May 21, 2010

On May 12, Senators John Kerry (D-MA) and Joe Lieberman (I-CT) unveiled their much-awaited draft climate bill. As expected, Senator Lindsey Graham (R-SC) who had until recently been part of the effort to arrive at a bipartisan climate and energy package, did not attend the unveiling for political reasons. For more information on why Graham left the effort, see the May 7 edition of the ESA Policy News at: www.esa.org/pao/policyNews/pn2010/05072010.php

The Kerry-Lieberman bill includes seven titles: Domestic Clean Energy Development, Global Warming Pollution Reduction, Consumer Protection, Job Protection and Growth, International Climate Change Activities, Community Protection from Global Warming Impacts, and Budgetary Effects.

Highlights include:

EMISSIONS

• Reduction targets: The legislation would apply to stationary sources with annual greenhouse gasses (GHG) emissions above 25,000 tons—roughly 7,500 facilities in all. Using 2005 levels as a baseline, the bill would gradually increase emission reduction goals from 4.75 percent in 2013 to 83 percent by 2050. Regulations would be imposed on a sector-by-sector basis, beginning with electricity and transportation fuels in 2013, and expanding to natural gas and manufacturing industries in 2016.
• Regulated emissions: GHGs subject to regulation include carbon dioxide, methane, nitrous oxide, sulfur hexafluoride, perfluorocarbons, nitrogen fluoride, and hydrofluorocarbons (HFCs). HFCs would have a separate, more aggressive reduction track: 85 percent by 2033. Though they are the most common substitute for ozone-hole forming gasses governed by international protocol, their potency as GHGs can be several orders of magnitude higher than that of carbon dioxide. According to recent studies, HFC use has so far had a negligible impact on climate, but could account for roughly a fifth of warming by 2050, undermining efforts to cut carbon emissions. The bill also includes provisions for studying and possibly reducing black carbon emissions and for funding soil sequestration (i.e. biochar) pilot projects.
• Offsets: Firms could purchase offsets to compensate for as much as 2 billion tons of their emissions each year, with 75 percent coming from domestic sources, if available. Should the US offset market be exhausted, emitters could purchase as much as 1 billion tons in international offsets. The US Environmental Protection Agency (EPA) and Agriculture Department would be tasked with determining the eligibility of all proposed offset projects, using guidance from independent advisory committees.
• State and EPA programs: The bill would remove the ability of states and the US EPA to institute separate emissions control programs. While businesses argue that this is critical for avoiding a regulatory “patchwork,” which could drive up costs and uncertainty, environmentalists and states with tougher standards see the move as a step backwards.

ENERGY

• Offshore drilling: States would be allowed to prohibit drilling within 75 miles of their coastline. In response to concerns raised by the BP oil disaster in the Gulf, the bill would also call on the Department of Interior to conduct impact studies of potential oil spills and determine which states could be impacted by spills in different offshore areas. Based on these assessments, potentially impacted states could institute bans on offshore leasing, even for areas not directly off their shores. This inclusion was adequate reassurance for lawmakers like Senator Bill Nelson (D-FL), who had previously said any offshore drilling provisions would make the bill “dead on arrival.” But some offshore opponents and environmental groups remain firmly opposed to additional drilling and have sharply criticized other drilling provisions, particularly those establishing revenue sharing from offshore areas previously under moratorium (Roughly 37 percent of these revenues would go to states, 12.5 percent to the Land and Water Conservation Fund).
• Nuclear power: The bill provides significant increases for the nuclear power industry, tripling the current loan guarantee program, doubling the regulatory risk insurance program to cover as many as 12 reactors, and providing significant tax incentives. It would also streamline parts of the licensing process.
• Clean coal: Carbon capture and storage (CCS) programs would be eligible for financial incentives through a new Energy Department funding program, supported by new fees on fossil fuel-based electricity.
• Clean energy: The bill includes a number of initiatives to promote the development and deployment of clean energy and energy efficiency technologies. It would also extend and expand alternative fuel credits available to natural gas vehicles and establish a Carbon Conservation Fund through which to invest in agricultural and forest sequestration projects.

