Doniger, Wheeler, Segal, Roy discuss pending floor action on Senate emissions bill

As the Senate prepares to take up the Lieberman-Warner Climate Security Act of 2008 this week, many key provisions are expected to spark heated debate. During today's exclusive E&ETV/ELI Special Event, NRDC's David Doniger, Senate EPW Committee's Andrew Wheeler, Pew's Manik Roy, and Bracewell & Giuliani's Scott Segal give their perspectives on the upcoming floor debate. The panelists address prospects for the bill, likely amendments, key floor fights and potential ramifications of the Senate's debate over the bill.


Monica Trauzzi: I think we're ready to begin, so if you are in the room and not seated, if you want to grab a seat. For those of you who don't know, I'm Monica Trauzzi.

I'm the editorial director and host of E&ETV and E&ETV is part of E&E Publishing. We publish Greenwire, ClimateWire, E&E Daily, E&ENews PM, and Land Letter. And I'm sure many of you receive those in your inboxes on a daily basis.

I wanted to welcome you to today's panel that is cosponsored by the Environmental Law Institute and E&ETV, and the title of the discussion is Prospects for and Fallout from Senate Debate of the Lieberman-Warner Climate Security Act.

And we've assembled a great group of panelists to discuss this topic. And, as you all know, the Senate is scheduled to undertake floor debate on the Lieberman-Warner climate bill on June 2, this Monday.

And it is sponsored by Senators Lieberman and Warner and it is likely to lay the groundwork for future legislation and future talks on climate. I just wanted to turn it over to my co-moderator Leslie, and she'll introduce her organization.

Leslie Carothers: Hi, I'm Leslie Carothers and I'm the president of the Environmental Law Institute. We are an independent education and research think tank that specializes in environmental law and policy.

And we're delighted to be cosponsoring today's program with E&E TV as part of our continuing series of programs on climate and the law.

I just want to say that we're very grateful to this panel of leading experts for spending their weekend trying to figure out this very new climate legislation in the new bill and for participating with us today.

And I also want to thank the law firm of K&L Gates for providing this terrific room for a very timely session on the new bill.

Monica Trauzzi: So everyone knows, the cameras in the room are E&ETV cameras and this event will be airing on our website Monday morning at 10 a.m., so you can visit us then and tell anyone who is not here that they can view the event at that time.

Today our panelists are going to address prospects for the Lieberman-Warner climate bill, likely amendments, key floor fights, and potential ramifications of the Senate debate on the bill.

I'll go ahead and introduce our panelists then. First, to my right, we have David Doniger. He is the policy director at the Natural Resources Defense Council's Climate Center.

Next to him we have Andrew Wheeler. Andrew is minority staff director for the Senate Environment and Public Works Committee.

And to Leslie's left we have Manik Roy, director of congressional affairs at the Pew Center on Global Climate Change.

And finally, Scott Segal, partner at Bracewell and Giuliani and director of the Electric Reliability Coordinating Council.

So, the way things will work today is that each panelist will have about five minutes to discuss the bill. They might discuss the manager's amendment, any aspect that they would like to touch on.

Leslie and I will then ask a couple of questions of the panelists and then we'll open it up to audience questions. You'll notice we have a microphone set up in the audience on my left side.

And if you'd like to ask a question we ask that you do approach the microphone and ask it from there.

And you can sort of form a line where there's some empty space. With that, I think we will hand it over to David for his comments.

David Doniger: Thanks very much. So, the Senate is about to take up the climate Security Act and this is our best opportunity this year to make vital progress towards capping and reducing U.S. emissions of global warming pollution.

And the decisions Congress makes over the next few weeks and months will have profound consequences for the habitability of the planet for decades to come.

So I want to make just four points, two about science, one about technology, and one about policy. First, global warming is here and it's coming on faster than we expected.

Just a few years ago the debate about global warming was about predicted consequences that were very worrying for the future, but now it's about observed impacts that are happening now, as well as what's coming in the future.

The most dramatic example is what's happening in the Arctic where 40 percent of the perennial sea ice has melted away since satellite observations began.

Even the Bush administration was forced to recognize this reality recently when it finally listed the polar bear as a threatened species due to the consequences of global warming.

Closer to home, the consequences are increasingly apparent in the U.S., more severe droughts, more wildfires, more severe storms. These are happening around the world as well.

The second point is that the window of opportunity for preventing catastrophic consequences is closing fast. It's still open, but it's closing fast.

To avoid the worst consequences of global warming U.S. emissions need to be on a downward trajectory in the next two or three years and headed towards an 80 percent reduction by 2050.

And global emissions need to turn the corner by 2020 and be reduced by at least half by mid-century. The Climate Security Act is a very strong start towards these science driven targets.

My third point is that the good news is this is a problem we know how to solve. The largest sources of global warming pollution are power plants, particularly coal-fired power plants, vehicles, and industry.

The Climate Security Act would cover emissions from all these sources amounting to about 85 percent of the total global warming pollution from the U.S.

There is no silver bullet solution to global warming, but there is a silver buckshot. An important study by McKinsey & Company, examined 250 individual measures for reducing U.S. emissions.

And they found that opportunities are there to reduce emissions by almost 3 billion tons by 2030. About half of these opportunities actually produce net savings, enough to carry the cost of those that don't produce net savings.

These findings were corroborated by a recent study for NRDC by the International Resources Group, which found that the emission limits in the Climate Security Act can be achieved with a minimal net increase in the cost of supplying energy services to the U.S.

Largely due to the fact that the investments in efficient homes, cars, factories, and energy producing facilities will be largely offset by the reduced amount of fuel that has to be used and the reduction in total bills.

So, my last point is that the Climate Security Act is a crucial step forward. The bill would cap and reduce global warming pollution nationally, limiting emissions to roughly current levels in 2012.

And then reducing the emissions from covered sources every year to about 70 percent below current levels in 2050. The bill establishes a market-based program with many features to achieve its reductions at the lowest cost.

The bill allocates most of the value of the emissions allowances to public purposes and public benefits, reaching 100 percent allocation to those public purposes by 2031.

And these benefits include measures that will bring down costs such as deploying energy efficiency, renewable energy, and other low carbon technologies, and measures that protect consumers, partner with states, and ease adaptation both here and abroad to the impacts of global warming that we can't avoid any longer.

So, with that, I look forward to what the other panelists have to say and your questions.

Leslie Carothers: All right. Thank you David. Andrew?

Andrew Wheeler: Thank you. Thank you for inviting me here today. The main question, as we approach next week, is whether this is a real legislative process or a political exercise?

The first indication that this is just a political exercise was Senator Boxer's news conference on March 12 when she announced that if any amendments that she considers to be weakening to the bill are added to the legislation, she would pull the bill from the floor.

That's certainly not a way to start a real legislative process. The second is the fact that the Senate just got the bill for the first time last week.

Although our committee reported the bill out in December, the bill was finally put on the Senate legislative calendar last week. The same week, however, we got three versions of the same bill.

Later the same day we got another version with an amendment to address a CVO concern. And then three days later we got a substitute amendment rewriting the entire bill.

So, within the last 10 days, we've seen three different versions of this bill less than two weeks before we begin full Senate debate.

The third indication is how much time will Majority Leader Reid spend on the legislation once we get on the bill next week?

We have a four-week work period between June 2 and the July 4 recess and Senator Reid has said he wants to address the DOD authorization, the budget, a Medicare fix, the supplemental, and a possible stimulus package.

All that in addition to the largest environmental legislation the Senate has ever considered. We will know more next week, once we're on the bill, whether or not it will be an open process.

