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Steel Manufacturers Association

Environment & Energy -- Climate Change Update: US Climate Action Partnership (USCAP)

May 19, 2009

Tom DowerTom Dower, , Vice PresidentVice President

Lighthouse Consulting GroupLighthouse Consulting Group

USCAP Political Outreach CoordinatorsUSCAP Political Outreach Coordinators

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Diverse Voices RepresentedMember Organizations:

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About our Coalition• Launched in January 2007 with the Call for Action• Consensus-based, with 25 corporations and five

environmental groups• Created to articulate the need for prompt

enactment of strong federal climate legislation• A more detailed Blueprint for Legislative Action

released in January 2009• Advocating enactment of legislation consistent

with Blueprint and Call for Action

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The Scientific Case for Action

• Science is sufficiently clear to justify prompt enactment of legislation

• Each year we delay action increases the risk of unavoidable and potentially costlier consequences

“Warming of the climate system is unequivocal, as is now evident from observations of increases in global average air and ocean temperatures, widespread melting of snow and ice and rising global average sea level.”

Intergovernmental Panel on Climate Change, Climate Change 2007: Synthesis Report

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The Economic Case for Action• Unchecked GHG emissions will limit

economic growth, strain public budgets• Legislation to harness market forces to

reduce GHG emissions can reduce the economic cost of achieving desired reductions and spur investment in 21st century technologies which in turn can generate jobs, economic growth

• U.S. needs to be positioned to succeed in the new low-carbon, global economy

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Why Do We Need Legislation?• Well-crafted federal legislation can:

Create an enforceable mechanism to slow, stop and reverse greenhouse gas emissions

Enable the marketplace to identify opportunities for increased investment and provide the foundation for a low-carbon economy

Reduce the economic cost of uncertainty Avoid/minimize use of command and control approach Spur innovations in new technologies Enhance energy security

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A BLUEPRINT FOR LEGISLATIVE ACTION

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What is the Blueprint?• Detailed framework for a

possible path forward on climate legislation

• An approach to achieve aggressive environmental goals in a responsible and economically sustainable manner

• A consensus of diverse organizations

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USCAP’s Climate Approach• Economy-wide cap-and-trade program• Clear linkages with emissions offsets, cost

containment measures• Allocation of allowance value to transform

economy, modernize energy infrastructure, smooth transition for consumers and adapt to the impacts of global warming

• Complementary measures to spur transformation to low-carbon economy

• U.S. leadership on international stage

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Core Blueprint Components

ClimateProtection

80% GHGReduction

by 2050

Cap & Trade

Targets &Timetables

Scope ofCoverage

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Core Blueprint Components

Economic Protection

Allocation of Allowance

Value

Offsets

CostContainment

ClimateProtection

80% GHGReduction

by 2050

Cap & Trade

Targets &Timetables

Scope ofCoverage

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Core Blueprint Components

InternationalPrinciples

Tech

no

log

y

Tran

sform

ation

CoalTechnology

Credit

for E

arly

Action

Buildin

gs/

Energy

Effici

ency

ClimateProtection

80% GHG Reduction

by 2050

Cap & Trade

Allocation of Allowance

Value

Offsets

CostContainment

Targets &Timetables

Scope ofCoverage

Economic Protection

Tra

nsp

ort

atio

n

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Cap-and-Trade Program

• Federal cap-and-trade program coupled with cost containment measures and complementary policies ensures environmental integrity, economic stability

• Declining, economy-wide emission reduction targets

• Provides incentives to transition to new technologies while ensuring GHG emissions reductions

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Targets and Timetable

• Aggressive emission reduction targets for capped sectors as well as total U.S. emissions: 97% - 102% of 2005 levels by 2012 80% - 86% of 2005 levels by 2020 58% of 2005 levels by 2030 20% of 2005 levels by 2050

• USCAP recommends program to provide credit for early action

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Scope of Coverage• Goal to cover as much of economy as

politically and administratively possible within a cap-and-trade program

• Point of regulation: Large stationary sources regulated at point of

emission Transportation fuels regulated at refinery gate or

point of importation Natural gas use could be covered by regulation of

local distribution companies (LDCs)