ECONOMICS

• Consumer costs: The bill takes a number of measures to reduce costs to consumers. Through 2029, allowance auction proceeds would be directed back to all residential and business customers via local utility distributors. Low-income families would receive an additional refundable tax credit. Allowance value would also go toward natural resource adaptation programs; deficit reduction; and compensating “early adopters” in the private sector as well as states that will lose revenue when sub-national regulatory programs are phased out.
• International competitiveness: The bill would supply allowance rebates to industries deemed energy-intensive and trade-exposed. It would also, as of 2020, require imports in certain sectors to purchase allowances, unless the country of origin had similar emission limits in place. The President could also waive this requirement should it become incompatible with a binding, international agreement made in the future.
• Price collar: The bill establishes a hard price collar, starting with a ceiling of $25/ton and a floor of $12/ton in 2009 dollars. These amounts would increase annually by 5 and 3 percent (after inflation), respectively. A reserve of additional allowances would be released in the event that the price ceiling was reached.
• Allowance advances: Despite the annual cap, firms would be allowed to dip into the following year’s allotment without penalty. Those needing to borrow from additional years could do so at a limited level, with interest.

WHAT’S NEXT

The EPA analysis of the bill is currently underway and should wrap up in June. Senate Majority Leader Harry Reid (D-NV) has scheduled a June 7 meeting with chairs from committees with jurisdiction over the matter; the following week he will convene all 59 Democratic senators to discuss whether a climate bill will be viable. Depending on how those meetings go, Reid could either move forward with a comprehensive climate and energy package or opt for the energy-only approach advocated by a number of Senate moderates. In the latter scenario, the floor vote would likely be on S 1462—the bill passed by the Energy and Natural Resources Committee last summer. In a comprehensive package, S 1462 would still comprise a large portion of the language on energy.

The additional time will also allow Democratic leaders to continue their work for Republican votes and give the White House more opportunity to step in. Climate supporters both on and off the Hill continue to urge the President to put his weight behind the effort, as he did in the final days of last summer’s House debate and at the UN climate summit in Copenhagen. Many observers see strong White House involvement as a must for the bill to gain the necessary momentum. While the Obama Administration has continued to support climate action, the President’s focus has been on passing Wall Street reform and responding to the oil disaster in the Gulf. Presidential commitment could be especially critical in winning over undecided lawmakers like Republican Senator George LeMieux (FL). “If they want to do something, it’s going to have to come from [President Obama],” he said. “His leadership is going to be required on any of these issues that are left. He’s not going to just be able to leave it to Congress.”

LeMieux, along with other swing vote Republicans like Senators Olympia Snowe (ME), Scott Brown (MA), and Judd Gregg (NH) have been in recent meetings with Kerry and Lieberman, though no agreements have been reached. Chief among their concerns is the current economy—“the idea,” Snowe said, “of exactly what can we do in this moment of time, given the economy and to ensure that we do not create any adverse effects … on the cost to consumers and cost to business in the short term.”

As recovery efforts continue in the Gulf, Congress is rethinking the federal permitting and oil company accountability to guard against future disasters. Following a week of hearings with industry executives and representatives, congressional committees spent the last several days grilling Obama Administration officials on the offshore permitting process.

The Interior Department’s Minerals Management Service (MMS) is responsible for issuing offshore energy permits and has therefore been particularly under fire. Already notorious for ethical digressions in previous years, the disaster has drawn attention to more recent infractions. For example, the Center for Biological Diversity has filed a notice of intent to sue over an apparent disregard for endangered species and marine mammal welfare during the permitting process. According to documents obtained by The Washington Post, MMS has, since January 2009, issued three lease sales and hundreds of permits for drilling, seismic activities, and energy exploration in the Gulf of Mexico without first securing permits under the Marine Mammal Protection Act or Endangered Species Act.