Will there be opportunities to offer amendments? Will the amendment tree be filled? Will any senators be able to offer perfecting amendments to make the bill more realistic?

The votes are there for cloture. We will have on Monday a cloture motion to proceed to the legislation, the votes are certainly there, and we will begin debate.

But the question is, how long will we debate and whether or not this is going to be an open process? The Republicans want a full debate.

We believe that any climate legislation must protect families, protect workers, maintain global fairness, and offer clean energy solutions.

We are concerned about the impacts of the legislation on gas prices, on job losses, and utility costs.

The Wall Street Journal, this week, said that the Warner-Lieberman bill would impose the most extensive government reorganization of the American economy since the 1930s.

And that certainly warrants a full debate by the United States Senate. This legislation will bring revenue into the federal government, over the life of the bill, $6.7 trillion.

This is not something that can be addressed with one or two days of debate or allowing three or four amendments. This has to be a full, open process and an open debate on all of the issues.

I don't anticipate that there be amendments offering dealing with targets and timetables. I don't think we're going to get to that type of detail, at least in the first week or two that we're on the legislation.

So, we have to see how serious the majority is about addressing this solution and this issue and whether or not we're going to spend the time it takes to address all the issues or if it's just going to be a bill that put on the calendar for a couple of days, have a few votes and then move on to something else.

And until we have those questions answered, I don't think we really know what the prospects are for legislation in this Congress or even next Congress.

Because if we don't have a full debate starting now, when will we begin that process? Thank you.

Leslie Carothers: OK, thanks Andrew. Manik?

Manik Roy: The two things that we look at when we try to assess a piece of legislation on climate change are, one, does it solve the environmental problem?

Does it bring the emissions down the way that David, I think very accurately, said is necessary? The other thing though is does it do so in a way that allows continued, robust growth of the economy?

Because really what we're trying to do here is innovate our way out of a very serious problem and you can only do that with a healthy, innovating, optimistic economy.

We look at this bill and we see the following strengths in it. It would substantially reduce U.S. emissions in a way that's consistent with what the science tells us that we need to do.

It would allow the United States to finally be a full participant in the international negotiations to try and get developing countries and other large emitters around the world to bind themselves to an international treaty that would really tackle this problem.

It would send a price signal on greenhouse gas emissions that would reward invention and investment in climate-friendly technologies throughout the economy.

It would use a variety of mechanisms to control costs, starting with the most important one, which is that it's a market-based approach to solving this issue rather than say a command-and-control approach.

But it has lots of other measures as well which we can get into. It would provide free allowances to energy intensive, trade-exposed manufacturers to protect them from competitive disadvantage.

It would provide incentives for developing countries to deploy clean technologies, protect forests, and provide significant support for adaptation efforts in poorer countries.

It would minimize energy increases for consumers through the use of tax cuts, allowance, and auction revenue, free allocations to local gas and electric distribution companies, and energy efficiency incentives.

Oh, and then of course one of the most important things, it would provide strong incentives for the deployment of carbon capture and sequestration, which is a very key technology that we need to move along.

That, to us, is a very good, strong list. Are there improvements you can make to this bill? Of course, you can always make improvements to any work of humankind. But those are not reasons for stopping the progress on this.

This is a problem we need to solve. We shouldn't be looking for excuses just to continue inaction on this. We should be looking for a path forward, which is why we think that we ought to be going forward with this thing.

Leslie Carothers: All right. Scott Segal.

Scott Segal: Well, as somebody who has worked on climate change policy for a while and on energy related issues actually for a longer period, the thing that I find most interesting listening to everybody on the panel is not where we disagree principally, but how much agreement there is these days.

The notion that there is a sufficiently robust, at least political, consensus on scientific issues that we can proceed to the important phase of climate policy development seems to be an accepted part of the parlance now.

We're not stuck in a rut anymore and we are talking about ways forward, paths forward. I think that's an important development.

I listened to Manik Roy's comments about the two major principles, does it solve the problem and does it do so without too significant of a sacrifice on the economy?

In fact, I believe he said continued, robust growth, and I could agree with those principles as a basis for evaluating this bill or any future legislation that might emerge.

So, please give us some credit I say for having a little bit more common ground between industry organizations, both sides of the aisle on Capitol Hill, and the public interest groups as well, certainly than we did a decade ago and really five years ago as well.

That said, as you might guess, from the perspective of the power industry we have some very significant challenges ahead of us, even absent the question of how to deal with global climate change.

EIA has estimated that by the year 2030 U.S. power demand is going to grow by a third. It's not a question of whether or not we should continue to utilize our coal resources; it's a question of how much our coal resources should grow.

Because at 50 percent of U.S. electric generating capacity or more, and with shortages emerging in other major sources of fossil fuel or least a dynamic which has caused an increase in commodity prices, it is not an option to visualize a policy which visualizes coal out of existence.

At least certainly not in the short term. When I look at the Lieberman-Warner bill I see some shortcomings and some disappointments.

There are, perhaps, some improvements in it, more banking, more use of offsets is an improvement. It's a marginal improvement in cost containment. But there are a lot of disappointments in it.

I don't see a particularly serious effort having been made to address significant supply-side concerns that I've just described.

There is no attempt made, for example, to loosen the rein on natural gas exploration and development within the United States or streamlining of terminaling in the United States for imports of natural gas.

That's a significant shortcoming because a short term, constrained cap is going to cause significant fuel switching from coal to natural gas at great expense and it will not do.

It is irresponsible, I would dare say immoral, to leave the United States economy, the people, the schools, the hospitals without adequate supply of energy.

I would also say that there is no nuclear title. Did you notice? It was like the most discussed title that didn't show up. And so what's that? Does that become a big floor debate over nuclear?

If we breathe the words nuclear in a substantive way, is that a killer amendment that withdraws the bill from the floor with nuclear accounting for 17 to 20 percent of electric power generation in the United States?

I don't believe there's been a particularly serious attempt to create a predictable and transparent approach to cost containment. We still have the highly crenellated Carbon Market Efficiency Board.

I'm not exactly clear how they will work. And, in fact, I will tell you that the Market Efficiency Board has been weakened, not strengthened in the course of the most recent draft.

I would say that the international provisions are still largely unworkable within the bill. They may be too little too late. The definitions of comparability will be bewildering to implement and we set up yet another new bureaucracy to try and implement this.

And the entire structure may be inconsistent with World Trade Organization obligations. See how I said may be?

I used to say, when I gave this speech, absolutely was, because I believe a reading of what's called the Tuna/Dolphin Decision will tell you that if you attempt to regulate a production process and not regulate a product, that you are on very shaky ground with the World Trade Organization and you could be authorizing retaliation.

I know there are opinions that go the other way. Trade law is a little bit like environmental law; a new opinion comes along every 10 minutes. But that's why I described this in terms of risk, that it may not be consistent with WTO obligations.

Lastly, the preemption provisions are very weak within the bill. There's this notion of holding at bay a certain amount of allowances for states unless they agree to be preempted.

There's no indication that that's going to work. There's no predictable indication that that's going to work. And worse than that, it's insidious.

This bill ought to have explicit preemption, if it is a comprehensive federal regime, and I am supposing by reading it that it is a comprehensive federal regime, then it ought to preempt state action.

This is an international problem that needs a national solution within U.S. policy. So, to continue to pretend that you can have potentially inconsistent state action I think is absolutely incorrect.

And the reason I call it insidious is because by using this bribe with allowances approach, you may weaken the cause for implicit preemption by saying, no, we set up a structure here to deal with when states can have authorization and when they cannot.

