CLIMATE:

Boxer proposal mirrors House on allocations, EPA cost projections

Sen. Barbara Boxer (D-Calif.) kept lawmakers and lobbyists up late Friday night to release a 923-page climate change and energy bill with new details on how to distribute emission allocations that largely follows the lead of the House-passed climate bill.

The chairwoman of the Environment and Public Works Committee also unveiled a first-blush U.S. EPA analysis that finds the bill she wrote with Sen. John Kerry (D-Mass.) would cost the average U.S. household about $100 per year, mirroring the House legislation.

Boxer's chairman's mark details for the first time which regulated firms and well-financed interest groups get a share of allowances that will be worth hundreds of billions of dollars over the climate program's roughly 40-year lifespan.

For the electric utility industry, Boxer includes identical language to the House bill (H.R. 2454) that sends 30 percent of the allowances for free to state-regulated local electric-distribution companies (LDCs). The LDCs are then instructed to use any revenue from the allowances to protect consumers from electricity price increases.

Merchant coal generators would also get 3.5 percent of the free allowances, while companies with long-term power purchase agreements come away with 1.5 percent of the allowances. Both the investor-owned utilities, merchant coal plants and long-term power contract holders would see their free credits zero out between 2026 and 2030.

Boxer addresses energy-intensive firms that work with steel, cement, paper, glass and chemicals with a quick 4 percent infusion of free allowances starting in 2012 and 2013, rising to 15 percent in 2014 and 2015. The trade-sensitive industries, many of which are located in Midwestern and Rust Belt states with swing-vote senators, would see their allowances slowly phase down after 2015. Here, Boxer's bill differs slightly from the House plan with a larger early infusion of allocations, as well as a slower phase out.

Like the House bill, natural gas distribution companies would get 9 percent of the allowances, with explicit language requiring them to use the funds to protect consumers from energy price shocks. The credits also will be phased out by 2030.

The auto industry would get 3 percent of the climate bill's allowances through 2017 before dipping down to 1 percent from 2018 to 2025 -- the same formula used in the House bill. The credits must be used to invest in electric vehicles and other new technology development and deployment.

One of the biggest differences with the House bill comes in the size of the auction Boxer uses to distribute allowances.

For starters, Boxer's bill auctions off 15 percent of the allowances each year through 2029 before rising to 18.5 percent after 2029. The auction revenue would be redirected to a number of areas, including 6.6 percent beginning in 2026 for direct rebates to consumers to help them deal with higher energy bills. The direct rebates eventually reach 50.8 percent of the auction revenue by 2035.

Boxer also sets aside 0.10 percent of auction revenue to help promote public health protection against climate change.

Another shift comes in how many allowances Boxer sets aside for the Treasury Department to curb the federal deficit. Boxer auctions another 10 percent of the allowances and sends the revenue into the government's coffers from 2012 to 2029, rising over the next decade to 22 percent and then topping off at 25 percent between 2040 and 2050.

By contrast, the House bill auctions off 13 percent of its allowances for deficit reduction in 2012 and 2013 and then 1 percent from 2014 to 2015. There are no auction allowances for the deficit after 2023.

Here are some of the other notable numbers in the high-stakes emission allowance debate:

Small electricity LDCs, including rural electric cooperatives, receive 0.5 percent of the allowances. According to Boxer's office, another 0.5 percent will also be available from 2012 to 2025 through a "supplemental" bank of allowances.

Power companies trying to install and operate carbon capture and sequestration technologies would get 1.75 percent of the allowances from 2014 to 2017, 4.75 percent in 2018 and 2019 and 5 percent in later years.

States will get 10.35 percent of the allowances in 2012 and 2013 for investments in energy efficiency and renewable energy, decreasing to 8.55 percent in 2014 and 2015, 5 to 6 percent in 2016-2021 and more than 4 percent in 2022 and beyond. According to the committee, even more allowances for these projects are available under other provisions of the legislation.

Research on advanced energy technology receives 4 percent of the allowances in 2012 and 2013, 2 percent in 2014 and 2015 and 1.7 percent in later years. This funding goes toward research at "Clean Energy Innovation Centers" at various academic institutions around the country.