Congressional efforts, meanwhile, are focusing on permitting process, assessing whether the permit for the Deepwater Horizon rig was legally issued and how agencies and permitting protocols might be restructured to reduce risks. Noteworthy developments include:

• The role of NOAA: Senator Olympia Snowe (R-ME) and others on the Senate Commerce Committee pushed for the National Oceanic and Atmospheric Administration (NOAA) to have a mandatory role in the permitting process. Currently, NOAA can offer scientific advice to MMS, but MMS is not required to heed it before issuing permits. In the case of the Deepwater rig, NOAA indeed submitted informal comments to MMS during the permit review period, though the comments did not receive a response.
• Categorical exclusions: MMS was able to take some shortcuts in its environmental review for the Deepwater permit via exemptions known as “categorical exclusions.” (For more information on these exemptions, see the “NEPA” article in the April 9 issue of the ESA Policy News at: www.esa.org/pao/policyNews/pn2010/04092010.php). Although the National Environmental Policy Act (NEPA) requires agencies to evaluate the potential environmental impacts of all projects, less extensive reviews are required in cases where projects closely resemble others that have already been reviewed and deemed low-impact. But such exclusions do not apply to work that includes “new and unusual technology,” raising the question of whether the BP project should have been exempted from review after all. As Senator Sheldon Whitehouse (D-RI) pointed out, “The press is full of reports about the novelty of using this technology at this depth.” MMS and BP responded to these allegations by saying that the categorical exclusion followed an environmental impact statement for the broader planning area.
• NEPA timetable: According to Interior Secretary Ken Salazar and White House Council on Environmental Quality Chair Nancy Sutley, MMS is required by congressional mandate to decide whether to approve gas and oil exploration plans no more than 30 days after they are submitted. The Administration has already submitted a proposal to Congress to increase the allotted time to at least 90 days, and President Obama announced plans to re-evaluate NEPA reviews for offshore drilling.
• MMS safety office: Proposed by Senate Environment and Public Works Chair Barbara Boxer (D-CA), this office would be independent of the MMS leasing and royalty division. By splitting the offices (inspection, investigation and enforcement on one side; leasing, revenue collection, and permitting on the other), Secretary Salazar, in responding to Boxer’s proposal, said MMS could avoid “real or perceived” conflicts of interest. The Secretary also said Boxer’s comments would be considered during the agency’s reorganization.

Meanwhile, various lawmakers are engaged in efforts to hold oil companies accountable for disasters by raising the liability cap. Damages related to the Gulf disaster have already exceeded the existing $75 million cap, and while BP leadership has vowed to pay all “legitimate claims” for damages beyond the cap, lawmakers are skeptical.

• On May 13, the Senate’s three strongest opponents of offshore drilling— Senators Robert Menendez (D-NJ), Frank Lautenberg (D-NJ) and Bill Nelson (D-FL)—attempted to fast-track a bill to increase the liability cap to $10 billion via “unanimous consent.” The effort was blocked, however, by Senator Lisa Murkowski (R-AK), who said that raising liability that high would mean only the largest oil companies could afford insurance to drill offshore. Emphasizing that all of Congress would like to see BP pay for the damages, Murkowski rejected the legislation, warning of “unintended consequences.”
• But Menendez countered that it was indeed the bill’s intention to make sure that such disasters would be accounted for, meaning that drilling should only be allowed if companies could afford the associated risks. “Just because they’re smaller—and the risk is the same—they should be exempt?” he asked.
• Gulf Coast Republican Senators David Vitter (R-LA), George LeMieux (R-FL) and Roger Wicker (R-MI) drafted a bill that would require companies to pay a year’s worth of profits—$20 billion in BP’s case—making the cap dependant on the size of the company. The legislation would also double the existing cap to $150 million, holding companies up to at least that much, even if their annual profits were less.
• Alaskan Senators Murkowski and Mark Begich (D-AK) are proposing legislation to raise the per-barrel fee on the oil industry from 8 cents to 9 cents, which would expand the federal government’s trust fund for spills to $10 billion.
• Senate Majority Leader Harry Reid (D-NV) has spoken in favor of eliminating a cap altogether. Citing estimates from Reuters that Deepwater-related damage would exceed $14 billion, Reid said that the suggested $10 billion cap wouldn’t be adequate. (It’s worth noting, however, that while the Reuters figure included all damages related to the disaster, the liability cap—currently set at $75 million—only pertains to economic damages [e.g. payments for losses to the tourism and fishing industry]. According to the full Reuters report, these damages would amount to less than $10 billion.) Industry representatives argue that insurers would not likely cover unlimited liability, since “there would be no number to insure against.”

