'Cap and dividend' gets some favorable scrutiny

A new climate bill is being touted by supporters for its simplicity. But the politics and lobbying surrounding the proposal are getting more complicated.

The legislation introduced Friday by Sens. Maria Cantwell (D-Wash.) and Susan Collins (R-Maine) follows an uncomplicated premise. Producers and importers of fossil fuels, but not users of them, would pay for "carbon shares," with three -quarters of the resulting revenue returned to all legal residents of the United States in cash. A family of four would receive roughly $1,100 annually.

The remaining 25 percent of the money pot would go toward a "Clean Energy Reinvestment Trust Fund" in which dollars could be used for everything from energy efficiency initiatives to research on technology capturing carbon dioxide at coal plants.

Unlike the more than 1,000-page climate bill that passed the House in June, the new plan offers 39 pages of text. For the authors, the legislation is not only a political step forward but a measure that cuts out the "trade" part of cap and trade at a time when many are skeptical of Wall Street and the complexities of financial markets.

"This is one of the first times we've had Republicans signing on with a major bill in a major priority of the president in this Congress," Cantwell said over the weekend. "So I think this stands on its own."


Her view is backed by a number of analysts, including the founder of the "cap and dividend" concept, environmental entrepreneur Peter Barnes. Yet many groups and individuals who often don't speak with one voice, including farm associations, carbon traders, coal backers and environmental organizations, are expressing concerns about the proposal's structure and cost.

"The bill does not seem to help agriculture or any other energy intensive businesses," said Rick Krause, senior director of congressional relations at the American Farm Bureau, which does not have an official position on the measure.

Mecca for moderates?

Both Cantwell and Collins are considered pivotal swing votes on an ultimate global warming package, so their entrance into the debate is not being taken lightly. Other moderate senators who could make or break a bill, such as Sen. Bob Corker (R-Tenn.), have spoken favorably of the "cap and dividend" concept, as well.

Alaska already implements a version of the idea by paying state residents dividends from its oil industry, so it is perhaps not surprising that another critical swing vote on a climate bill, Sen. Lisa Murkowski (R-Alaska), issued a statement about Cantwell-Collins saying "this bill is intellectually honest and moves the debate in the right direction."

For political analysts, the move from the two lawmakers means that Congress could be closer to making serious deals on climate, or could be marching toward a stalemate with competing "cap and trade" versus "cap and dividend" factions. The House bill, along with a Senate bill that passed a critical committee, backs cap and trade rather than the Cantwell-Collins idea.

Cap and trade, the preferred approach of the European Union, would create a marketplace where entities would have to buy and sell carbon allowances to meet emission cuts.

"I don't know where this going to go," said Tim Profeta, the head of Duke University's Nicholas Institute for Environmental Policy Solutions. "I don't think [the Cantwell-Collins] proposal can be the final text, but it can have great influence on the final text."

Barry Rabe, a public professor at the University of Michigan, said the two approaches are very different, and that that kind of divide could be "hard to bridge."

In the meantime, critics on and off Capitol Hill are emerging.

Which industries get help?

"The problem with this bill is, is it doesn't provide any funding for heavy industry, or for coal to be able to make a transition," said Sen. John Kerry (D-Mass.), a proponent of the cap-and-trade approach who is crafting a climate compromise with Sens. Lindsey Graham (R-S.C.) and Joe Lieberman (I-Conn.).

Coal currently fires half of U.S. electricity. The industry received billions of dollars of financial help in the House bill, as there is no commercial way for coal plants to capture and sequester their emissions.

The Cantwell approach offers bonus "carbon shares" to develop technology for coal, but the dollar signs provided could be much lower than what would provided with current cap-and-trade proposals, said Kevin Book, managing director at ClearView Energy Partners.

Critics of the bill argue that it doesn't delineate exactly how the 25 percent of revenue reserved for a trust fund will be spent, raising doubts about which industries will get financial help to develop new technologies or expand operations. Others dislike the fact that the bill caps only carbon dioxide and doesn't curb other greenhouse gases, such as methane.

Others say it is unclear how much the bill would contain costs, particularly in the Rust Belt of the country, which is heavily reliant on fossil fuels.

Lexi Shultz of the Union of Concerned Scientists said the senators are counting too heavily on yet-to-be-developed technology, and that there is no guarantee that the proposal actually would achieve its stated goal of cutting emissions 20 percent by 2020. The actual reductions could be closer to 6 percent, she said.

Some senators are offering nuanced blessings, however. Sen. Byron Dorgan (D-N.D.), another fence sitter on climate legislation, said over the weekend that he "liked the refund piece" of Cantwell-Collins, although he preferred a slightly "different approach" on how it should be done.

No money for 'far-off lands'

Cantwell's office also released a flurry of support on her Web site for the cap-and-dividend concept, including from a report from the University of Massachusetts, Amherst. The only consumers who would pay more under the legislation would be a tiny sliver of the wealthiest Americans, according to the senator's office.

The bill "does not pick winners and losers among technologies or special interest groups, prevents windfalls to historic greenhouse gas emitters, and is largely revenue neutral to most low and middle income families," said Cantwell's office in its own study.

And Barnes, the original creator of cap and dividend, says that the cap-and-trade approach is riddled with problems. Barnes worked with Cantwell on the legislation, according to the senator.

"Cap and trade with offsets is like taking a pill for a grave illness and then spitting it out because it tastes bad," said Barnes. "The point is to reduce emissions, not just in far-off lands."

Unlike the alternative proposals moving through Capitol Hill, the proposal from Cantwell and Collins does not allow businesses to rely on offsets to meet their individual emission targets. The bill completely bans international offsets.

Offsets allow polluters to meet emission targets by supporting initiatives, such as reforestation projects overseas, outside their own facilities. They are considered an important cost-containment mechanism by many, since many businesses do not currently have cheap ways to cut emissions at their own facilities.

The lack of offsets in the bill could increase costs significantly, said Robert Stavins, a Harvard University economist.

Dirk Forrister of the International Emissions Trading Association said Cantwell-Collins has "serious problems." Locking financial institutions out of the futures and options markets simply will raise costs, he said.

Mixed reaction from energy producers

"A utility, for example, could have the choice of using options to buy offsets at a fixed cost in the future -- which protects their ratepayers against a possible run-up in prices," he said.

Other industry groups were more tempered in their comments. The American Petroleum Institute said in a statement that it liked the idea of "returning revenues to the public and limiting the trading system to actual emitters."

However, the group also said that "natural gas companies" are concerned that capping the producers of fuels, rather than the users, would hit their finances and thus squeeze gas supplies.

Bill Holbrook of the National Petrochemical and Refiners Association said his group was still reviewing the proposal and that "any bill that artificially drives up the price of energy or products, including transportation fuels, home-heating oil and feedstocks, will have a severe negative impact on American consumers."

But for Barnes, the critics are missing the point. The main obstacle to the bill is regional differences in energy consumption, a problem that "can be tempered with money" from the 25 percent investment pot, he said in an Internet op-ed yesterday.

"Proponents of carbon trading say it will attract billions of dollars in private investment and create new green jobs. That is true but misleading. The private investments will mostly be in arcane financial derivatives, and the 'green' jobs will mostly be on Wall Street," Barnes said.

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