And I find that very dangerous. What would I do if I were the master of all I survey? Well, I would divide the world into two phases, 2012 to 2030 and 2030 and beyond.

From 2012 to 2030 we are at the greatest risk of near-term caps causing significant fuel switchings from coal to natural gas, with significant impacts for U.S. international competition, our chemical industry, our food production, home heating, and the like.

And I will tell you ladies and gentlemen, switching from coal to natural gas may be many things, that technological innovation it is not.

So that capital that gets sucked up into this commodity shifting is not going to be available and allocated for research and development programs.

And so we will miss an opportunity, in fact, to develop that technology, which will avoid the kind of climatic overshoot that Dave Doniger is talking about.

We have to set the table with new innovation before we implement caps that could push us past the ability to innovate in time to solve the problem.

So, what I would modestly suggest is focusing on innovation from 2012 to 2030, setting benchmarks, doing a registry, setting benchmarks for success and then implementing a cap, and it could be quite a strenuous cap post-2030.

That, I think, is a more reasonable suggestion. Otherwise, you get a lot of fuel switching, a lot of cost and a lot of shifting of productive assets that the United States overseas, which means not much actual reductions in carbon.

That's probably more than five minutes I'm guessing, so I'll stop talking.

Monica Trauzzi: That's OK. Leslie, did you want to throw out the first question?

Leslie Carothers: OK. Monica and I are going to ask a question or two and then open it up to the rest of you.

Scott made one comment regarding the cost-containment provisions and, to my eye, in looking at the summaries, they appear to have made a strenuous effort to strengthen and expand cost-containment provisions in the current bill.

And I noted an analysis by the World Resources Institute of the current bill, which stated that if all the cost-containment mechanisms are applied, borrowing, banking, increased offsets, end of year auctions, there could very well be virtually no change in U.S. emissions.

And I guess I wonder if the panelists agree that that's true if all the cost-containment measures were invoked. And is that desirable? And if it isn't, how should we prevent it? David, you want to start?

David Doniger: Let me take the first shot at that. I think the statement is not completely true because it depends on the price rising into the zone where the cost-containment auction would be triggered.

It has merit if it is designed so that it sits sort of as a safety device above the zone, which we expect the price to be in. It really would be for the exceptional situation, the unexpected situation.

The bill directs the president to pick an initial price for that auction from a range of $22 to $30. It could make a big difference where the president picks if that's the way the final legislation reads.

But the cost-containment idea is a good one insofar as it preserves the cap, unlike safety valve ideas. A safety valve is like the North Korean printing press, if you need more money, you counterfeit it.

So the approach in the cost-containment auction idea is that you borrow a slice of the allowances from the later years and bring them forward, but only in the case that the prices are running well above expectations.

And that is an approach which we think can be helpful. We don't expect that those tons will be released, because we don't expect the price to be in the zone above that trigger. We expect the price to be where it's expected to be.

Leslie Carothers: Other comments?

Scott Segal: I've got a comment. First of all, with respect to the WRI analysis, they also said, and I remember checking that comment, because it struck me as interesting too.

But they also said, in addition to the notion that it might result in no changes, they also if the cost-containment auction reserve were to be fully depleted, something which Dave Doniger doesn't think would happened, emission reductions post-2028 could be more stringent than specified.

And one of the aspects is that there is an initial mechanism for replenishment from the other auction, but then there is no mechanism if it actually depletes, which makes it a little bit of a straitjacket.

The real comment I'd want to make though on this, and you know, you can argue back and forth as to whether or not the board is sufficiently enfranchised to make appropriate decisions and you can argue back and forth --

I mean John Dingell and Rick Boucher make an excellent comment about if the environmentalist proponents of this provision are correct, this is going to be one boring board to serve on.

Because it simply won't do anything, which leads him to believe, over his many, many years in the United States Congress I suppose, that boards have nothing to do tend to engage in mission creep and do other things, which he views as problematic with the Carbon Management Board.

But all I wanted to say, for purposes of people analyzing this issue is please do take a look at the brand-new released whitepaper that came out of the House Energy and Commerce Committee that is the work product of John Dingell, Rick Boucher, and their staffs.

It deals completely with the cost-containment issue. And at page 20 of that report sets out what I consider to be some pretty good principles, they are qualitative principles admittedly, but they're pretty good principles for evaluating cost containment.

Certainty, sufficient lead time, sufficient market liquidity, and simplicity are among the issues. And I think you'd almost think that John Dingell perhaps had this cost-containment device in mind when this whitepaper was struck.

Because, I believe, with the possible exception of access to good information, the CMEB process fails every one of the tests that articulated by the Dingell-Boucher whitepaper.

But it is a good read on the subject. Even if you don't agree with their outcome, it's actually well put together and kind of a nice, wholesome explanation of cost containment.

Manik Roy: Let me just focus in on one of the criteria there. Certainty, right? There are essentially two types of certainty that we need to look at here.

Environmental certainty, so in other words, are we guaranteeing a certain amount of cumulative emissions over the next 40 years? And price certainty.

We would argue that what we should do is guarantee the environmental certainty. All the science is showing us that we're in very dire shape if we don't do that.

Now, work backward from that to come up with a program that provides as much robust protection as possible. The thing that concerns us about this sort of get-out-of-jail-free safety valve is that it doesn't do that.

And, in fact, I'd say that, one, there are versions of a borrowing from the future approach that would build up enough pressure for debt forgiveness that that might ultimately lead to that problem as well.

Scott Segal: Can I ask Manik a question? Or Dave? I'm sorry, Andy, or Andy? The question is just this, there's nothing like sort of philosophically wrong with a safety valve, presumably if you strike the dollar price correctly. Would you agree with that?

Manik Roy: As long as you're retaining the integrity of the cumulative emissions cap.

Scott Segal: But, in other words, like if we had a carbon tax and it was really expensive to emit carbon that would be a program that maintains its own integrity. A safety valve approach with a sufficiently high strike price behaves like a tax in that way.

David Doniger: The problem is there's never been a safety valve proposal that fits that description. It's as though an engineer designed a boiler with a valve that's always open, so that they never build any pressure up inside the boiler and the boiler never does any work.

Scott Segal: I think I understand what you're saying.

David Doniger: If you start from the principle that the cap needs to be kept, the environmental integrity that Manik was talking about, then there can be some flex in when you emit.

And that's what the cost-containment idea in the bill does. It basically shifts some emissions forward, which if the price runs higher than expected, if the price runs as expected, then the omissions profile isn't shifted.

And that is a reasonable way to deal with unexpected prices. But you have to start, I think, if you want to solve this problem, with a commitment to meet a cap that's driven by science.

Andrew Wheeler: Actually, if I could just add to this. First of all, we never even looked at a safety valve in any of the legislative hearings that we had or any of the hearings in the Environment and Public Works Committee.

We don't know how this safety valve that has been drafted in this latest version is going to work, if it might work, and if the range that they picked is correct.

The price ranges that I've seen in the different economic analyses have ranged from $15 per credit ton up to $75 per credit ton. The EPA has, I believe, right around a $25 per credit ton price guess for 2012.

If you use the $25 per ton price in 2012, and you look at just two of the sectors, the utility sector and you look at the refining sector, the refining sector will have to purchase, at $25 per ton, they will have to purchase over $65 billion worth of allocation credits or offsets in 2012 alone.

The utility sector would have to purchase around $20 billion of allocation credits or offsets in 2012 alone. Is this safety valve enough that it will work to make sure that those costs are not passed on to the American public?

I don't think so. The price of carbon in Europe right now is between $35 and $40 a ton I believe, the last time I checked, a couple weeks ago.

