6. CLIMATE: Coalition's pitch sparks cap-and-trade debate (E&ENews PM, 01/15/2009)

Michael Burnham, E&E senior reporter

Sen. Bob Corker (R-Tenn.) dismissed as "window dressing" a cap-and-trade proposal from Duke Energy Corp., General Electric Co. and other corporate heavyweights allied with some leading environmental groups to slash U.S. greenhouse gas emissions 80 percent by 2050.

Emissions of carbon dioxide and other heat-trapping gases from power plants, cement factories and other large stationary sources would be capped under the blueprint unveiled this morning by the 31-member U.S. Climate Action Partnership (Greenwire, Jan. 15). Polluters should be able to meet part of their compliance obligations by buying verifiable CO2 offsets derived from renewable energy and forest conservation projects, among other things.

To mitigate carbon market volatility and price spikes, especially in the cap-and-trade program's early days, the federal government should also create a reserve pool of certified offsets and carbon allowances borrowed from future compliance periods.

Corker, a member of the Senate Energy and Natural Resources Committee, called the blueprint "self-serving" because it suggests that a significant portion of free allowances be distributed to capped entities and economic sectors that are particularly disadvantaged by the secondary price effects of the cap.

Corker called the free allowances, which would be phased out over time, "basically just another request from special-interest groups."

"The notion that this bill will give significant allowances with real monetary value away for free is outrageous," the first-term lawmaker said in a statement.

Corker said he is also opposed to the coalition's proposal to allow polluters to buy and sell domestic and international offsets. Instead, he supports auctioning off emission allowances and returning the revenue to taxpayers to cope with a presumed rise in fossil-fuel generation costs.

A carbon tax would accomplish the same end more efficiently and transparently, he said. Exxon Mobil Corp. CEO Rex Tillerson, who is not a member of the coalition, echoed that sentiment last week (E&ENews PM, Jan. 8).

In a hearing today, House Energy and Commerce Chairman Henry Waxman (D-Calif.) said he plans to move a climate bill through his committee by Memorial Day.

His Senate counterpart, Environment and Public Works Chairwoman Barbara Boxer (D-Calif.), commended Waxman's ambitious timeline. She added that she also intends to complete a set of principles for her own cap-and-trade legislation in coming weeks.

"With the addition of Chairman Waxman's announcement and a new proposal from America's business and environmental leaders in the U.S. Climate Action Partnership, the writing is on the wall that legislation to combat global warming is coming soon," Boxer said in a statement.

In a news conference today, coalition officials stressed that carbon allowances and offsets would be essential to calm a nascent U.S. cap-and-trade market and keep costs at manageable levels. U.S. CAP officials declined to attach a price tag to their proposal.

"A robust emissions offset program established from the outset of cap-and-trade will create opportunities to reduce emissions or increase sequestration practices that can generate revenue for rural communities, provide multiple environmental and social benefits, improve air quality and ensure cost-efficient emissions reductions," said Robert Lane, chairman and chief executive of Deere & Co.

The blueprint underscores that there should be a national strategy to repower, retrofit or replace high-emitting coal power plants with low-emitting coal technologies to help meet electricity demand now and in coming decades. And to prevent a potential run-up in natural gas prices due to feedstock switching, U.S. CAP recommends that Congress provide financial incentives and "needed regulatory certainty" to accelerate commercial-scale deployment of technology to capture and sequester CO2 emissions from power plants.

Coal cannot be "taken off the table," because it is the source for about 50 percent of the electricity generated in the United States today, argued Duke Energy CEO Jim Rogers, whose company operates coal-fired power plants.

"We must find a way to remove the carbon from coal," Rogers added. "If we don't find a way, coal will not be a viable option or equal contributor in a low-carbon world."

Carbon capture incentives

Luke Popovich, the National Mining Association's vice president for external communications, said his organization supports U.S. CAP's incentives for carbon capture and sequestration, or CCS.

Specifically, the blueprint calls for the creation of a program for cash payments for sequestered CO2 emissions from coal and other fossil fuels in power plants and factories. The payments should be sufficient to cover the incremental cost of CCS, which the U.S. CAP members estimated to be about $90 per metric ton of CO2 for high levels of capture at the first few projects.

"The technology that makes CO2 reductions possible should precede the requirement for mandated controls or at least be harmonized with those controls," Popovich said.

But the environmental group 1Sky, which supports a moratorium on new coal-fired power plants, is adamantly opposed to U.S. CAP's proposal to subsidize CCS.

"They propose allowing exorbitant subsidies for coal plants to be built now, as long as they capture and sequester the carbon once the technology becomes commercially viable," said Gillian Caldwell, campaign director for 1Sky, which is supported financially by the MacArthur Foundation and other groups. "No one can predict whether or if it will ever be commercially viable."

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