Kate Mackenzie A little of this… A multi-pronged approach for US climate bill

A couple of stories late last week suggest that after months of uncertainty, the three senators leading a bipartisan push for climate legislation might be abandoning cap-and-trade in favour of a kind of sectoral mish-mash of the three main approaches to pricing carbon: cap-and-trade, cap-and-dividend, and a carbon tax.

Cap-and-trade is still floundering in US Congress, and Senators Lindsey Graham, John Kerry and Joe Lieberman are running very short of time to get a bill passed this year.

The Washington Post reports that Senator Lindsey Graham, the Republican in the trio, declared “cap-and-trade is dead” , citing unnamed participants in a meeting with Graham last Wednesday.

[We'd point out here that Graham last month said some similarly doomy comments about cap-and-trade, only to follow them up a few days later by defending such a regime.]

The same story says Graham and Senators John Kerry and Joe Lieberman are considering a three-part approach to legislation targeting power generation, transport, and industry:

Power plants would face an overall cap on emissions that would become more stringent over time; motor fuel may be subject to a carbon tax whose proceeds could help electrify the U.S. transportation sector; and industrial facilities would be exempted from a cap on emissions for several years before it is phased in.

The Post says the legislation could also contain a “cap-and-dividend” element, which was outlined in another climate bill introduced more recently by Democrat Senator Maria Cantwell and Republican Senator Susan Collins (for more, read this good comparison of the Cantwell-Collins bill against Boxer-Kerry).

According to the report, the sweeteners for legislators offered in the Kerry-Boxer bill would remain:

The legislation would also expand domestic oil and gas drilling offshore and would provide federal assistance for constructing nuclear power plants and carbon sequestration and storage projects at coal-fired utilities.

And yet any bill that effectively caps emissions from power generators right from the start, while giving a delayed or more lenient regime for other industries, will run into some heavy opposition from power generators.

And what about a carbon tax on transport? Surely this is a political non-starter, especially once the oil industry that has so vigorously lobbied against cap-and-trade gets involved.

Meanwhile, although some environmental groups told the Post they could support such a bill, yet another study underscores that politically palatable measures on the table will simply not go far enough towards meeting international emissions targets.

But an as-yet unpublished study by Harvard’s Energy Technology Innovation Policy Research Group says that even an  economy-wide carbon price of $30 – $60 a tonne would be inadequate to curtail emissions from transport; as most of the burden would be borne by coal-fired power generation. It says an additional fuel tax of 50c/gallon from 2010, rising 10 per cent each year, would lead to prices of about $7 a gallon in 2020, which might do the trick of reducing emissions by 14 per cent from 2005 levels.

While this seems politically highly unlikely, Senators Kerry, Graham and Lieberman apparently think there is some potential to raise fuel taxes. It will be interesting to see how far that idea gets.

Related links:

Scenarios: US climate bill options for senators (Reuters)
Waxman-Markey and the 77c/gallon tax increases (FT Energy Source)
Cap-and-doomed (FT Energy Source)