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OFFSETS AND COST CONTAINMENT MEASURES

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Adequate Offsets Critical

• Offsets reduce greenhouse gas emissions not otherwise included in cap

• Offsets must be: Environmentally additional Verifiable Permanent Measureable Enforceable

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Offset Administration• Congress to establish Carbon Market

Board that sets overall annual upper limit for offsets within a range Upper limit starts at 2 billion metric tons Authority to increase to 3 billion metric tons Domestic and international offsets each limited to

no more than 1.5 billion metric tons in given year

• Additional offsets contained in strategic offset and allowance reserve pool

• No “firm-level borrowing”

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Strategic Offset and Allowance Reserve Pool• Mechanism to limit extreme volatility and spike in

allowance prices, especially in the early years of program

• Includes program-based and other governmentally certified offsets and, as a last resort, allowances borrowed from future compliance period at system level

• Carbon Market Board charged with releasing offsets and/or allowances from the Strategic Reserve Pool at a CMB-specified threshold price

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DISTRIBUTION OF ALLOWANCE VALUE

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Our Approach to Distribution• “Allowance value” is either the value of a freely-

distributed allowance or revenue generated by a government auction of allowances

• Distribution of allowance value should facilitate transition to low-carbon economy

• A significant portion should be initially distributed free to capped sectors, including economic sectors particularly disadvantaged by secondary price effects of a cap, to help protect consumers

• Free distribution of allowances to be phased out over time

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Allowance Value Over Time

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Fair and Equitable Distribution• Blueprint identifies principles to guide fair and

equitable allocation of allowance value to: End-use consumers of electricity, natural gas, transportation

fuels Energy intensive industries facing international competition Trade-exposed commodity products Competitive power generators and other non-utility large

stationary sources Low-income consumers and workers in transition Programs to achieve technology transformation Adaptation needs of vulnerable people and ecosystems at

home and abroad

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COMPLEMENTARY MEASURES

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Complementary Measures and Policies• Intended to spur rapid technology

transformation and to support the transition to a market based approach to reducing GHG emissions

• May be mandatory or incentive-based• When applied to sectors under the cap,

intended to overcome market barriers imperfections that may prevent price signal from achieving actual reductions in emissions in those sectors

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Technology Transformation• Robust program to produce substantial

investment in new technologies • Federal support for pre-commercial and

higher-risk phases of technology research, as well as early demonstration and deployment of new technologies

• Funding should be transparent, predictable, and accountable; not subject to annual appropriations; and leverage private investment

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Coal Technology• Incentives to facilitate and accelerate early

deployment of carbon capture and storage (CCS) technology

• Address financial and regulatory barriers• Coupled with these provisions, USCAP

recommends new standards: CO2 emissions standards for coal plants initially

permitted after January 1, 2015 Retrofit requirements for coal plants permitted after

January 1, 2009, and prior to January 1, 2015

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Transportation• Economy-wide emission reduction targets require

systematic approach involving: Fuel providers Vehicle and equipment manufacturers Consumers and other end users Public transportation, infrastructure and land use officials

• Recommendations include improving vehicle efficiency, reducing fuel carbon content and increasing the efficiency of transportation system

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Buildings/Energy Efficiency

• Policies and measures that improve energy efficiency are an immediate step Congress can take

• Emissions reduction programs include: State- or utility-sponsored conservation programs Tightened building codes and standards Appliance efficiency standards

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The Need for Action

“The scale of the undertaking to address climate change is enormous, and should not be underestimated. For this issue to be successfully addressed – and failure is not an option – the way we produce and use energy must fundamentally change, both nationally and globally.”

– USCAP Call for Action, January 2007

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LIGHTHOUSE CONSULTING GROUP, LLC

1150 Connecticut Ave., NW, Suite 717

Washington, DC 20036

Phone: 202-822-2000 Fax: 202-822-2156

tdower@lighthouseconsultinggrp.com

http://www.lighthouseconsultinggrp.com/