports of global warming? All the bills before Congress recognize the fact that the federal government is going to have to lead the way. The most common approach is to dedicate the funds raised by auctioning carbon allowances to fund low-carbon technology demonstration projects.

In Waxman’s bill, for example, the proceeds from the auction of allowances (and civil penalties from polluters who cheat) go into a Climate Reinvestment Fund. In a similar fashion, Feinstein’s bill would create a Climate Action Trust Fund, using the proceeds from carbon permit auctions to finance low- and zero-emissions technologies, clean coal tech and energy efficiency technologies in the form of low-interest loans, loan guarantees, grants and awards.

Feinstein’s office said they expect the fund to raise about $1 billion per year, a modest sum that would be shared with several other areas, such as transition financing for communities hurt by power plant shutdowns. The Kerry-Snowe bill would expand tax credits for manufacture and purchase of advanced hybrid and fuel cell vehicles, in essence trying to drive vehicle innovations from the demand side.

It may come as something of a surprise that the bill offered by the two most conservative senators envisions the biggest role for federal involvement in private sector research, development and deployment of low-carbon technologies—a classic Keynesian approach to making a market by priming the pump with spending. When it comes to the federal government’s role in fostering innovation, the McCain-Lieberman bill is really in a class by itself. In many ways, it is more directed toward making an energy tech market than a carbon trading market. While the other bills state their purpose as reducing emissions of greenhouse gases, McCain Lieberman adds, “to support the deployment of new climate change-related technologies.”

McCain-Lieberman lays out what it calls a national innovation strategy consisting of multiple ways for government to sponsor technology R, D & D. Like the other bills, McCain-Lieberman would create a Climate Change Credit Corporation to handle funds raised through sale of carbon allowances. McCain-Lieberman assigns 50 percent of those funds to support for technology development and deployment through grants and loans, the rest for transition assistance to workers, communities and companies and to adaptation/mitigation projects. It goes on to link the new corporation with a Climate Technology Finance Board under the U.S. Department of Energy. Through the board, the corporation would provide public financial assistance up to 80 percent of construction costs for 12 large-scale energy technology projects with potential for reducing greenhouse gas emissions, including:

1. no more than three integrated gasification combined cycle coal power plants with carbon capture and geologic carbon storage;
   
2. no more than the first of each of three advanced nuclear reactor design projects;
   
3. no more than three biofuels production facilities that encourage "a diversity of pioneer projects relying on different feedstocks in different regions of the country and maximizing the use of cellulosic biomass; and
   
4. no more than three large-scale solar facilities of greater than 5 megawatts capacity.

A later section of the bill requires the Department of energy to establish a demonstration program to reduce the first-time regulatory (permitting) costs of nuclear power plants. The funding of advanced nuclear power reactors has, of course, brought opposition to this bill from the anti-nuclear greens.

McCain Lieberman would not stop there. Innovation, the bill says, “is fundamentally different from the industrial or even the information economy,” requiring “strong industry-science linkages;” a patent regime that encourages dissemination of scientific and technical knowledge and eases market entry and firm creation; increasing university level scientific-technical education to meet the growing demand for skilled workers; and technology transfer of publicly funded research.

McCain-Lieberman likewise calls for a demonstration project whereby the Department of Energy and a vehicle manufacturer would retool an existing vehicle or components manufacturing facility to reduce greenhouse gases and increase the competitiveness of advance technology vehicle production. Further, it would create a non-profit, government-sponsored corporation, with appropriations, for providing public investment in private sector technologies that show promise for climate change adaptation and mitigation applications. In addition, it would have the Department of Commerce, in consultation with the National Science Foundation, create a program of public-private partnerships that focus on making grants up to 50 percent of project costs to bridge the gap between research and commercialization, and especially on deploying technologies needed in particular regions.

Although progressives are inclined to revile the McCain-Lieberman bill for its pro-nuclear, pro-corporate slant, they would do well not to throw out the baby with the bath water. Changing technology and changing human behavior are the only two ways we know of halting global warming and damage to the environment, and both will be necessary. There’s much in McCain-Lieberman’s strategy that’s worth serious consideration for driving technological innovation.

Climate Science

Climate legislation should provide for a robust federal scientific effort to study the planet's changing climate and impacts on the planetary environment. It should contain an explicit policy that allows scientists to speak freely and without political interference. NASA climate scientist James Hansen, for example, called recently on Congress to ask the National Academy of Sciences for a study of ice sheets, which have up till now been assumed to melt at a regular rate, but whose rate of melting could, because of global warming, suddenly accelerate, raising sea levels 16 to 19 feet in the course of a century. This problem with the stability of ice sheets "is so critical that it really should be looked at by a panel of our best scientists" and its conclusions "reported in very plain language," said Hansen.

