Climate:

Bracewell & Giuliani's Segal comments on Boxer's legislative principles, Bingaman's RPS

As Washington has all eyes on stimulus negotiations this week, energy and climate discussions are expected to take center stage in the coming months, with aggressive deadlines for cap-and-trade legislation in both the House and Senate. How will the effectiveness of the stimulus affect prospects for future energy and environment legislation? During today's OnPoint, Scott Segal, a partner at Bracewell & Giuliani and director of the Electric Reliability Coordinating Council, discusses the aggressive timelines for cap-and-trade legislation set in both the House and Senate. He gives his take on Senate Environment and Public Works Chairwoman Barbara Boxer's (D-Calif.) principles for climate legislation. Segal also comments on Senate Energy and Natural Resources Chairman Jeff Bingaman's (D-N.M.) push to pass a federal renewable electricity standard this year and gives the utility perspective on the measure.

Transcript

Monica Trauzzi: Welcome to the show. I'm Monica Trauzzi. With us today is Scott Segal, a partner at Bracewell & Giuliani and director of the Electric Reliability Coordinating Council. Scott, it's nice to have you back on the show.

Scott Segal: Pleasure to be here.

Monica Trauzzi: Scott, President Obama on Monday night held his first press conference. He highlighted the energy and infrastructure components that need to be a part of the stimulus. If the stimulus doesn't work and if we don't see these 4 million green jobs that he's talking about, is that going to negatively impact the prospects for other energy and environment legislation that the Democrats are trying to get through this year?

Scott Segal: Well, if you look at all energy and environmental legislation, particularly ones that address the sort of critical elements of our time, like global climate change or renewable portfolio standards and the like, they're all about moving technology to market. And, frankly, if we don't have job creation as a result of the stimulus package it's going to mean that something's gone wrong and that the arm of the government is not being effective at moving technology to market. It's going to call for us to re-examine our priorities and make sure that we aren't creating unintended consequences. For example, if direct stimulus in the area of green technology isn't working, then the notion of hard mandates, which really do cost money obviously is not going to stimulate the economy. In fact, that would be a double burden. So, I guess what I would say is this, we're hoping that the stimulus package will work. We're hoping that it will channel investment into productive areas of green technology and, if it doesn't, we're going to have to scratch our head and think long and hard before a mandate would be the answer.

Monica Trauzzi: With all the talk about the economy you have to wonder what the president's economic adviser Larry Summers is saying to him about cap and trade. I mean how much friction do you think there's going to be at the table when you have the economic team and the enviro team?

Scott Segal: Well, we see the Obama administration appointments as falling into sort of three camps. There is the pragmatist camp, which is made up largely of economists and national security experts, folks like Larry Summers, Peter Orszag at the OMB, Cass Sunstein, the regulatory czar or maybe General Jones as the national security adviser. On the other side of the spectrum we might call it the activist can't, which includes Carol Browner, her capable assistant Heather Zichal, their good legal team Lisa Heinzerling and others that have been brought in. That's a very capable team. They obviously have a more aggressive point of view. In the middle you have sort of institution builders, folks like the new EPA administrator Lisa Jackson who just want to make sure that her 19,000 person strong agency is doing what it's supposed to be doing and within the confines established by both the program statutes and the administrative procedure act. So you have all parties represented. The president said it himself and said it best, which is that he likes a cabinet, he likes a board of advisers where there is open and significant debate on these issues. But as he reminds everyone who will listen, he will make the final decisions on energy and environmental topics, including climate change. But he likes to have an open, iterative process. I frankly think we're all the winners if we have that kind of open and iterative process. I would have been very, very upset had it been clear from the Obama appointments that one side was going to win entirely and that side would have been a very aggressive or government policy, which didn't have the sort of nuance and calibration that will be needed for success. This way all sides are heard and hopefully the best choice will be made.

Monica Trauzzi: Despite all the focus on the economy we're hearing a lot in both House and Senate about moving climate legislation this year. And, in the Senate, Chairwoman Boxer recently released her legislative principles for a cap and trade. Do these principles sort of grow from the Lieberman-Warner debate that we saw last year and are they a good starting point for a new debate in the Senate?

Scott Segal: Well, while there was a lot interest spurred by the Lieberman-Warner process, I think the Senate leaders have tried to turn the page a little bit. Now what happened that summer was not the best thing that could have happened. There was too much bogging down in details. There was not enough advance notice to senators. We had a group as high, depending on how you do your counting, as 30 U.S. senators who said we might be for climate change legislation, but we have to see changes away from Warner-Lieberman. So I do think this was an attempt to simplify and pare back what we saw in Warner-Lieberman to see if there were areas of common ground. Now, some of the things that were said in these principles are clearly areas of common ground. Who can disagree with the fact that the standards that are set ought to be scientifically directed? That just makes sense. Who can disagree with the fact that if we calibrate a cap-and-trade program it ought to be done to maximize efficiency of reductions? All of that makes sense. What was troubling to me about Senator Boxer's legislative principles is not what was in them, but really what was missing. There was not a strong sense of cost containment. There is going to be obviously a very strong debate about whether or not we ought to have a hard safety valve in climate change legislation or whether we ought to have so-called off ramps, depending on if technology doesn't show up that we hope will or isn't as robust as we think it might be. There was no discussion of that. In fact, I would be hard-pressed to point to a part of the principles which would be the cost containment part. Also, I detected some weakness on the issue of preemption because while, in its boldest and sort of most poetic way, the principle sort of said we don't want to discourage innovation at state level, sort of a let 1000 flowers bloom, the reality of that is that if we result in a patchwork quilt of overlapping regulatory standards that's going to lead to inefficiencies. It's going to lead to difficulties in trading credits across state borders and I think that's the opposite of where you want to go.