The US Environmental Protection Agency (EPA) is on track to regulating greenhouse gas emissions under the Clean Air Act next year, as mandated by Supreme Court ruling. The agency, Congress, and President Obama would all prefer that emissions be handled legislatively, but climate supporters view regulatory action as a reasonable, if temporary, alternative, and many hope that it will encourage Congress to act quickly. For more information, see the April 23, 2009 edition of the ESA Policy News at: www.esa.org/pao/policyNews/pn2009/04232009.php)

But Congress could respond in any number of ways. The sweeping climate bill from Senators John Kerry (D-MA) and Joe Lieberman (I-CT) is currently undergoing EPA analysis and could be ready for debate in June if the political climate is right. And in the next few weeks, Senator Lisa Murkowski (R-AK) will likely call for a vote on her disapproval resolution, which would strip EPA of its authority to enforce the regulations. The Senator will make use of the Congressional Review Act, which will allow her to take the resolution straight to the floor and avoid filibuster. The deadline for a vote is the week of June 7— also the week that Senate Majority Leader Harry Reid (D-NV) plans to meet with committee leaders to discuss the possibility of climate legislation. Reid wants to decide by mid-June whether to take up a comprehensive climate and energy bill on the floor, or whether to go the energy-only route and hold a vote on the S1462 which the Senate Energy and Natural Resources Committee passed last year. For more information on S1462, see the June 19, 2009 edition of the ESA Policy News at: www.esa.org/pao/policyNews/pn2009/06192009.php

It is highly unlikely that Murkowski’s efforts will succeed, particularly since the resolution is opposed by the Obama Administration—even if it were to clear both the House and the Senate, it would require President Obama’s signature to go into effect. Still, many will look to how it fares in the Senate as an indication of how prepared the chamber is for a full-fledged climate debate.

Kerry and Lieberman are still working to negotiate support for their bill—something that will be critical in convincing Reid to tackle climate this year. Murkowski’s resolution needs 51 votes to pass, and already has 41 co-sponsors (including moderate Democrats like Mary Landrieu (LA), Blanche Lincoln (AR) and Ben Nelson (NE)). Some observers speculate that strong support for the measure—even if it fails to pass— could signal that the Senate is not in a position to move climate legislation. Conversely, Senator James Inhofe (R-OK) one of Congress’ most vocal climate skeptics, thinks Murkowski should only hold a vote if she’s certain of success. Anything short of victory, he says, could send the wrong message, indicating that climate bill opponents had revised their stance. Several other Republicans, meanwhile, see the vote as an important way to voice their opposition and “get on the record,” as Senator John Thune (R-SD) put it.

Both sides of the debate are ramping up efforts to influence the vote—more than 1,800 US scientists signed a letter to members of Congress urging them to reject Murkowski’s measure. The letter said that the resolution was effectively rejecting “solid science”; it urged Congress to spend its time moving forward with a climate bill instead of working to block climate action. Meanwhile, nineteen free market groups wrote their own letter, urging lawmakers to support the Murkowski resolution and warning that regulating emissions via EPA could be considerably more costly than taking a legislative route.

Additional lawmakers have presented alternatives as well, though only Murkowski’s is guaranteed a floor vote. The others would be subject to filibuster and therefore require a 60-vote cloture motion, which is unlikely in all cases.

