New Energy Bill Reflects Commitment to Cleaner Coal

Thursday, June 25, 2009

CAP-AND-TRADE was supposed to allow Congress to avoid picking winners and losers in the fight against climate change. Advocates claim that approach, which relies on the market to figure out the easiest way to reduce greenhouse emissions, is at the heart of the Waxman-Markey energy bill that the House is preparing to vote on tomorrow. But, among many, many other things, the 1,200-page bill would also devote $60 billion to making sure clean coal isn't a loser.

Given America's huge reliance on coal to produce electricity -- and the breakneck deployment of dirty coal plants in China -- proponents make a strong case that coal deserves special attention. The bill's cap-and-trade system won't produce a carbon price high enough to spur deployment of clean-coal technology for a very long time, they say. If clean-coal technology can be made more cost-effective, meanwhile, the know-how could be exported abroad. And, some admit, coal-state lawmakers wouldn't be comfortable with a cap-and-trade bill that didn't include a lot for coal.

Since cost-effective, large-scale clean-coal technology is still untested, the first thing the bill would do is allow a quasi-public corporation to tax electricity distributors $10 billion over 10 years to fund "demonstration projects." We can see the appeal of supporting basic research on how to make the black stuff greener, especially if it includes research on retrofitting plants.

But then comes the big-ticket stuff. The bill essentially guarantees that carbon capture and sequestration will play a large role in America's energy mix, at first by offering coal plants that capture and sequester most of their emissions 10 years of compensation that is many times the market value of the carbon emissions they avoid -- on top of the savings they would accrue by not polluting under the cap-and-trade regime. After phase one, the Environmental Protection Agency would take more control. At that point, a complicated regulatory framework would aim to reduce the subsidy for new facilities so that it covered only capital and operating costs of carbon capture and storage for 10 years.

Uncertainties abound: What if the costs of clean coal don't come down enough to make it economical relative to other measures? If clean coal turns out to be less than its advocates envision, can Congress ever work up the political will to kill the subsidy program? Subsidies are set to phase out after 10 years of paying for operating costs, but won't powerful coal-state lawmakers fight to keep them going? And even if it does work, won't members of Congress insist that big carbon repositories not be located in their districts?

As with the whole of Waxman-Markey, these coal provisions have real attraction in their billed potential to cut greenhouse emissions. But they also bring with them the huge risk that federal regulation will not achieve the reforms most needed to efficiently fight global warming.

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