Common Tragedies

Thoughts on Environmental Economics

Waxman-Markey drops, planet takes little notice

Posted by Danny Morris on March 31, 2009

So, it’s 6 pm, and I should be going home, but after spending all day swimming through 600+ pages of climate legislation, I feel like saying something about the much anticipated draft legislation released today by Henry Waxman (D-CA) and Ed Markey (D-MA). I’m sure I’ll be ranting about this bill ad nauseum over the next year, but I just want to throw out a couple thoughts (if you’re antsy in the pantsy for some more expansive thoughts, check out Keith Johnson’s solid commentary over on Environmental Capital).

Aggressive much?: Well, kind of. The bill does require a 25% renewable electricity standard by 2025, which is cool if you’re into that sort of thing and maybe not as cool if you’re unsure of the usefulness of an RES in a cap-and-trade system. Additionally, it caps emissions at 80% of 2005 levels by 2020. For those of you keeping score at home, 1990 emission levels are approximately equal 86% of 2005 emission levels. I haven’t done the math yet, but that’s a pretty significant reduction over the next decade, and even more aggressive than the numbers in President B-Rock’s budget. The bill doesn’t get too cute though, as it caps emissions at 17% of 2005 by 2050, the same levels as B-Rock’s budget indicated.

Industry!: If you are going to design a bill that might actually pass through Congress, you have to throw regulated industries a bone. The bill does that quite well. It is generous with industries it thinks might be at a competitive disadvantages with producers in other countries (i.e. steel, paper, chemicals, concrete, etc.), offering rebates based on direct compliance efforts and indirect carbon factors. Boiled down, it seems to mean that the more energy you use, the more rebates you get. It also appears the President can install a carbon tariff if U.S. players appear to be suffering too much, something that will likely make China the opposite of happy.

Offsets: Woo boy, this bill loves itself some offsets. Its language is a little shady, but it will allow up to 2 billion tons worth of offset credits into the market. That’s quite a bit. In fact, it’s about 42% of the cap in 2012, the first year of the cap. The total will invariably fall, but let’s just say it appears covered emitters will have a fair amount of flexibility to get under the cap.

Missing pieces: Did I mention that the sections about auction and allocation amounts are currently blank? Yeah, no numbers on that front, which is sort of a big deal for businesses who might be having to purchase allowances in the next two years. Also, nary a word about incidence, or spreading the wealth as it were (apologies to Joe the Plumber). Both of those elephants are waiting in the Energy and Commerce Committee’s room. Perhaps we can look forward to a political catfight in the next couple months.

This is the first step in what I’m sure will be a long, arduous, infuriating process that may or may not result with the U.S. walking into Copenhagen in December with nothing but a big smile and a promise to do better.  But for a first shot, it’s not bad. There’s a lot of room for negotiation, there’s a couple other bills floating around right now that could get incorporated into this one, and we still haven’t heard anything from the Senate, so this one is setting the stage for a good show. Get your popcorn ready.

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