• Voinovich bill: The proposal from Senator George Voinovich (R-OH) proposal would pre-empt all federal agencies from regulating greenhouse gases outside the authority of a climate bill. The legislation would apply not only to the Clean Air Act, but also other potential avenues for regulatory action, including the Endangered Species Act, the Clean Water Act, and the National Environmental Policy Act.
• Rockefeller bill: Senator Jay Rockefeller’s (D-WV) bill would allow EPA to regulate tailpipe emissions, but block the agency from regulating industrial sources for two years, giving Congress time to thoroughly deliberate climate legislation. Currently, the measure only has four Democratic co-sponsors; Rockefeller has indicated that he is struggling to find additional support.
• Carper-Casey bill: Senators Tom Carper (D-DE) and Bob Casey (D-PA) are working to supply an alternative to the above efforts to block EPA regulation. The legislation would be similar to the EPA tailoring rule (for more information, see the “EPA” article in this edition) but would permanently exempt small sources from regulation. Under the EPA rule, exemptions would expire in 2016, making some smaller emitters worry that they could be phased in down the road. The EPA rule may well face court challenges as a result, making the senators’ plan a source of added certainty. The idea, Carper and Casey say, is to protect small businesses and agriculture without hampering EPA efforts to reign in heavy emitters. They have yet to provide specifics, though, and are still weighing options—“The end goal is to defeat Senator Murkowski,” an aide said, “and we’re looking at a variety of paths to doing that.”

On May 14, the US Environmental Protection Agency (EPA) completed its “tailoring rule,” an addendum to its forthcoming emissions regulations designed to target big emitters while exempting—at least temporarily—minor sources like apartment complexes and small businesses. Under the rule, new facilities that emit more than 100,000 tons per year will be subject to regulation under the Clean Air Act, as will existing facilities that undergo extensive expansions or renovations. In total, 1,600 facilities, covering two-thirds of stationary source emissions, will be subject to regulation—900 for the first time. For more information, see the February 26 edition of the ESA Policy News at: www.esa.org/pao/policyNews/pn2010/02262010.php.

The Clean Air Act originally focused on conventional pollutants, which are produced by a relatively small number of emitters. Greenhouse gasses (GHGs) are produced by a far broader range of sources, however, and EPA received nearly half a million comments expressing concern over the burden new regulations would place on small-scale emitters. In response, EPA adjusted its original tailoring rule so that—through 2016—only sources emitting more than 50,000 tons of carbon dioxide equivalent annually would be regulated. As originally proposed, the rule would have set this threshold at 25,000 tons per year.

In an industry-friendly move, EPA also significantly raised the level of GHG emissions that would trigger reviews for existing sources. This change will help address an ongoing problem with the Clean Air Act, wherein plant owners hold off on renovations to older facilities to avoid triggering permit reviews for conventional pollutants.

But the tailoring rule will not be enough to reassure many of critics of EPA’s move to regulate emissions. Many argue that regulating even major emitters will reduce the global competitiveness of US industry—a major sticking point in congressional climate negotiations. Other critics have characterized the rule as a “temporary construction ban,” since it would require many more construction projects to receive permits before breaking ground. The approval process now takes about 18 months—a period that could grow longer as companies line up. Still others worry that environmental groups could sue to bring small sources back under regulation, which could lead courts to nullify the tailoring rule altogether.

But environmental groups have been largely supportive of EPA’s actions, and many have been clear that they do not plan to take legal action to press the issue further. Still, some groups are urging the agency to regulate existing sources and move at a faster pace, implementing the regulations earlier than the January start date set by EPA Administrator Lisa Jackson.

Notably absent from the exemptions is biomass, something that surprised some industry representatives, who argue that biomass combustion is carbon neutral because it only releases the carbon previously stored by crops grown for fuel. The process, in other words, simply cycles carbon that would otherwise remain in the atmosphere. But others argue that carbon neutrality becomes more complex when changes in land-use are taken into account. EPA responded to concerns from both sides by leaving the door open for additional regulatory action and expressing plans to seek public comment on regulating biogenic emissions.

