The new US emissions cap and trade bill explained

For the first time, a bill to cap carbon emissions from industry has been
introduced in the US that has some chance of becoming law. This is not the
first attempt at a cap-and-trade bill for carbon – others have been
defeated or faced too many procedural hurdles to carry on with – but it is
the first in a Congress with a Democratic majority while there is a Democratic president.

That does not by any means ensure its passage, however – many Democrats,
particularly those from “rust belt” or “coal belt” states, are wary of
limiting carbon emissions, which they fear would impose costs on the
industries their states rely on. Whether they can be won round, or whether
indeed they may even be outnumbered by the small minority of Republican
legislators who favour cap-and-trade, is seriously in doubt. But the
efforts to introduce cap-and-trade have the backing of President Obama and
his aides are locked in fervent talks with legislators on the issue, and
will be for months.
The details of the bill on the table, presented by Representatives Waxman
and Markey, are as follows:

- the cap-and-trade programme would cover sources emiting more than 25,000
tonnes of carbon dioxide a year, which would mean about 85 per cent of the
US’s emissions

- utilities and heavy industry would be covered

- the cap would be 3 per cent below 2005 emissions levels in 2012, 20 per
cent below those levels in 2020, 42 per cent below in 2030, and 83 per cent
in 2050

The most contentious part of the programme has been dodged – the issue of
whether allowances should be given out for free or auctioned off. Under
this bill, some emissions permits could be auctioned, but the question of
how many will be left to negotiations in the committee stage. Auctioning is
a highly charged subject, as some industries, politicians and
environmentalists insist most permits must be auctioned in order to avoid
the problems of the first phase of the EU’s emissions trading scheme,
during which energy utilities benefitted to the tune of several billions of
euros by passing on the notional cost of buying permits to consumers
through higher electricity prices, despite having received those permits
for free.

But some industries, particularly electrical utilities, are firmly opposed
to auctioning as they argue it will push up power prices and perhaps
provoke a consumer backlash against carbon trading.

One further contentious point is the use of offsets, by which companies can
top up their emissions quota by buying carbon credits, such as those issued
by the United Nations under the Kyoto protocol, or credits generated under
alternative schemes in the US. The quality of these offsets is highly
variable however – the FT found in an examination of the carbon market that
many US carbon credit issuance programmes resulted in little or no
environmental benefit.

The publication of this bill is just the start. Over the next couple of
months, all of these details will be the subject of intense haggling. And
when the horse-trading over carbon-trading take place, the financial crisis
is likely to be further to the forefront of legislators’ minds than the
climate crisis.

But the publication was a historic step. Climate change experts lined up to
welcome it. Jonathan Lash, president of the World Resources Institute,
said: ““Today’s draft launches an urgent conversation about a critical
issue. It is a starting point. It shows how we can reinvigorate our
economy, develop clean-energy technologies, and protect against the worst
effects of climate change. The measures in this bill represent a growing
and urgent consensus among businesses, consumer groups and individual
citizens about the need for immediate action. Our nation can only meet its
long-term economic and environmental goals with near-term and sustained
investments in economic growth, job creation and greenhouse gas
reductions.”

Domestic progress on cap-and-trade would be essential to enable the Obama
administration to negotiate an international climate change agreement in
Copenhagen in December, he added: “This draft, which sets firm limits on
the amount of greenhouse gas emissions and makes investments in clean
energy and jobs, sends an important signal both domestically and abroad.
This signal is critical as international climate negotiations approach in
December.”

Frances Beinecke, president of the National Resources Defense Council,
agreed: “Action this year to pass effective climate legislation will
stimulate investments here at home and help the United States to regain its
leadership in the international community as it works to secure a strong
global climate agreement.”

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