Climate Policy in 2010: Prospects and Alternatives

Webinar - April 21, 2010

All materials from today’s webinar will be available: www.ase.org/climatewebinar

Today’s Speakers Brad Penney, Director of Government Relations,

Alliance to Save Energy Amit Ronen, Office of Senator Maria Cantwell Neil Brown, Office of Senator Richard Lugar Lowell Ungar, Director of Policy, Alliance to Save

Energy Dave Hamilton, Director of Global Warming and

Energy Program, Sierra Club

All materials from today’s webinar will be available: www.ase.org/climatewebinar

What is the Alliance to Save Energy? Mission: To promote energy efficiency worldwide to achieve a healthier economy, a cleaner environment, and greater energy security.

The Alliance is… Staffed by 60+ professionals31 years of experience in policy, research, education, communications, technology deployment and market transformation

Office of Senator Maria Cantwell

The CLEAR ActCarbon Limits and Energy for

America’s Renewal

Amit RonenOffice of Senator Maria Cantwell

Office of Senator Maria Cantwell The CLEAR Act

What is the CLEAR Act?• A simple, market-based way to reduce CO2 emissions

while protecting household incomes.

• An innovative policy that limits fossil carbon as it enters commerce, sends consistent, economy-wide price signals on fossil fuels, and recycles most of the revenues to households.

• A source of funding for new clean energy investments, mitigation of a broad suite of greenhouse gases, climate change adaptation, and other climate-related priorities.

• A policy that safeguards the climate by cutting greenhouse gases in keeping with state-of-the-art science.

Office of Senator Maria Cantwell The CLEAR Act

Policy Overview• Upstream cap on fossil carbon achieves broad, economy-wide coverage of

fossil carbon.

• Carbon cap in conjunction with additional measures to reduce non-CO2 greenhouse gases meet global warming emissions reduction standards:

– 20% emissions reduction (from 2005 level) by 2020;– 30% emissions reduction (from 2005 level) by 2025;– 42% emissions reduction (from 2005 level) by 2030;– 83% emissions reduction (from 2005 level) by 2050.

• 100% auction establishes accurate price signal and protects consumers from industry windfalls.

• Equal monthly dividends to all individuals residing legally in the U.S. from 75% of auction revenues -- keeps all but the wealthiest 20% (who use the most energy) whole.

• Dedicated energy and climate fund from 25% of auction revenues pays for key climate programs.

• Price safeguards act as insurance against price volatility and excessive costs. Policy does not add to federal deficit

Office of Senator Maria Cantwell The CLEAR Act

Upstream Cap on Fossil CarbonUpstream cap covers all fossil carbon entering the economy, completely and equitably

Price signal passed downstream, leaving all midstream user revenue neutral

Price signal passed through to end consumers who are reimbursed with dividend

COAL NATURAL GAS PETROLEUM

Mining/ Imports

(500 companies)

Production Wells/ Imports

(750 natural gas/ petro companies)

Production Wells/ Imports

(750 natural gas/ petro companies)

Rail, Barge, Trucking, and Power Plants

Pipelines, Processing,

Boilers, Furnaces, and Power Plants

Refining, Mobile Sources, and Power Plants

Products, Electricity, and

Gasoline

Upstream

Midstream

Consumers

Dividend

Only a few thousand entities with compliance obligation ensure minimal and accurate regulation

Office of Senator Maria Cantwell The CLEAR Act

Fossil Carbon Limits

• Reasonable and knowable emission reduction curve allows time for technological breakthroughs and avoids premature dismantling of capital investments.

• Emissions still decline by 80+ percent of 2005 levels by 2050.