On May 19, the America COMPETES Act reauthorization bill failed to clear the House for the second time. It was reintroduced under suspension of the rules, an option that prevents amendments but requires a two-thirds majority for passage.

The week prior, Republicans blocked the bill from moving forward, largely because of its hefty price tag. House Science Committee Chair Bart Gordon (D-TN) responded by introducing a revised version of the legislation (previously HR 5116, now HR 5325) containing 52 amendments adopted during the previous floor debate, and two key compromises:

• Authorization period: HR 5325 reauthorizes COMPETES for three rather than five years, cutting the bill’s cost roughly in half, from $84 billion to $46.5 billion, while keeping the targeted agencies on the ten-year doubling track as originally conceived.
• Pornography: The revised bill would also ban the use of funds to pay salaries of federal employees disciplined for viewing pornography at work.

But opposition remained stiff amidst concerns about the federal deficit and the number of new programs contained in the bill, including Advanced Research Projects Agency-Energy (ARPA-E) and “innovation hubs,” both of which Republicans have motioned to remove.

According to Speaker of the House Nancy Pelosi, the chamber will take the legislation up a third time. “This is a big job creator,” she said, though she did not provide much detail on timing. The original COMPETES Act is set to expire this year. For more information, see the May 7 edition of the ESA Policy News at www.esa.org/pao/policyNews/pn2010/05072010.php

• Endangered fish programs (HR 2288): On May 19, the House voted 264-122 in favor of a bill to extend funds for the Upper Colorado and San Juan rivers’ fish recovery programs through 2023. HR 2288, sponsored by Representative John Salazar (D-CO), is intended to facilitate the recovery of four endangered fishes—the Colorado pikeminnow, razorback sucker, humpback chub, and bonytail—by financing habitat restoration, fish screen and passage projects. Federal officials have lauded the programs as models for Endangered Species Act efforts elsewhere in the country, pointing to their efforts to address environmental and water-use issues simultaneously by fostering cooperation among different stakeholders and levels of government.

UNDER COMMITTEE REVIEW

• Desert development (S 2921): The Senate Energy and Natural Resources Committee (ENR) held a May 20 hearing on a bill from Senator Dianne Feinstein (D-CA) to prevent development on almost a million acres of California desert through new and expanded public lands designations. The legislation is largely a response to solar project proposals on lands that Feinstein says donors spent millions to conserve in the 1990s. Turning the lands over to developers now, she said, would discourage private land-preservation investments in the future. ENR Ranking Member Lisa Murkowski (R-AK) disputed the bill, however, saying that it represented the “not in my backyard” attitude that has been hindering solar development across the country. “I believe it is a fundamental mistake for the advocates of abandonment of coal, oil and gas resources,” Murkowski said, “to also oppose renewable energy projects on federal lands.” Feinstein responded by pointing to provisions in the bill that would streamline permitting on federal lands, open up some private lands for solar development, and expand transmission infrastructure. In addition, S 2921 would not block any of the 350,000 acres identified by the Bureau of Land Management as potential zones for solar power. Developing on that land alone, Feinstein said, could put California on track to more than double its 2020 target for renewable energy production. Feinstein’s first California Desert Protection Act created the Mojave National Preserve and turned Joshua Tree and Death Valley into national parks in 1994.

JUST INTRODUCED

• Pentagon energy: New legislation from Representative Gabrielle Giffords (D-AZ) would aim to improve the energy efficiency of the Defense Department (DOD), the federal government’s biggest energy consumer. The bill would take a number of steps to reduce energy consumption, including ramping up the use of hybrid technology and high-efficiency insulation, promoting renewable energy projects on military lands, and requiring energy and water-use audits at military facilities. It would also give purchasing priority to sustainable goods and services and require DOD to develop a strategy for obtaining a quarter of its electricity from renewable sources by 2025. Giffords hopes to see these provisions integrated into the 2011 defense spending bill during the upcoming markup.