Efforts to implement new building codes to curb greenhouse gases will get 0.5 percent of the allowances.

States get 1.5 percent for programs benefiting home heating oil and propane users.

Natural resource protection would get 1 percent of the allowances each year from 2012 to 2021, increasing to 2 percent from 2022 to 2026 and 4 percent annually after that.

International efforts to prevent tropical deforestation get 5 percent between 2012 and 2025, falling to 3 percent from 2026 to 2030 and 2 percent per year after that.

International adaptation and low-carbon technology transfer would see 2 percent between 2012 and 2021, going up to 4 percent by 2026 and 8 percent in 2027. Boxer's committee said the adaptation and technology transfer programs also would get another 0.25 percent per year out of a "supplemental" bank of allowances from 2012 to 2026.

Worker assistance and training in energy efficiency and renewables would get 1.5 percent of the allowances in 2012 and 2013, decreasing to 0.55 percent in 2014 and 2015 and then setting at 1 percent per year after that.

Worker training in the nuclear industry would get 0.5 percent of the allowances in 2012 and 2013 and 0.05 percent in 2014 and 2015.

Transportation policies aimed at curbing greenhouse gas emissions would get 2.21 percent of allowances in 2012 and 2013, 1.35 percent in 2014 and 2015 and between 0.9 percent and 2.5 percent after that. The EPW Committee said transportation programs also would get another 1 percent out of a "supplemental" bank of allowances.

Agriculture, forestry and renewable energy programs get 1 percent of the allowances in 2012 and 2013, falling to 0.28 percent in 2014 through 2016. The EPW panel said these programs also would get another 1 percent out of a "supplemental" bank of allowances.

States would get 1.34 percent of allowances in 2012 and 2013 for adaptation efforts dealing with water, wildlife, floods and coasts, as well as programs to curb emissions and promote recycling programs.

Efforts to curb greenhouse gas emissions between 2001 and 2009 would be compensated with 2 percent of the allowances in 2012 and 2013, according to Boxer's office.

EPA says House, Senate bills cost about the same

The House and Senate bills are close enough in scope that their models would find roughly the same price tag, EPA said in its analysis released Friday night.

For example, EPA determined that the Senate bill may cost the average household about 1 percent more per year because it has a more aggressive 20 percent emissions target for 2020, compared with the House bill's 17 percent limit.

But at the same time, the Senate bill could lead to lower costs because it does not set a cap on the fugitive emissions that come from coal mines, landfills, and oil and gas distribution facilities. Instead, Boxer would allow those industries to conduct cleanup projects that are eligible for the offset market designed to curb the overall program's price tag.

The Boxer bill also includes provisions designed to give industry even greater cost certainty compared to the House bill, EPA said. That is due to the strategic reserve allowance program that tucks a larger share of credits away every year to be auctioned in the event that carbon prices jump beyond $28 per ton, a level that then increases 5 percent plus inflation until 2018, rising to 7 percent plus inflation after 2018.

"For the most part, the differences between the bills result in relatively small differences in estimated costs and may even cancel each other out on net," EPA said.

EPA did not generate new economic numbers for how much the Senate bill would cost, instead saying that the agency's full suite of models would show a "similar" price tag to the House legislation. Here, EPA simply repeated its findings from the House analysis, which concluded that the bill "would have a relatively modest impact on U.S. consumers assuming the bulk of revenues from the program are returned to households."

EPA also justified its findings on the Senate bill by noting that the agency had already run an analysis on the more aggressive 20 percent emissions target for 2020 when it examined an early draft of the House bill. Reps. Henry Waxman (D-Calif.) and Ed Markey (D-Mass.), the legislation's lead sponsors, had initially proposed the tougher emissions target but backed down after negotiations with Democratic lawmakers who represent districts with large amounts of coal, oil, natural gas and manufacturing (E&E Daily, May 13).

Repeating its findings about the House bill, EPA said household consumption would drop between 23 and 29 cents per day in 2020 and 76 cents to $1 per day in 2030. Annually, EPA said household consumption would fall $80 to $111 over the next four decades.