While this range is, I believe, $22 to $32 for the president to decide, we have no idea what the appropriate range is, what the price might be, or what the impact might be on borrowing credits from the future.

I don't think just borrowing credits from the future is going to solve the problem. Going back to Scott's original comments, we need to be investing money in the first 20 years in new technologies.

And if everybody is borrowing credits against the last 25 years of this program, and expecting that we'll be able to meet those obligations when they're just worried about using the money from those future offsets today, it's not going to work.

Manik Roy: Can I just add one more to this? And eventually we'll get to the next question. Let me throw one idea out there that I think you might agree with, but I'm not sure.

Which is, we want to drive investment in lots of planet-friendly technologies, including those that allow us to continue burning coal in a sustainable way.

And for those who ... just to clarify, we have plenty of coal. It's cheap. It's plentiful. We're going to keep burning it. Even if we didn't, India and China would.

So to the extent that this is really about getting technology developed as quickly as possible on a global scale, this coal issue is a very important thing to focus on.

So, what we need to come up with is a program that increases prices enough to reward innovation and investment in those sorts of technologies, carbon capture and sequestration, you know all those sorts of things.

But does so in a way that prevents a dash for gas. I think we're in agreement on this, right? We're having a disagreement about whether this bill does that, but on that principle, at least, we agree.

Monica Trauzzi: Last comment on this so we can get to the next question.

Scott Segal: Yeah, I agree with 90 percent of what you said. Here's the question, what's the most efficient way to develop new technology and bring it to market?

Is the price signaling that has to come on purely a question of increasing the price of burning coal? Or are there other mechanisms, complementary mechanisms that also can occasion technological innovation?

Such as, tax incentives, getting depreciation right, public/private partnerships. We have pre-estimates of an expenditure of about $2 billion a year is good to prime the pump, to bring new technologies to market.

Now, you may say, ah, come on now. That's never worked before. We've had all kinds of environmental issues and we've had to address those with either command and control or cap and trade in case of acid rain.

But there's a huge difference between the challenge we face now in climate change and the challenge that we faced in the past.

And the biggest part of that change is that climate change challenge is, in many respects, about the economy proposition with trillions of dollars potentially annually at stake in the legislation.

In other cases we were a lot closer to off-the-shelf technology that needed a small push in terms of a market signal to bring to market in the case of a cap and trade.

Here, we deal with something that is fundamentally different in kind. And I'm reminded of the debate between Newt Gingrich and John Kerry about a year ago April at the Brademas Center in NYU.

Where Gingrich says to Kerry, "I'm going to agree with you on the impacts of climate change, but here's the thing, what's the best way to get technology to market, an incentives-based approach?

The day after you adopt it, a thousand entrepreneurs show at trying to get the money. A cap approach? The day after you adopt it, a thousand lawyers show at trying to prove their clients aren't under the cap.

And maybe it's time to at least give some, all I beg of you is some serious consideration to a near-term, incentive-based program that folds into a cap in the longer term.

Manik Roy: Gee, I hate to let that be the last word on that.

Monica Trauzzi: Go ahead, quickly.

Manik Roy: This is an ironic disagreement. Tax cuts, federal subsidies, you're essentially coming up with a federally-driven solution to the technology problem.

We're proposing a market-based solution to the technology problem, especially because we are not in a situation where we have, for coal at least, a lot of off-the-shelf technologies.

We need to create a signal that will drive this innovation throughout the economy.

Scott Segal: I'll give a 2 second ...

Monica Trauzzi: OK.

Leslie Carothers: No, no, I think ...

Scott Segal: ... response to that. Tax incentives let industries spend their own money. By contrast, funds that are derived from a "market-based process," that are actually derived from auctions, are actually a tremendous diversion of asset back to the federal government for them to expend.

Manik Roy: In a different situation ...

Monica Trauzzi: OK, next question.

Manik Roy: ... tax cuts are a subsidy.

David Doniger: Would you two step outside, please?

Monica Trauzzi: Next question. Before I ask the next question I just want to invite anyone in the audience who has questions to head up to the microphone and you can start lining up there, because we will move to the audience Q&A shortly.

David Doniger: Sure we will.

Monica Trauzzi: As soon as we get through another question. I think we just highlighted what one of the major debates is going to be. But I sort of want to go down the line through the panel. What do you think the biggest fights are going to be next week that we see?

David Doniger: Well, I don't know. I would like to know what Andy has up his sleeve.

You know, I think there will be a number of proposals to break the cap, a number of poison pill proposals to try to undo something it's very important in this legislation, which is U.S. leadership being the key to unlocking the global gridlock.

We have been absent from the picture in any constructive way for eight years. And the other countries that need to move, we need them to move, but they will not move without us.

The Bingaman resolution of a couple of years ago, Bingaman-Specter, struck a very important to note, which was that U.S. leadership was key to unlocking the global gridlock.

And I would imagine there'll be a number of amendments to try to tie, maybe even go back beyond, further into the past than Burt Hagel, in trying to say that what we do is contingent upon equal action by India and China. These are poison pills and should be seen as such.

Monica Trauzzi: Andy?

Andrew Wheeler: Well, two quick comments. First, the issue that I keep hearing from other offices and other members on both sides of the aisle, in fact, a lot from Democratic offices, is the impact of this bill on gasoline prices.

And the timing of bringing this up after the Memorial Day recess, when Americans, every newspaper you look at, the front page article is talking about gasoline prices and what this legislation will do to American families, American consumers, workers, and gas prices.

The second is, under this legislation, global CO2 emissions will go up. U.S. industry will go overseas to developing countries where they are less efficient, they produce more CO2 in their processes.

And then we will import those products back to the U.S. with high transportation CO2 costs. So, under this legislation it may be a feel-good for some people here in the U.S., thinking that we're reducing CO2 limits but, overall, the global shift to emissions will go up the way this legislation is structured and the way it encourages companies to offshore their production facilities and ship the products back to the U.S.

Manik Roy: I have to agree that gasoline prices and the recession will probably cause a big effect on the mood.

I think sort of countervailing that, and I'm not talking about substance here for a second, countervailing that the three major presidential candidates are all committed to acting on this issue.

And I think, Senator McCain, just to focus on him for a second, he really was one of the major leaders on this issue for years before he started running for presidency.

I think that creates a volatility, a political volatility on these issues, you know, between the gas prices and recession on this side and the fact that we are very likely going to have action on this issue very soon.

That, I think will affect the way the issue is debated on the floor. What I think is a shame though in what I just said is that those are political, right?

The recession is almost surely done by the time this program goes into action. The affected this program would have on gasoline prices is noise compared to what we are seeing happen for other reasons entirely.

There is an environmental imperative to getting this thing moving now. And there is actually a business imperative as well.

And it's sad to me that while we have very strong substantive reasons to get this thing done now, the politics are pulling us in the other direction.

Scott Segal: The short answer to what the big issues will be on the floor is we can't know, because, to echo some of what Andy said, we don't know what the process is going to look like.

For example, it could well be this thing gets laid down; a nuclear amendment comes up quickly. It's something where there's a lot of heartfelt feelings on both sides of the aisle, but it's regarded as a killer amendment, so we're done.

And then we have a relatively truncated debate and we don't really get to a lot of the issues. I'm not saying that's going to happen, I'm just saying that you can visualize that.

That could happen. Or we could have a full Senate debate that could last a week and then we'll be done. And a weeklong discussion could get into a lot of the sort of signal issues.

If you had to catalog what are the potential issues to be discussed? I think you could talk about the general propositions, timetables and targets and that sort of a thing.

I don't predict that there will be much of a significant debate on that. I think that a lot of people are saying that that's a debate, more likely through the next year, or potentially the year after that.

