Climate Change Legislation: State, Regional, and Federal Updatesby Jim Lazar Legislation to limit green house gas (GHG) emissions has passed in California, but is languishing in the other Western states. Meanwhile, President Obama has proposed a GHG plan that would both cut emissions and help fund tax reform. The principal debate at this time is over whether allowances will be given away for free to emitters, in what is known as "cap and trade," sold by the government at auction, an alternative known as "cap and auction" or limited by taxing emissions, what is called a "carbon tax." The U.S. acid rain legislation passed in 1990 used the cap and trade system, and is considered very successful at reducing emissions at fairly low cost. The federal auctions of radio spectrum to cellular telephone companies and others has rationed a scarce commodity, and produced abundant revenue to the federal treasury. Finally, British Columbia has implemented a gradually-rising carbon tax. Utilities and forward-thinking industries with experience in the acid rain program generally favor the Cap and Trade option over the others, because the cost impacts on their customers are small and gradual. They've joined with pragmatic environmental groups in forming the U.S. Climate Action Partnership, http://www.us-cap.org which has published a very thorough blueprint for Congressional action. More dogmatic environmental groups generally prefer cap and auction, with no free allowances for anyone. Some economists, businesses, and environmentalists support a carbon tax. All of these options are considered monetization, because the right to emit GHG carries a clear monetary price. The final option is to adopt more stringent building codes, appliance standards, auto fuel economy standards, and other specific regulations that will reduce energy use and GHG emissions directly, without putting a specific price on emissions. These are generally called "complementary policies." The Western Climate Initiative Seven states plus four Canadian provinces formed the Western Climate Initiative (WCI) two years ago to develop a region-wide cap and trade or cap and auction system for GHG emission regulation. The members include California, Oregon, Washington, Montana, Utah, New Mexico, Arizona, British Columbia, Manitoba, Quebec, and Ontario. WCI has developed a basic framework to begin in 2012 that allocates a declining cap between the states based on their historical emissions (cap and trade), but allowing partial or full auction within the states. The allowances would be of equal value in every jurisdiction, so emission reductions in Manitoba could be sold to coal plant operators in Arizona. The state legislatures, faced with an economic recession, are showing very limited interest in further regulations that might harm local businesses. Legislation has been rewritten to undercut WCI in Washington, Montana, Oregon, Utah, Arizona, and New Mexico. California The California legislature directed the California Air Resources Board (CARB) to adopt "enforceable regulations" to achieve a reduction of California GHG emissions to 1990 levels by the year 2020. CARB is moving ahead rapidly. The current plan is to regulate industrial emissions and electricity sector emissions in 2012, adding natural gas and petroleum in 2015. The CARB hasn't yet decided whether to use cap and trade, cap and auction, a carbon tax, or rely on complementary policies. They've identified enough complementary policies to achieve the entire required emissions reduction, so it is quite possible CARB will defer the monetization options. Washington Environmental groups in Washington, led by Climate Solutions, have urged a cap and auction system, with the auction proceeds going towards emission reducing actions. They termed this "cap and invest." Governor Gregoire instead proposed a bill with about 90 percent cap and trade (free allowances) for the utilities and industries, with a partial or complete auction of allowances in the petroleum sector, an approach more acceptable to electric utilities. The Governor's bill was weakened in House and Senate committees to remove the allowance issuance and tracking systems, preclude any auction of allowances in a multi-state system like WCI, and leaving natural gas out of the system completely. Some energy efficiency legislation is moving forward, but a "hard cap" on emissions isn't looking likely in 2009. The Obama Proposal President Obama's budget proposal to Congress includes an aggressive approach to GHG reduction. He calls for a full economy-wide cap and auction, including electricity, natural gas, and petroleum sectors, beginning in 2012. The Obama proposal estimates about $85 billion would be generated in the first year from the auction. Fifteen billion of this is directed to energy research and development and energy efficiency. The balance will go to provide tax relief on the first $6,850 of income, in the form of a dividend offsetting the social security taxes paid by even the lowest-income wage-earners. Some call this cap / auction / dividend. Legislation is never certain until the final day of the legislative sessions. The state proposals in Washington could be much different by the time you read this. The federal legislation proposed by Obama will be months - or years - in the making, and the final form, if anything passes at all, will likely be different from what was proposed. Jim Lazar is a local economist and regular contributor to the Green Pages.
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