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EPA Analysis of H.R. 2454 (ADAGE Scenario 2)

CLEAR Act (Fossil Carbon Cap Only)

Science-Based Targets (IPCC AR4 2050)

Annual Gross CO2 Emissions

Office of Senator Maria Cantwell The CLEAR Act

CLEAR Act Actually Decarbonizes Economy

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CLEAR Act: gross emissions reductions from:

CLEAR Act: net emissions reductions from:

HR 2454 (IGEM Scenario 2) - gross emissions reductions from:

HR 2454 (IGEM Scenario 2) - net emissions reductions from:

• Fossil carbon cap • Assumes 12% of CERT for non-CO2 domestic mitigation

• Gross emissions reductions• Assumes 30% of CERT for additional offset-like projects

• Greenhouse gas cap (excluding HFC cap)• Domestic mitigation offsets• Projections of banking

• Gross emissions reductions• All other offsets including discounted offsets• International forestry set-asides

2012-2050Cumulative Emissions:

243 Gigatons CO2e

2012-2050Cumulative Emissions:

175 Gigatons CO2e

2012-2050Cumulative Emissions:

185 Gigatons CO2e

2012-2050Cumulative Emissions:

156 Gigatons CO2e

Office of Senator Maria Cantwell The CLEAR Act

Price Safeguards

•Floor ($7) and ceiling ($21) prices rise annually at 6.5% and 5.5% real rates, respectively.•All valid bids are accommodated at the safety valve price.•All revenues from carbon share sales in excess of the cap at the ceiling price are directed

to the CERT Fund, explicitly for non-CO2 greenhouse gas mitigation.

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Advanced Nuclear & Carbon Sequestration Scenario

Advanced Renewables & Efficiency Scenario

Comprehensive Advanced Technology Scenario

Price Safeguards

Office of Senator Maria Cantwell The CLEAR Act

Source: Boyce and Riddle (2009), assumes 80% refund, $25 per ton permit price.

Net Impact of Cap and Refund

1 2 43 65 7 1098

Refund Covers Consumer Costs

Nationally, only the top two income deciles incur a net cost after the refund.

• 75% of auction revenues distributed on an equal per capita basis returned tax-free each month to all individuals residing legally in the U.S.

• Several existing programs prove this is logistically possible

Office of Senator Maria Cantwell The CLEAR Act

Energy and Climate Trust Fund (1)

The Clean Energy Reinvestment Trust (CERT) Fund accelerates and eases the transition to a green economy through:

• Targeted and region-specific transition assistance to workers, communities, industries, and small businesses of the United States experiencing the greatest economic dislocations due to efforts to reduce carbon emissions and address climate change and ocean acidification;

• Targeted and region-specific compensation for early retirement of carbon-intensive facilities, machinery, or related assets in the United States that are stranded by new market dynamics;

• Targeted relief for energy-intensive industries, including agriculture and forestry, that export their goods or products to countries that do not impose similar limits or fees on fossil fuels;

• Training and development programs to prepare United States workers for careers in energy efficiency, renewable energy, and other emerging clean technology industries;

• Mitigation of greenhouse gases other than carbon dioxide from fossil carbon and non-greenhouse substances that exacerbate or accelerate climate change (such as black carbon);

Office of Senator Maria Cantwell The CLEAR Act

Energy and Climate Trust Fund (2)

• Cost-effective domestic and international projects that verifiably reduce, avoid, or sequester greenhouse gas emissions, such as agriculture, forestry, or other land use practices;

• Investments in low and no carbon energy and fuels research, development, and deployment activities;

• Projects or initiatives that verifiably increase energy efficiency or energy productivity;• Projects or initiatives that support residential fuel switching, particularly home heating oil;• Projects and loans that verifiably increase energy efficiency and otherwise might not be

undertaken without assistance;• Weatherization and energy efficiency improvements of low-income and public buildings;• Funding for climate change or ocean acidification mitigation and adaptation projects,

activities and research to increase the resilience of human populations and communities, fish and wildlife, and managed and unmanaged terrestrial, aquatic and marine ecosystems in areas and countries in which impacts are likely to be most severe;

• Programs that protect or advocate for energy consumers; • Ensuring that the program does not contribute to the Federal budget deficit.