I do think we'll have a serious and wide ranging discussion of containing costs under the bill and this is for a number of reasons.

Some have already been cited; gasoline prices and the recessionary pressures, but also John Dingell just released this whitepaper. I think it's a long explanation.

People who have read it think that there's a concern for it. Some of the most major changes in the new draft were in cost containment, which signals that there are kind of concerns on the part of the proponents.

So, I do think you'll have a full Senate debate as far as that's concerned. I think the international provisions might well be subject to some criticism, or at least to some greater explanation.

Preemption is an issue you heard me bring up. I'm not sure how much it will feature next week, because it's what I would call a major peripheral issue, but it is extraordinarily important if we're going to conclude work on this issue.

The overall thematic question that I think you'll hear discussed on the floor is can the caps and are the caps calibrated appropriately to stimulate the development of technology?

So, I think there will be a technology theme. Now, that could manifest itself in off ramps, on ramps, certification programs, incentives, whatever. But I think it's a major theme, cost containment and technology are major themes.

Monica Trauzzi: And Andy had alluded to three points that sort of indicated to him that this wasn't really a serious approach to bringing this bill to the floor.

And I'm sort of wondering from the panelists, is there this so-what factor because there's been so much hype behind this bill for so long that it's being brought up now? Or is real work going to be done next week?

David Doniger: You know, I worked on the Clean Air Act of 1990. That started in 1980. I think we are in the 1989, early 1990 moment here. There's been a lot of preparatory work being done and serious legislation is being developed in both Houses of the Congress.

This problem needs an immediate solution and so the Senate should pass this bill.

If they don't though, it will still have been a major progress towards the kind of debate and understanding and exchange of views and development of proposals that will put us in a position to have action next year.

Now, we want this thing to go through next week and we were working hard to get a positive vote on this. We would hope that opponents would not stand in the way and require the super majority for example.

But we expect that in the Senate the 60 vote rule will be applied, that's a difficult one to get over. There's an election coming. There will be shifts in the Senate.

There will be a new president and this is all contributory. The 1977 Clean Air Act passed all but for the final step in 1976 and was quickly enacted in 1977.

A lot of the work for the 1990 Clean Air Act, as I said, was done in the late 80s. So that's the process we're going through now.

Manik Roy: Could I just ... go ahead.

Andrew Wheeler: Actually, a lot of that work has not happened yet. We had over 100 hearings in the Senate Environment and Public Works Committee in the 1980s leading up to the 1990 Clean Air Act amendments.

We spent over five weeks on the Senate floor in 1990 on the 1990 Clean Air Act amendments. What we're hearing from the majority leader is you all have maybe a week.

That's not enough time to debate these issues and we certainly have not debated the issues in our committee.

I commend Chairman Dingell for his whitepapers and his very deliberative approach at looking at the very difficult subjects of crafting a climate change approach.

But we didn't do that. We spent hearings looking at what the impacts to the skiing industry may be in 50 years if there's no more snow.

Those are the types of hearings that we had last year. The issues that you raise need to be debated, but they haven't been debated yet and you can't get them on and off the floor in a couple of days.

I have yet to hear a single Republican talk about filibustering or trying to kill this bill. There's wide support for the motion to proceed on Monday.

I think it's going to pass overwhelmingly. We want to have a debate on these issues and we want to have the bill on the floor and we want to be able to offer amendments.

Unfortunately, what we've seen on the floor on other issues over the last few months is the majority side wanting to control which amendments can be offered.

And they want to pick the Republican amendments before they're offered. That is not an open debate and that's not the way we've handled difficult issues like this in the past.

Manik Roy: Monica, if I can ...

Monica Trauzzi: Yes.

Manik Roy: To your question, the "so what" factor. As we saw when the Senate was forced to vote on climate measures in 2003 and then 2005, there's a tremendous education process that goes on.

I think the general public may not always appreciate the extent to which the Senate and Congress in general is a very human institution.

Busy people covering lots of different topics, not always the time to cover every issue. These votes force an education process and on this issue I think it's been nothing but beneficial.

In fact, every time we have had a vote on this issue there have been surprises. There have been members that said, OK, I've got enough information.

I'm going to vote for action, whether it was on McCain Lieberman in 2003 or the Bingaman resolution that Dave just mentioned.

So regardless of what happens, the preparation that is going into this will provide an education that moves us to the day when we actually get enactment, hopefully this year, but if not, then later.

The other thing I've got to say, in fairness to Senator Boxer, there have been things said here about the process she has run.

The United States was the third country in the world to ratify the United Nations Framework Convention on Climate Change in 1992.

In 1992 the United States ratified a treaty that said climate change is a problem. We need to do something about it and, by the way, we need to bring our emissions down to the 1990 levels by the year 2000.

We really didn't do anything on that issue until this past year. Has it been a little hurried? Has it been a little truncated? Maybe yes, but to me that's because there's been a lot of inaction up until that time.

Scott Segal: Wow. First of all, just a general question as to whether or not there's a "so what" factor? I think any time United States Senate, on the floor, grapples with a complicated issue its worthy of everybody's attention.

And so I do agree that it's a time to educate. You know, we spent 30 years educating ourselves on climate science. Some people think 30 minutes is enough to educate ourselves on climate policy development.

I don't think that's right. So I think an opportunity to educate can also be an opportunity to educate on the cost and supply implications of a bill.

And I think that's a very, very relevant discussion to have. And, by the way, no bill will proceed to final passage unless there's been a complete discussion of cost and technology.

It's not going to happen. Those are conditions precedent to adopting a bill. The only thing I'll say about '92 is that was largely a hortatory.

I think it's what fancy diplomats down in Foggy Bottom say, hortatory language in '92 was aspirational. And you couldn't have implemented Rio.

Manik Roy: We identified that it was a problem and recognized it as a problem and then come unfortunately, we did not set about solving that problem in a serious way.

Scott Segal: I agree, but the Congress introduces, I don't know, tens of thousands, I don't know what that number is, pieces of legislation every year, all of which purport to recognize the problem.

I'm not saying it's the same as every problem. I'm just saying you have to do more than recognize the problem. You have to do the hard work of policy development. And I agree with Andy, that's not been done in this case.

Monica Trauzzi: Do the gentlemen in the back have questions?

Question: Yes.

Monica Trauzzi: If you could approach the microphone.

Question: (Inaudible). What would you do to improve this bill to make it less costly, less burdensome, reduce the tremendous impact on energy prices that the bill currently (inaudible).

Manik Roy: First, a discussion of process. As we all know, and we've all been working on this for a long time, legislation changes as it goes through the process.

The vote that you have in subcommittee, committee, floor in both Houses in conference are all episodes in a continuum of revision on the piece of legislation.

There are actual learning opportunities, teachable moments, when the various stakeholders bring their ideas together. So absolutely, there are places where we think as the bill goes through the process it should be improved.

Not as an excuse for continued inaction, but as a way that it should be improved. And let me just mention a couple that I think the Pew Center would draw people's attention to.

We would suggest increasing the support for the deployment of climate friendly technologies in developing countries.

In Bali we saw a tremendous opening given to us by developing countries, a willingness to commit to action of some sort; verifiable, measurable action.

And, obviously, that action is a key to solving this problem. We need to get India, China, Mexico, Brazil, the large developing country major emitters on a clean development path or we're not going to solve this problem.

In addition to getting our emissions under control, part of that deal on our part is to help those countries do the technology development that they can't do on their own.

There's a start for that in this bill and we appreciate the fact that there is that start. We would advocate there being more.

