Waxman-Markey and 77c gasoline increases

The US Congressional Budget Office’s new analysis of the cost of the measures proposed in the Waxman-Markey legislation had many supporters of the new rules hoping it would settle the debate on the financial burden of the proposals – or at least, damp down claims that it would cost thousands of dollars per year to most households.

Dissent has come out in just a few days, however: the American Petroleum Institute has written to congress members saying that the CBO’s analysis suggests gasoline will cost 77c more, at today’s prices, by 2020.

Them’s scary numbers. But where do they come from?

API’s director of policy, Kyle Isakower, says they are based on the CBO’s earlier estimate, published on June 5. This made the assumption that international offsets would be used to the full extent allowed under the bill, thereby lowering the price of carbon allowances (and consequently, the cost to carbon emitters) by 70 per cent.

API however assumed that no offsets would be used and that the carbon price used by the CBO was only 30 per cent of the real price – ie, it more than doubled the carbon price used in the CBO’s estimate.

When I asked why they made this assumption, Isakower said that the requirements on international offsets were so stringent that supply was unlikely to meet demand.

Is this a reasonable assumption to make?

Firstly, offsets are undoubtedly controversial. They raise the difficult question of additionality, and they are much criticised by green critics of Waxman-Markey such as the Breakthrough Institute, because they effectively allow US companies to maintain or even increase their own emissions, as long as they pay for carbon-reduction schemes in the US, or in developing countries.

But despite the many criticisms of the underlying logic or morality of offsets, there is little in the legislation to suggest that the requirements are so stringent that they will rule out all international offsets.

New Energy Finance, a research consultancy, today published a report on offsets under Waxman-Markey. They see a big future for international offset projects under the scheme:

As project development will keep up with demand for reductions, abatement beyond offset credits will only be required after 2027. Domestic offsets are expected to contribute less
than 30% to available supply with international credits filling the gap.

For those who want more detail, Milo Sjardin at New Energy Finance wrote, via email:

For some countries with high GHG emissions and relatively high economic development (probably China and India, but not mentioned explicitly) additional requirement is that the crediting will be done on a sectoral basis and will only be possible for sectors already covered under the US programme. For the rest it will still be up to the regulator (EPA) to define what is allowed and what is not.

Admittedly, the definitions in the legislation are vague: they refer to a ‘bilateral or multilateral agreement’, without specifying what that might be but, an agreement in Copenhagen could well satisfy that requirement, even if it included weak targets. If no agreement is reached in Copenhagen, bilateral agreements could be reached.

But Sjardin says it’s very unlikely that this will mean that no offsets qualify:

“With the requirements set out in the bill, there will be enough offset credits that qualify and the expected demand and prices within a US federal programme will ensure that these projects are developed.”

(The last thing to point out is that the CBO did not explicitly refer to international or domestic offsets in its 70 per cent. We didn’t examine the feasibility of domestic offsets as international offsets seem far more likely to face the approval problems referred to by the API).

This is all subject to change when it goes to the vote on Friday. But here is, as far as we can tell, the relevant part of the amended version of Waxman-Markey, or the American Clean Energy and Security Act as it is properly known. It begins at page page 494 for those who want to check it out themselves.

Legal expert suggestions are most welcome:

6 ‘‘SEC. 743. INTERNATIONAL OFFSET CREDITS. (begins p. 494)

Section 736:

2 ‘‘(1) IN GENERAL.—As part of the regulations
3 promulgated under section 732(a), the Adminis4
trator shall establish a process and requirements for
5 periodic accreditation of third-party verifiers to en6
sure that such verifiers are professionally qualified
7 and have no conflicts of interest.
8 ‘‘(2) STANDARDS.—
11 may accredit, or accept for purposes of accredi12
tation under this subsection, verifiers accredited
13 under the American National Standards Insti14
tute (ANSI) accreditation program in accord15
ance with ISO 14065. The Administrator shall
16 accredit, or accept for accreditation, verifiers
17 under this subparagraph only if the Adminis18
trator finds that the American National Stand19
ards Institute accreditation program provides
20 sufficient assurance that the requirements of
21 this part will be met.
22 ‘‘(B) EPA ACCREDITATION.—As part of
23 the regulations promulgated under section
24 732(a), the Administrator may establish accred
itation standards for verifiers under this sub-
1 section, and may establish related training and

2 testing programs and requirements.
3 ‘‘(3) PUBLIC ACCESSIBILITY.—Each verifier
4 meeting the requirements for accreditation in ac
5cordance with this subsection shall be listed in a
6 publicly accessible database, which shall be main7
tained and updated by the Administrator.

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