Senate's climate bill a bit more ambitious
Early version would cap carbon allowance prices -- and deficit

By Steven Mufson and Juliet Eilperin
Sunday, October 25, 2009

Climate legislation took a small step forward late Friday night as Senate Environment and Public Works Committee Chairman Barbara Boxer (D-Calif.) issued a version that includes big benefits for farmers, provisions for deficit reduction and a ceiling on carbon prices.

The proposal, sponsored by Sen. John F. Kerry (D-Mass.) and Boxer, calls for reducing U.S. greenhouse gas emissions by 2020 to a level 20 percent below 2005 emissions, a more ambitious target than the 17 percent set in a climate measure approved by the House in June.

The draft, which resembles the House bill, sets the parameters for what promises to be a sharp debate on one of President Obama's top legislative priorities.

Like the Waxman-Markey bill adopted by the House, the Kerry-Boxer legislation favors a cap-and-trade system that would issue permits for greenhouse gas emissions, gradually lower the amount of emissions allowed, and let companies buy and sell permits to meet their needs. And like the House bill, the Senate measure would give away the vast majority of allowances for a transition period of 20 years to ease burdens on energy-intensive industries and on consumers in states that rely heavily on coal for electricity.

But 25 percent of the allowances would be auctioned off, with revenue going to the federal government to keep the legislation from increasing the deficit.

"This is a very promising start that could lead to the ultimate passage in the Senate of a clean-energy bill," said Daniel Weiss, director of climate strategy at the liberal Center for American Progress.

American Petroleum Institute President Jack Gerard, however, said the Senate legislation is similar to the House bill but more damaging. "It will impose even greater costs on the economy and distribute those costs just as inequitably," he said.

The Senate draft will go to the full committee on Tuesday for consideration and then could be altered further once it is taken up by the full Senate. Many leading senators -- including Lindsey O. Graham (R-S.C.) and Joseph I. Lieberman (I-Conn.) -- and Obama administration officials are already working to craft a bill that would win over wavering Democrats and Republicans whose votes will be needed for passage.

Other highlights of the Senate proposal include the setting aside of allowances in a strategic reserve to stabilize carbon prices. It would be tapped if prices exceed $28 in 2012; the ceiling price would rise 5 to 7 percent a year.

The bill would give bonus credits to coal-fired plants that use techniques to capture carbon emissions and store them underground, more than tripling the bonuses allowable under the House bill. That provision would help about 25 or more coal plants. This has been a key issue for coal-state lawmakers.

The Senate proposal would also expand the scope of domestic offsets -- carbon-reducing measures that could help firms meet emission targets. The Environmental Protection Agency estimated in a report on the economic impact of the Kerry-Boxer draft that farmers could reap $1.2 billion to $18 billion in annual benefits.

The Senate version would also increase benefits for oil refiners, provide training for nuclear power plant workers and give unspecified appropriations for coal plants that convert to natural gas.

The decision by Senate Democrats to give away large numbers of pollution permits angered some environmentalists, who noted that doing so would favor wealthier Americans who owned stock in companies affected by a national carbon cap.

The EPA analysis issued Friday said that the "free distribution of allowances to firms tends to be very regressive. . . . This is because the asset value of the allowances flows to households in the form of increased stock values or capital gains, which are concentrated in higher-income households."

Frank O'Donnell, head of the advocacy group Clean Air Watch, said lower- and middle-class consumers should not be penalized for not owning certain stocks. "This is one reason why auctioning permits is better than giving them away for free," he said.

While the Democrats plan a hearing on the bill on Tuesday and aim to mark up the measure within two weeks, committee Republicans might try to block the markup by denying the majority a quorum. The panel's top Republican, Sen. James M. Inhofe (Okla.), issued a statement saying the 37-page EPA analysis was not thorough enough.

"The majority prefers to keep this bill under wraps for the very straightforward reason that it will destroy jobs, stifle economic growth and tax the energy Americans use every day," Inhofe said.

Meanwhile, on Saturday, an international group of lawmakers met in Copenhagen and agreed to promote common environmental principles, including national energy-efficiency targets, short- and medium-term emissions-reduction goals, and a mechanism for putting a price on greenhouse gas emissions.

Rep. Edward J. Markey (D-Mass.), co-author of the House climate bill, attended the meeting and said it was significant that the principles were endorsed by figures such as Wang Guangtao, who chairs China's Environment and Resource Protection Committee.

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