Monica Trauzzi: Switching gears to the House, as expected, Chairman Waxman has come out at the gate sprinting and he set this May deadline for legislation to get out of his committee. Are the prospects a little stronger in the House? I mean how do you see things going this year?

Scott Segal: You know, there's been a lot of the House moving before the Senate this year and I think frankly Senate leaders, even on climate change, are almost a little gleeful that finally it is will be time for the House to take some House-wide, in other words floor votes, that are potentially dangerous or potentially have political consequences to them, because the Senate, over the last several years, has taken three different floor votes on global climate change related legislation, the House hasn't. So it's time for the House to sort of proof up the point. Chairman Waxman has set an aggressive schedule. I've often remarked though that it's different being the chairman of the House Energy and Commerce Committee than it is being number two or being chairman of an oversight panel. Because when you're a chairman of the committee this is a committee that has almost every constituency group in the House of Representatives represented. It has blue dog Democrats, it has energy stators, it has conservatives, it has the full range within the Republicans on the committee too, some sort of moderate Republicans to conservative Republicans. So it's got the whole range represented. In order to lead on a committee like that you must make compromises and that's why I think it's interesting that Chairman Waxman has not been, at this point, overly prescriptive about what he must have in a bill or what must be the result at the end of the day. He's not been prejudicial as far as that's concerned. He has been aggressive in terms of the timeframe of getting something out. Calling for the committee vote before Memorial Day, that's obviously quite bold, but he's been kind of keeping the powder dry a little bit of on questions of what needs to be in the bill.

Monica Trauzzi: We keep during a lot about a pre-Copenhagen deadline from both the Senate and House. They want a vote before Copenhagen. Why should the U.S. though let this international conference sort of dictate our legislative progress? I mean do we risk just sort of rushing through this copy, this very meaty legislation, just to get a vote out?

Scott Segal: Well, Monica, you've hit it right on the point. The Copenhagen process should not be allowed to be determinative of how fast the United States should produce its global climate change legislation. I think that this administration would be potentially embarrassed if they showed up at Copenhagen and no progress has been made. I guarantee you that will not be the case. By the time Copenhagen occurs there will be progress on various and sundry environmental topics that are related. Indeed, consider passing the stimulus package. Right off the bat there the Obama administration will be able to report at Copenhagen that the United States had expanded the base of tax credits for renewable energy, of grants and loan guarantees from the federal government. And had expanded the base of what we consider to be renewable, from tradition and nobles like solar and wind to newer players on the scene like geothermal heat pumps and municipal solid waste and all sorts of things will be in the mix. So I think that the president will be able to make the case, his team will be able to make the case there's been progress by Copenhagen. But you're quite right, to rush a full-blown, cap-and-trade program ready for signature on the president's desk by Copenhagen, I don't even think that's something that the international community is looking for or would want.

Monica Trauzzi: I want to talk about the renewable electricity standard. The Senate Energy and Natural Resources Committee is already moving on a draft for the RPS. Are the votes there in both the House and Senate to make this happen this year and are the utilities sort of preparing themselves for this to finally pass?

Scott Segal: Well, it's difficult for us to know whether the votes are there for a renewable electricity standard without knowing exactly what that standard will look like. If this standard is as high as 25 percent or 20 percent, given current economic conditions, I would think a lot of senators who, in the past, have been favorably disposed to renewable energy might not be happy with such a standard. Because all the dry run votes that have been done before on renewable portfolio standards or renewable electricity standards have all been at a time when the economy was a lot stronger than it is right now and when the number, that is the percentage of renewables in the portfolio was lower than the current standards are calling for. So, there are material differences from the last time we took test run votes. I would say, under current economic conditions and the state of the current capital markets, we had better make sure that any renewable electricity standard doesn't work regional disadvantages and regional unfairness between the states, because to do so will actually move capital around from state to state and will pick winners and losers, both technologically and regionally. And that's something that I think would be political poison. I also want to say something else about the cost factors. We've heard a lot recently about how renewable electricity standards can be done in a relatively cost-effective way. But if you try and do a renewable electricity standard at the same time you're trying to do a cap-and-trade program, I don't believe there have been any studies, any surveys, any data which have shown what the complication and cost of doing both at once might be. There could be a significant problem if you do it. Bottom line to my friends in the environmental community, I say to them, if you push too hard right now, either on passage of a massive cap-and-trade program or an unduly restrictive renewable portfolio standard. At a time when the economy is as weak as it is right now you might actually miss your opportunity for meaningful but moderate legislation by essentially scaring the political base that would otherwise support you when the cost figures are known.

Monica Trauzzi: Final question here. We're almost out of time. The president is set to make his first speech before a joint session of Congress on February 24. What are you looking for him to say on climate and energy during that speech to sort of set the tone for the rest of the year?

Scott Segal: Well, a few days ago the president was speaking in Elkhart, Indiana and he was asked about renewable energy or energy investment in general and he stressed the policy initiatives of a renewable portfolio standard, he stressed decoupling on the utility side, he stressed investments in tax credits and breakthrough scientific research. So it was interesting, he had four discrete answers to that question and not one of them was set a price for carbon through a cap-and-trade program. So, what I'll be looking forward to at his first address is how specific he is about cap and trade. We know he supports green technology and we know he does so in earnest because he's mentioned it a number of times and it animates his policy. I'll be looking to see how specific will he be about cap and trade? Will he talk about the benchmark dates, for example, which is something that fell out of the rhetoric in the last quarter of the campaign? Will he be real specific again about cap and trade?

Monica Trauzzi: All right, interesting stuff. Thanks for coming on the show.

Scott Segal: My pleasure, thanks for having me.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

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