It is not a clean energy bill.
It is not a pro-solution climate bill.
It is not a pro-American bill.
It is an energy giveaway bill.
It is a bill that deletes Clean Air Act authority for the Environmental Protection Agency over nearly 50 coal plants.
It is a bill that sets up an unfair energy tax system called cap & trade tax (CTT).
It is a bill that sets up CTT, that doubles as a financial derivative, which would be responsible for economic deterioration of U.S. economy, just like the CDOs and CDSs that helped cause the current economic downturn.Further, the Senate bill versions are just as bad or worse.
At issue is a battle that has a huge bearing on the United States and world’s environment, economy and social order. The American Clean Energy and Security Act, or ACESA, has passed the U.S. House and is now in a number of different forms before the Senate. With the change in the administration and increased majorities in Congress, we had all hoped that the 111th Congress would act fast to implement a new climate bill to start controlling our pollution output like carbon dioxide.
The House Bill (HR 2454), however, is replete with problems, as are the Senate versions currently being drafted. While it is significant that a house of Congress has, for the first time, passed an energy & climate bill, it is also important that the bill that Congress ultimately enacts imposes a tax on energy in a way that will discourage excess energy use. That is because energy use analysis indicates that price increases are the most effective way to curtail energy use, improve the way we use energy and decrease pollution.
THE PROBLEMS WITH ACESA
There are numerous problems with the 1428-page House Bill (HB)1, so I do not attempt to address all of them. Rather, I will highlight three main areas that need to be corrected in a final bill if it is to be effective:
ACESA implements cap & trade tax and financial derivative system instead of a simple carbon tax.
Emissions trading, also known as “cap & trade tax” is a way of controlling pollution by providing economic incentives for achieving reductions in the emissions of pollutants. Under “cap & trade tax” the government sets a limit, or “cap” on the total amount of a pollutant that can be emitted. Companies or other groups are issued permits that give them the right to emit a certain percentage of that amount of pollutant (“credits” or “allowances”). The total amount of credits or allowances cannot exceed the cap. Companies that need to increase their emission allowance can buy credits from other companies who don’t need all of their credit because they pollute less. This transfer is the “trade.” Thus, companies have a financial incentive to reduce the amount of pollution they emit and a disincentive to exceed their set allowance.
While cap & trade is a tax in that the U.S. Government will be collecting auction fees/taxes, it is also a financial derivative, in that the certificates issued through auction will derive their value from the sold “right” to pollute.
ACESA includes a cap & trade tax system where the certificates would be issued through an auction. By requiring companies to buy their certificates, the government forces them to pay for the “right” to pollute. When he was campaigning for the presidency, candidate Obama promised that under his cap and trade plan, 100% of the certificates would be auctioned—in other words, no one would get a free ride to pollute.
Unfortunately, the house bill only requires 15% of the emissions certificates to be auctioned, or paid for, during the first year. That figure will increase to only 70% by 2030. Obviously, this reduced auction amount is a major disappointment to those of us who want to see polluters, not the public, bear the financial burden of their pollution.
The reduced auction amount isn’t the only problem with the cap & trade provision in the bill. Although cap & trade systems can be effective they are also susceptible to abuse. Opportunists are able to take advantage of the complexity of the mechanism to “game the system.” To curb this potential problem, the House Bill sets up an oversight committee under the Commodities Futures Trading Commission to regulate hedge fund and other derivative-related aspects of cap & trade. However, it is only a cursory oversight arrangement and there is legitimate concern that it would not prevent market manipulation, which in turn could lead to a new economic bubble in this new speculative market and ultimately hurt the U.S. economy. Illicit cap & trade tax schemes have already been exposed in Europe.2
All of these problems with the cap & trade tax approach could be eliminated by implementing a simple carbon tax.3
ACESA Eliminates EPA Clean Air Act authority to regulate carbon dioxide.
The House Bill is also problematic because it proposes to strip EPA’s authority to regulate carbon dioxide under the Clean Air Act.4 This authority was only recently recognized by the United States Supreme Court, and EPA is only now moving toward exercising it; however, the House Bill would reverse that progress.
At least one analysis of the House Bill indicates that this proposed de-authorization of the EPA would mean that 47 coal plants will be able to be built without EPA regulation. Clearly, that outcome is contrary to any meaningful goal to reduce carbon emissions.
ACESA Funds coal and nuclear energy more heavily than increased efficiency and renewables.
Finally, the proposed funding under the bill for new technologies has misplaced priorities and incentives. Under the House Bill, $60 billion would be allocated for “clean coal” carbon capture and sequestration (CCS) technology. CCS is a technology that would capture the carbon coming out of the coal stack and then sequester it so that it does not get into the atmosphere.
There are a number of CCS different possibilities in the process of being developed, but none has been demonstrated on a commercial scale, and it is unlikely that CCS will be economically practical. Yet, this is the largest chunk of money directly listed in the bill for any one technology. While energy efficiency and renewable energies get $90 billion by 2025, or $6 billion per year or so, that is only a fraction of the amount that coal and nuclear energy will get.
One of the Senate bills includes loan incentives that would give nuclear and coal CCS hundreds of billions of dollars in aid. The decision to disproportionately encourage these two technologies with financial aid and incentives in a “clean energy” bill is simply baffling. Keep in mind that nuclear has been shown to be an uneconomical technology, and that coal CCS, even if it works, will lead to much more coal mining. The truth is, there is no clean coal, nor would any reasonable person consider nuclear energy a “clean” fuel given its significant waste problem.
Yet the bill’s definition of clean energy is so loose, under it coal CCS and nuclear energy will be considered “clean.” And here’s the kicker--these two technologies, coal CCS and nuclear, are so expensive (in the range of 25-35 cents per kilowatt-hour for new units) that if we put our dollars into them, they will suck so many dollars away from energy efficiency and renewables (in the range of 2-25 cents per kilowatt-hour) that there would not be enough money to solve the climate solutions we desperately need.
In summary, here is what needs to happen to make these bills a positive force: 1) restructure cap & trade tax or, better yet, replace it with a simple carbon tax; 2) do not remove the Clean Air Act authority from the EPA; and 3) define clean as clean, and re-design this bill to fund the technologies that are truly clean.
You can call your senators and stress how irresponsible the cap & trade system is. If it passes the Senate, you can then call your Representatives and Senators to ask them to block the authorization of the reconciliation of these two terrible bills.
Note: An earlier version of this article appeared in the Sierra Club Rincon Group newsletter, under my new appointment as Energy Subcommittee Chair for this Group.
1Available at http://energycommerce.house.gov/Press_111/20090701/hr2454_house.pdf
2Associated Press article in Arizona Daily Star (AP), Fight Against Global Warming Spawning New Type of Crime: Carbon-Permit Fraud, 8/22/09, p. A12, http://www.azstarnet.com/sn/news/305938.php
4See analysis at http://www.psr.org/take-action/senate-letter-climate-legislation.html