I will say that on the trade measure of thing that Scott mentioned, we recognize why that is a very important issue. And I must say, it's a relatively uncontroversial measure as far as I can tell within the members of the Senate.

At least I'm not hearing people stand up and saying, "Let's strip this thing out." But our preference would be to use other processes; maybe allowance allocation as a way of helping trade-exposed manufactures deal with competitive pressures.

Frankly, it's not a huge part of the economy that is vulnerable that way, but there are legitimate concerns and we would prefer to do that.

If we nevertheless go with the trade measures, we would say let's do a bunch of other things that create a positive incentive, like the assistance for climate-friendly technologies in developing countries rather than just the trade measures.

And, again, I think the bill tries to do that as well.

Monica Trauzzi: Anyone?

Leslie Carothers: I have one other.

Monica Trauzzi: Yes?

Leslie Carothers: If no one else has a question, I think it might help our audience to elaborate just a little bit on what the bill provides for attempting to get the states who have been in the lead on this to transition to a federal system.

I mean the fact is we all know that the northeast states and California were busy working on climate change starting at least five years ago in some cases.

And it's natural for their governors to think that it's about time the federal government did something and perhaps want to understand how it's going to affect their existing programs, which are already starting to have some impact.

The new bill, as I understand it, provides a couple of transition provisions like if you don't care to shift to the federal system you may not get certain allowances.

It has certain provisions for transferring allowances from the state to the federal program.

I just would like to know from the panelists, in addition to Scott, but also other than Scott, why that is not going to be enough to facilitate an orderly transition from the existing state programs to the federal programs?

Why do we need to just say, you know, they're all preemptive. That's not going to happen, I don't think, as a political matter. But why aren't these transition mechanisms enough? And if I've misstated them, please correct me.

David Doniger: Well, you know, I think this should be a matter, frankly, of focusing on what's real, not on abstract principles.

And the goal here should be to get to a federal system, but one in which the states, under our pollution laws, have always had important powers.

And they're not going to surrender those powers and environmentalists don't think they should. Environmentalists support the fact that states have been active.

They've been calling the question, calling the conscience of the country on this question and they've been demonstrating that global warming is safe for Rs as well as Ds, as a political initiative.

And they are needed to continue doing many of the things they do and also as a failsafe in case the federal system, the federal program should be shown, in the future, to be as inadequate as the federal actions/inactions have been in the recent past.

And we need to jump forward, but we can't get Congress to make the jump forward. So, the role for the states, preserving that is critical to us and critical to them.

There is a provision, as you described, that basically would tend to move the states from being the implementers of caps to the managers of an allowance pool, which they have very strong claims to, because they are very good at implementing efficiency programs, for example, at the state level.

And a number of the allowances come to the local distribution companies of electricity and gas as well, which are under state regulatory control. So, they can influence how those revenues are used.

These, I think, are very sound provisions and the odds that they would continue to be independent state caps under this regime are quite low. But, at the same time, the states will not agree to be preempted.

Manik Roy: Could I just have, I mean, we would be nowhere without the states on this issue. The states are the ones who have really driven, in some ways, the federal debate on this issue.

And that actually has been true throughout the history, the 40, 50 year history of U.S. environmental law. But there is a balance. I mean as Scott was saying earlier, we need to come up with a national program that works internationally.

And I think we would love to see, in some number of years, an international program in which you can see trading, regardless of the country, around the world.

Obviously, we can't do that yet. And in this sort of still immature phase of our national program, I think it would be a real mistake to squelch state leadership.

And let me point especially to one state, California. California has really been one of the national leaders in the development of environmental policy throughout the history of U.S. environmental law.

The California Air Resources Board is one of the really premiere regulatory agencies, environmental regulatory agencies in the country. To sort of cut that off right now when we're still learning how best to do that, I think, would be a huge mistake.

Andrew Wheeler: I would just say this issue is national in scope and it has to be addressed in a national approach. And you can't have a national approach and have multiple state initiatives out there operating under a federal cap-and-trade system.

On California, they're still in the planning stages of their program. We don't know how they intend to address the ambitious goals that were set out in their legislation.

They don't have the regulations in place. They haven't accomplished the hard work yet.

And the way a lot of people are looking at this legislation that we will be discussing next week is they're setting up a pot of money to be given to some states because they had lofty goals at the beginning of their processes.

But we haven't seen how that's going to work. It's not like setting a standard for NOX or setting a standard for SO2. They set a standard, but they've not explained how they're going to reach it or how they're going to comply with their own state standards.

So most people outside of California don't think they're going to be successful in the approach they are taking at this point. So, it's an issue that has to be addressed nationally if it's going to be addressed at all.

And it cannot be addressed nationally and by various states at the same time.

David Doniger: Can I just clarify one thing? The way the provision in the substitute would work is that it is open to states which have already established their goals or programs and states which have not even started.

It's open to any state that does not, in the future, implement its own state cap. It's a pot of money which would be allocated to states which achieve emission reductions and achieve energy efficiency goals.

And it would be a performance driven, so that the states that do the best going forward, not in the past, but going forward, would get the larger share of that allowance pool.

It's open to Ohio. It's open to Georgia. It's open to Kentucky. It's open to California. It's open to New York.

Monica Trauzzi: There are several questions in the audience.

Scott Segal: Wait, let me -- yes, all I'm going to say on this is you've heard a really good capsulizing of the preemption discussion here. I just want to focus on something Leslie said, which is it ain't going to happen, with respect to preempting the states.

I disagree with that. We have not even had the preemption debate. Come on, I mean look at the placeholder. I would say partially the institutionalized bribery program that is now the preemption provision is a placeholder.

It is an admission that there's a problem with state action and that the problem needs a national solution. And then there's an NAS study tacked on the bottom.

When has the Congress of the United States ever studied whether one of its own statutes should preempt? If anything is within the core competence of Congress it is whether or not their statute is national in scope and comprehensively occupies the field.

Last point, House of Representatives, they have to actually pass legislation too in our bicameral system. And this is what the energy and commerce committee's white paper says on preemption.

"The global nature of climate change takes away (or at least greatly minimizes) one of the primary reasons why many national environmental programs have provisions preserving state authority to adopt and enforce environmental programs that are more stringent than federal programs."

Now, that does not sound like the warm and fuzzy for AB 32 that perhaps folks on the Senate side feel.

Monica Trauzzi: OK, audience question.

Question: This is Siobhan Hughes from Dow Jones newswires. I wonder (Audio Skip) overall?

David Doniger: I would just point out that, you look through the bill and you see that it's focused on, as I said the beginning, on electricity and on transportation and on certain major industries.

These are the industries that make up the bulk of the U.S. emissions. So, the solution to the problem has to be focused on them.

But then what does the bill do? It gives out hundreds of billions of dollars in free allocations and transition assistance to those sectors.

It has all these different provisions from the market-based cap-and-trade structure on out through the cost-containment provisions that we have talked about.

It has provisions to bring forward new technologies like carbon capture and storage. It has provisions to bring forward and deploy efficiency and renewable and low-carbon technologies.

And, by the way, the mere existence of a cap is going to be an important boost to the economic viability of nuclear power. You don't need new subsidies on top of that.

But all of these different industries are treated, in the bill, both to be regulated for their emissions and to have the transition assistance through free allocation and many technology advancement programs to help them get from here to there.

That sounds, to me, like ... well, one can always differ about the details, it's the basic outlines of a smart approach to solving this problem.

Andrew Wheeler: I'll be more specific. The steel industry, the food processors, cement industry, fertilizer industry, farmers, auto workers, manufacturers, chemical processors, plastics industries, and our domestic energy industry will all suffer under legislation as it is currently crafted.