EPA also tried for the first time to assess the long-term environmental implications from a nonbinding international agreement reached this July following a Group of Eight nations summit in Italy.

Leaders from the G-8 and about a dozen of the world's other major economies agreed to curb their emissions 80 percent or more by 2050 as part of a global effort to cut emissions 50 percent by midcentury. The countries also acknowledged that global warming should be limited to more than a 2 degree Celsius temperature increase (ClimateWire, July 10).

EPA concluded that these international goals, assuming they were put into binding law, would affect the cost of competing House and Senate climate proposals "in much more substantial ways than any differences in the bills themselves."

For example, EPA said that stronger emission caps in other developed and developing countries, including China and India, would increase demand and prices for various greenhouse gas programs, including international offsets. While the higher prices would also increase the costs for compliance in the United States, EPA projected greater benefits from larger reductions in global emissions and smaller increases in temperatures.

EPA also said a global climate agreement like the one envisioned by the major world economy leaders could ease concerns about U.S. manufacturers shifting their businesses to countries without such strict environmental requirements.

"Seriously engaging our trading partners, as envisioned in the G-8 statement, embodied in U.S. international climate policy, and reflected in the latest modeling analyses, should decrease estimated leakage impacts," EPA said.

EPA's economic review of the Boxer bill marks the first time a government agency has made any preliminary comparison of the Senate and House bills. To date, the Congressional Budget Office and Energy Information Administration have only weighed in on the House bill. CBO found the House bill would lead to projected average household costs of $175 per year (2010 dollars) while EIA said that total gross domestic product would be $566 billion less between 2012 and 2030 under the House climate legislation.

Reactions

EPW ranking member James Inhofe (R-Okla.) on Friday released a statement critical of the EPA study, as well as the timing of the release of Boxer's bill so close to the hearings.

"It's not unreasonable to demand that a committee, prior to legislative hearings, would actually have the bill in question with adequate time for review and analysis," Inhofe said. "On top of that, one would think that, prior to legislative hearings, the committee would have a thorough, comprehensive economic analysis to understand how a 900-plus page bill, designed to fundamentally reshape the American economy, affects consumers, small businesses, farmers and American families."

Inhofe on Friday said the panel's Republicans would consider boycotting the climate markup if they were not satisfied with the EPA analysis. Boxer needs two GOP members to attend the session if she wants to report the bill.

Jack Gerard, president of the American Petroleum Institute, said the similarities between the House and Senate bills convince him the legislation would drive gasoline and diesel prices to about $5 per gallon.

"The more we learn about Kerry-Boxer, the clearer it becomes the legislation resembles Waxman-Markey, only worse," Gerard said. "It will impose even greater costs on the economy and distribute those costs just as inequitably. It promises more pain to consumers but also imposes much greater burdens on some parties than others."

No surprise, Boxer's Democratic allies took a much different perspective on the legislation.

Carper said he was "encouraged by many things" in the Boxer chairman's mark.

Aside from the coal provisions (see related story), Carper singled out language that would set up a performance-based grant program at the Transportation Department that rewards states and cities with the best plans to curb emissions. He also welcomed a pilot program authorizing funds to launch new test recycling programs.

Sen. Ben Cardin (D-Md.) said the latest version helps to curb U.S. transportation emissions and jump-start investment in low- and no-carbon energy technologies, from nuclear power to biofuels, wind and solar.

"Such a commitment also will be a loud statement to the world that the United States is ready to take the necessary steps toward reclaiming our leadership as a global leader on climate change," said Cardin, who serves on both the EPW and Foreign Relations committees.

Kerry, the chairman of the Foreign Relations Committee, responded Thursday to some of the early GOP criticism about the pace and quality of the EPA analysis.

"People who don't want this to pass, and there are some who are just dead set against anything, we all know who they are, will find any excuse to hang their hat on as we go on with the process," Kerry said. "But we've always found that if you just keep pushing and pounding away, ultimately, hopefully the facts emerge and we get to a place where reality checks in around here."

Click here to read the chairman's mark.

Click here to read the summary of allocations.

Click here to read the summary of changes.

Click here to read the EPA analysis.

Senior reporter Ben Geman contributed.

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