Office of Senator Maria Cantwell The CLEAR Act

Carbon Leakage

The CLEAR Act requires border equalization fees for the “production-process carbon” in imported, energy-intensive commodities as long as they are:

• Consistent with all trade agreements to which the United States is a party, including World Trade Organization (WTO) obligations

• Applied only to imports from countries without comparable carbon limits or fees

• Restricted to industries with demonstrable disadvantages and international exposure

Office of Senator Maria Cantwell The CLEAR Act

Carbon SequestrationThe CLEAR Act also offers robust incentives for the

commercialization and adoption of carbon capture and sequestration technologies:

• A midstream entity sequestering carbon would be granted carbon shares commensurate with the amount of fossil carbon that is embedded or sequestered, which can then be monetized.

• These “bonus” carbon shares are issued in addition to shares auctioned under the CLEAR Act’s upstream cap because this fossil carbon is permanently prevented from release into the atmosphere.

• Compensation is provided to manufacturers who purchase fossil fuel feedstocks used to produce goods (like plastics or fertilizer) that permanently embed carbon and prevent its release to the atmosphere.

Office of Senator Maria Cantwell The CLEAR Act

Carbon “Offsets”The CLEAR Act provides direct funding for a wide variety of

agriculture, forestry and energy efficiency projects, but treats them as additional mitigation activities, rather than substitutes for emissions reductions, commonly known as “offsets.”

• Treating these projects as additional allows the CLEAR Act to achieve its mitigation targets while avoiding excessive reliance on questionable international agriculture and forestry activities.

• By prohibiting the use of offset-like activities to satisfy compliance obligations, the CLEAR Act achieves a true decarbonization of the economy and ensures that emitters change their behaviors and practices to reduce carbon intensity.

Office of Senator Maria Cantwell The CLEAR Act

Carbon EqualityUnder the CLEAR Act’s upstream cap, regional fossil fuel intensities do not vary widely and fossil carbon prices are passed downstream equally to all users, so the program will not result in significant net regional redistribution of income.

Source: Burtraw, Sweeney, and Walls (2009), Resources for the Future.

Neil Brown Office of Senator LugarLugar Practical Energy and Climate PlanSix page legislative outline released March 25Four Titles:

- Reducing Oil Dependence- Energy Efficiency- Diverse Domestic Power- Measurement and Review

Outline available at www.ase.org/climatewebinar

Variables Affectinga Climate Bill this year

Short legislative calendar- mid-term elections- Supreme Court nomination factor

Need for 60 votes in Senate Impact of off shore drilling and nuclear subsidies unclear Where are utilities on the bill if changes from W/M are as

reported? House wants to resolve differences in Conference; is there

time? Would House accept a Senate passed bill?

Rumors on the Kerry-Graham-Lieberman (KGL)

Proposal

Lowell UngarDirector of Policy

Alliance to Save Energy

KGL Rumors - Cap Economy-wide with similar reductions to ACES

and CEJAPA Sectoral approach

- Stationary sources under cap—first power plants then industrial

- Transportation may be by linked fee Don’t call it cap-and-trade or gas tax

KGL RumorsCost Containment

Hard price collar (may start at $10-30 per ton, increasing)

Strategic reserve of allowances Offsets?

KGL Rumors – Energy Policy Most energy policy left to Energy Committee—

presumably ACELA to be added later Nuclear subsidies Off-shore drilling

KGL Rumors - Allocations• Phase out free allocations by 2030—more to

consumers• More allocations to electric utilities in first few

years–May be change in distribution—more based on

historical emissions• May be less allocations for energy efficiency

–Natural gas companies fighting 1/3 set-aside–No separate allocation to states

Climate Legislation in Context

Dave HamiltonDirector of Global Warming and Energy ProgramSierra Club

Thank you!

Brad PenneyDirector of Government Relations

Alliance to Save Energy202-530-4348

bpenney@ase.org

Rep. Edward Markey James E. RogersChairman, President & CEO, Duke Energy

Christopher B. Curtis President & CEO, N.A. Operating Division & Buildings Business, Schneider Electric

Robert J. DixonSr. VP & Global Head, Efficiency & Sustainability, Building Automation, Siemens Building Technologies Inc.

David SzczupakEVP, Global Product Organizations, Whirlpool Corp.

Nobuo TanakaExecutive Director, IEA

Sen. Mark PryorSen. Lisa Murkowski George DavidFormer Chairman and CEO, United Technologies Corp.