Manik Roy: And, actually, if I could add my opinion. In the first place, it's hard to predict, right? Because what you're talking about is setting up a market-based program, not a command and control program, but a market-based program that will reward those who are good at inventing and making the right calls.

And less reward those who don't. And, actually, I think the most important question is not which sectors will get rewarded, because I think actually there are a lot of projections in the program, but which companies within given sectors will do well.

The fact is that there are some companies who are just ... by their nature they lean forward a little more. They can innovate a little more. They can respond to changes in their environment.

And on this particular issue, there are companies who will have varying abilities to do that as well. And I think the variation that you see within the industry sector will be much more important than the variation across industry sectors.

Scott Segal: I want to agree with what Manik said in terms of it being difficult to tell. I mean even the most robust economic models are still just projections and it depends on what assumption to make.

Obviously, to Andy's point, any industry that's based in whole or in part on creating benefit from fossil fuels is going to be heard under the bill. Duh, I mean that's a blinding flash of the obvious.

Not Andy's point, which is brilliant, but the broader point is my point. But here's the real answer to this question. I think the more fascinating question is what regions will win?

What geographical regions will win or lose under this bill? If you have an option program that I would argue doubles up the financial penalty under the program, first expenditure for compliance.

Then, the ultimate indignity, buying your own allowances through an auction process or a colossal tax as it is sometimes called when not within this architecture.

If you do that, those regions of the United States that are more heavily dependent, particularly on coal-fired capacity, such as the industrial Midwest and the Southeast, will suffer disproportionately to those regions of the country that are not as heavily codependent.

Now, some might say, well, they'll just have to suffer for the sins of the fathers. But, in reality, that creates a tremendous amount of economic dislocation in major and productive parts of the United States economy.

And I will tell you, those are regions, take the Southeast for example. Ask yourself this question, when foreign companies who are investing in the United States renew industrial production, are they moving to California to open up those new plants?

No. They're moving to regions where there is reliable and affordable access to power. And that is the regions I've just been talking about, the industrial Midwest and the Southeast. Those regions will be disproportionately hurt by this bill.

Monica Trauzzi: Well, we're running short on time. We want to get one more question.

David Doniger: The McKinsey report shows that the cheapest reductions to make are in the Southeast and Midwest.

Scott Segal: That's the same argument. We're in agreement there. What you're saying is more money will have to be spent in those regions. There will be more target rich environment for investments down there in making reductions, but that costs more money.

Manik Roy:Though I have to say, the lack of legislation right now is hurting exactly the coal industry that you're talking about. It's very hard to do rational planning in this industry now.

If there is any sector that would benefit from resolving certainty, from getting certainty on this issue, it's exactly that industry you're talking about.

Monica Trauzzi: OK, audience question.

Question: John Shanehand with the Hoffner Group again. It seems like every issue that you've talked about in terms of the questions you're dealing with, the elephant in the living room.

And at the risk of making it a pretty crowded living room, I'm going to ask what I think is another big question for this. I'm going to ask it of Andrew.

And then I'm going to ask it sort of subsidiary of the rest of you to respond. What do you think, in light of what Manik was saying about state preemption and such not, it seems the arguments he was making on state preemption were similar to the Massachusetts v. EPA decision that came down.

It did bring us here. It did accelerate this process. Yet are we going to have a law, possibly, where you have a climate law and you also have regulation of greenhouse gases under the Clean Air Act and dual regulatory schemes here, even on the federal level?

And so my question for you Andrew is what do you think is the view in the senate, both Democrats and Republicans, in terms of stomaching a dual regulatory regime for carbon dioxide?

And then I'd like to ask you, as well as everyone else to respond to whether or not each person's view as to whether that is a wise course forward.

Andrew Wheeler: You're correct. When you're talking about preemption you can't just talk about state preemption. You also have to talk about Clean Air Act preemption. And with the Mass v EPA case from last year, you really can't have a federal system like this.

This legislation, if it were to pass this year and go into effect it would have the Clean Air Act kicking in next year as well and you can't have both programs at the same time.

It will not work. If you're going to pass comprehensive climate change legislation you have to address the issue of the EPA regulatory process and you have to preempt the Clean Air Act for addressing the CO2.

And whether or not the stomach is there in members of Congress this year I don't know.

Probably not, but once they see the regulatory decisions coming out of the agency in the next few years I think that if we do pass legislation there will certainly be a willingness to go back to preempt the Clean Air Act on the issue.

David Doniger: I have a different view. I think that when you have a cap-and-trade program, as we're seeing in the design of this program, you need complementary measures built into it.

And there are complementary powers in the Clean Air Act now. Now, would it make sense in some way to integrate the Clean Air Act powers into the new law?

I think there's an argument that could be made issue by issue, but it's not a wholesale, simple, binary question of preempting the Clean Air Act.

The Massachusetts decision was extremely important because recognizes that the federal government has had the power all along to get back to Kansas. And we need to start.

So I would expect the next administration to be willing to do with this one is not, which is to implement existing law, until then and unless Congress passes a law which changes existing law.

Scott Segal: The only addition I would make to that is remember the precedent of the way we dealt with ozone depleting substances. Now, ozone depleting substances, you could make a similar argument met within the technical definition.

It might be able to make that argument and even sustain it, apparently, in front of this U.S. Supreme Court. You might be able to make that argument.

But nobody had the temerity to suggest that we ought to try and control ozone depleting substances through the generic provisions of the Clean Air Act, which would have been the ultimate square peg in the round hole.

So, instead, we developed a separate statutory regime dealing with stratospheric ozone. Then we incorporated that into the architecture of the Clean Air Act.

We did not double up and consider hydrofluorocarbons, for example, as an air toxic, while at the same time, we were proceeding with an independently derived regulatory regime.

I think that's what's going to happen. Whether the current draft says it or not I think that's eventually will happen.

Manik Roy: I would just say that on this, and I think there have been good arguments made, on this as with state preemptions it's not a question to preempt or not to preempt.

It's a question of how you integrate the appropriate roles of state governments and federal on that issue and of a cap-and-trade program.

A congressionally mandated cap and trade program and some of the complementary measures the Dave was talking about. It's more nuanced than to preempt or not preempt.

Leslie Carothers: Have we got one more?

Monica Trauzzi: OK.

Question: Thank you. Kathy Cash with Platts. As I read the bill that's coming to the Senate floor for a vote, it establishes a number of funds and also a number of boards and conditions that would not be under congressional oversight. Is that considered an area of concern or is that seen as a way to get the initiatives of the bill done more efficiently?

Andrew Wheeler: Well, I think it's a big concern and I think they tried to address if you have those issues in the substitute, although certainly not all of them.

I did just a rough count and it creates 45 new boards or programs in this legislation, most of which will not fall under the purview of Congress in how they implement the program.

And you're also talking about, as the Wall Street Journal said, a huge redistribution of wealth and reorganization of the government. Larger than anything we've seen since the 1930s.

There is $800 billion in tax credits that might happen in the future if the finance committee passes something through the Senate. But that's dwarfed by the $6.7 trillion in new receipts to the federal government under this program.

That's a one in eight investment. The American public will put in eight new dollars to the federal government and get one dollar back in some sort of tax relief in the future.

That is not any kind of a program that I think the majority of the United States senators will support without having any kind of hearings or legislative work to craft such a deal.

David Doniger: I hope that's the kind of argument to make next week because it's rather easily rebutted. The value of these allowances are a fact and the question is who should get them?

Now, at least two of the three presidential candidates think that all of them should be auctioned. The other one seems to think they should all be given away for free to incumbent polluters.