Sen. Feinstein's bill, the most comprehensive in terms of climate science, authorizes appropriations for such a study of polar ice sheet melting, as well as authorizing research grants through the National Science Foundation into high priority areas such as abrupt climate change, developing standardized, low-cost measurement techniques greenhouse gases, and assessing public lands for their potential for sequestering carbon in forests.

Feinstein's bill would also create a new Climate Science Advisory Panel, made up of eight climate scientists and three former federal officials, to advise Congress and the president on the state of climate science and specifically review greenhouse gas concentrations to see if emissions reductions are sufficient to prevent abrupt climate change. Waxman assigns the same task to the National Academy of Sciences and/or the National Research Council. Kerry-Snowe tasks the EPA with abrupt climate change research and developing monitoring and measurement techniques.

None of the bills call for the revival of the Office of Technology Assessment, the Congressional technology research arm that provided Congress with superior quality, non-politicized scientific information before it was scrapped in 1995. Given the politicization of life, the universe and everything, Congress needs the OTA back.

Developing countries

Several of the bills address the sticky, but crucial, issue of how to work with developing industrial nations—in particular those with large global warming pollution like China, India and Brazil—to slow, then reduce, their rising emissions. But none do so in any detailed or comprehensive way, mainly offering technology transfer through the original justification for carbon trading in the first place: seeking out relatively low-cost investments in developing nations to offset emissions from older, dirtier emitters in the United States. The original idea was that, if enough low-cost investments were made in enough low-carbon projects in, say, China, it would efficiently reduce global warming emissions while allowing her to leapfrog the stage of heavy industrial pollution from conventional technology. Frankly speaking, it may be too late for this. Nevertheless, the Feinstein bill allows for the use of international carbon credits from countries with no mandatory emissions limits if the credit has been issued under UN protocols or the EPA has approved it.

Boxer-Sanders would establish a task force appointed by the president on international clean/low-carbon technology cooperation, which would create a national strategy to support the market development of low-carbon and energy-efficient tech in those countries and facilitate its export. McCain-Lieberman is probably the most liberal: it would allow a utility to offset up to 30 percent of its carbon allowance from another nation’s market in greenhouse gas emissions. It would also establish a program to allow utilities to earn allowances from project activities with certified emissions reductions in developing countries.

Corporate disclosure

Both the Sanders-Boxer and Kerry-Snowe bills contain language that would have the Securities and Exchange Commission promulgate regulations requiring corporations to inform investors of their financial exposure from the company’s global warming emissions. Furthermore, corporations would be required to inform investors of the potential economic impacts of global warming in general on the interests of the issuer. These disclosures would contain a required statement on the commitments made by the United States to reduce global warming emissions under the UN Framework Convention on Climate Change, as well as a statement acknowledging that global warming constitutes a known trend. Corporate disclosure of this sort is meant to facilitate shareholder activism, which has thus far been stymied by companies simply denying the existence of global warming and the particular company’s carbon pollution or the need to do anything about it. Corporate disclosure could prove the precursor to legal action requiring companies to take steps to mitigate their financial exposure as a result of their global warming emissions.

No state preemption

One of the oldest principles for solving problems is that the earlier you act, the easier and cheaper the solution: an ounce of prevention is worth a pound of cure. National climate legislation, when it finally comes, will be 10 to 20 years late, and we have to accept that the changes will be more difficult, the costs somewhat higher than earlier action would have been, and the risks of damage from extreme weather events all the greater. While the federal government dallied, however, states like California and many cities girded their loins and took action. There’s little in the bills currently before Congress that did not get a head start in the states and the cities.

At the same time, there’s much energy innovation going on in the states and cities that is not in any of these bills, for examples, California’s million solar roofs initiative and Chicago’s green buildings program. In order to preserve existing local efforts and foster future innovations at the state and municipal levels, federal legislation should explicitly recognize the role states and cities play as incubators of innovative energy ideas. Constitutionally, federal climate legislation should not become a poison pill reducing state and local actions to the lowest common denominator, or giving industry the opportunity to play the feds off against the states and cities, as the auto industry did in the vehicle emissions case. Most importantly, legislation should provide an explicit statement that nothing in the legislation preempts state and local standards or prohibits states and cities from setting higher standards.

A national green building code

Saving energy through efficient heating, cooling, insulation and lighting in new and older buildings is surely the low-hanging fruit in efforts to reduce global warming pollution. Energy-saving opportunities in American homes and commercial and public buildings are immense, but will require a regulatory push through a national building code and product standards. None of the bills address this issue at all. They should.

Aviation

None of the bills before Congress require the airlines industry to reduce their greenhouse gas emissions. McCain-Lieberman calls for “expanded research” into the climate impacts of air travel and support for advanced technologies to reduce emissions from air travel.

Renewables Tax Credits

None of the bills before Congress would extend a long-term tax credit for renewable energy production to level the playing field between renewables and fossil fuels—probably the single most concrete thing Congress could do in the short-term to convince markets that renewables are good investments and here to stay. Surely an oversight.

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