There has been a lot of progress made in the public debate about understanding the value in these allowances and who benefits from them if they're given away versus if they're used for public objectives.

Some of those objectives include some healthy measure of transition assistance for the industries and it phases out in this bill. That money, if it's scored by the Congressional budget office's federal receipts is just as quickly scored as money going right out to those companies will.

And the other targeted provisions in this bill are, to each one, to accomplish a purpose of advancing new technology, of deploying technology, of protecting consumers, of dealing with adaptation concerns.

Let's look at each one of them and debate them on the merits and not start throwing around big claims about the size of the money going in and the small size of the money going out, because that just isn't true.

Andrew Wheeler: If that's the best response, then I think I have a pretty good claim for next week.

Scott Segal: Did you just say let's debate each of those outcomes or those places where the allocated money would go? Boy, that would be great!

I don't think we're going to do it in three days though or even in a week. I mean there's too much that needs to be done there. I do agree that there's an awful lot of bureaucratization in the legislation as drafted.

I just want to focus on the Carbon Management Efficiency Board, my favorite, the Federal Reserve Board of Carbon.

I always thought it was hilarious that the talking point for that is that it will behave like the Federal Reserve Board, which took decades and decades and decades to begin to perform in a predictable fashion.

And even now, would you say, if you read the papers, that the Fed proceeds in an absolutely predictable fashion? I would think not.

I mean sure they have the odd depression on their way into getting it right, but I'm not sure that's the exact analogy that we're looking for for the Carbon Management Efficiency Board.

There is a certain amount of abdication of responsibility within this bill to throw two or three of the core critical functions of the bill into independent agencies.

And it may seem mundane or commonplace to say, but you don't just snap government agencies into existence overnight.

You talk about the potential for overshoot and getting it wrong and not in time to address actual climate change, try setting up three new government agencies. See how quickly you get that off the ground.

David Doniger: This is an area actually where I would agree with you because the carbon market efficiency board, one of the complaints about it was you don't know how it would operate, you know, transparency and predictability.

Well, this bill has reduced its role substantially and the cost-containment provisions, by and large, work by completely transparent rules that are not under the administration of this board. And I think that's a step in the right direction.

Scott Segal: And I'll agree with you that that's an improvement over the way CMEB was in the last draft. It's still not there yet. If you really mean what you say about predictability, let's talk about safety valves again.

Manik Roy: If I could just say, Scott, there's some irony in hearing you talk about this because your solution at the beginning of this was federal subsidies and tax cuts, which in a deficit situation are essentially federal subsidies.

So you're presumably arguing for the same amount of money to sort of flow through the federal government. But you're just sort of maybe finding a different way of doing it.

Scott Segal: Well, let me just quickly answer that. If you want to raise revenue in order to stimulate investment in new technology or to pay for tax incentives in a deficit situation there are ways to raise money that do not constitute the behavior altering mechanisms like a full fledged carbon tax.

So, for example, you've seen in the literature, we don't have anything drafted up. There's not anything that's been necessarily floated in Congress, at least at this point, but there are things like wire charges.

It depends on what you think is necessary to prime the pump for investment in new technology. If you think it's on the order of 3 billion a year in order to prime the pump and stimulate technological innovation, that's one set of approaches that you would take.

And if you think it's substantially more than that or if you're really just using the program for massive untransparent income redistribution, then you would take a different approach.

Manik Roy: I mean I think our answer would be, setting aside for a second the way the money flows through there, obviously, we're both agreeing that some amount of money has to flow through the bureaucracy. But our approach would be set the environmental goal, let the market determine the right price.

Monica Trauzzi: OK, you guys have this debate afterwards. We wanted to get to one last question and if we could keep it brief and all the panelists could keep their remarks as brief as possible, go ahead.

Question: Yes, this is Ed Wool on SAIC and actually the follow up to it's about time sequencing on the development of the technology. If we go back and look at what we consider the innovations of the United States, aircraft, cancer research, Internet, semiconductors.

Those are all basically federally kick started in the beginning, in every case. There are very few cases that I know of where we basically caused the industry to be taxed before they came up with the technology.

Think about aircraft. If we said, OK, you can't fly unless you pay a tax or you can't have cancer research unless we tax the outcome, in other words.

So I'm on the side where Scott is, which is how do we get the innovation kick started early so we can then have the people who are against this bill, who are not again carbon reduction but against this sort of timely phasing point of view?

They said the technology is not ready, either on the nuclear side or the carbon capture side, the big emitters or, in the auto industry, the shift to a more efficient automobile.

Those people, those big industries seem to need some kick starting or they need some delay on the penalty. Right now it looks like we've got the penalty before the kickstart and maybe that's not true.

Manik Roy: You call it a penalty, but it's actually a reward for those in private industry who innovate.

The problem I have with this approach is that having worked in federal agencies, having worked in and around federal and state government for 25 years, those agencies are just not very good at figuring out what the right technological approach is to give us a solution.

And here we have an issue that is cutting across the entire economy, because 80 percent of U.S. greenhouse gas emissions or carbon dioxide from the combustion of fossil fuels is about energy.

These are not decisions the federal government can make. The most effective way to deal with this issue is to reward those in private industry who will come forward with the solutions.

David Doniger: If I could just add one thought. I mean you've got to give us credit for the fact that this program ramps into its effect, starting at essentially current levels and then declining smoothly over time.

It does not make a big jump shift down from here, the dangerous levels we're emitting today to the safer levels we need to get to. It takes 40 years to get there. The ozone layer problem was solved over a period of 10 years.

And I was the one who made the proposal that what we really needed was an immediate phase-out of these chemicals, an immediate ban on these chemicals.

We couldn't do it, so we should have a 10-year phase-out in order to put the market to work. That is the principle of all these cap and trade with declining cap bills. Your assertion may be apt to a piece of legislation that's not before us.

Andrew Wheeler: I agree with Manik, that government has done a poor job at picking winners and losers, but I'm not confident that this legislation that's before us with the climate change technology board, that that board is going to be able to do any better job than what the government has done in the past.

Manik Roy: But the board doesn't invest in the technologies. The private market has to come up with the technologies under this program.

Scott Segal: Yes, and I just want to be clear that in the proposals that I'm talking about with respect to the Senate's, we're not talking about the government saying who shall live and who shall die. This is a question of reform to the tax code. And it's also a question of --

Manik Roy: Because the IRS is not part of the government.

Scott Segal: And it's also a question of public/private partnerships where you enfranchise the private sector as much as the public. But I don't want to get too much into that.

I think the questioner put the notion into historical perspective that makes a good deal of sense and I agree. It's a question of phasing. It's not a question of absolutes.

Oh, by the way though, this notion that you ramp into it, Dave, and that therefore this is not the situation of the questioner was talking about, I disagree, because the economy is dynamic.

And at the very time that we're ramping into this we also have a need to bring one third new capacity into market for new power demand in the United States.

So, it's not as though we've freeze in time and then ramp in. No. At the exact same time we have an up-curve demand quite significant for affordable and reliable power in this country. And some of that, a big chunk of it is going to come from coal.

Manik Roy: Given the imperative climate change, we better design a system that rewards those who will ramp up that supply in a way that is climate friendly.

Scott Segal: I agree with that. Let's try incentives.

Monica Trauzzi: OK, we need to end it here. If this is any indication of how it next week is going to go, it's going to be a very interesting, interesting discussion. I wanted to thank the panelists, David, Andrew, Manik, and Scott. And I wanted to thank Leslie and the folks over at ELI for a great partnership on this event. Thank you all for coming.

[End of Audio]



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