What are the likely impact of the passage of the Kerry-Boxer bill?
The Kerry-Boxer bill, also known as the Clean Energy Jobs and American Power Act, is the Obama administration’s principal response to concerns over climate change and energy security. Published on Sept. 30, it is based on the earlier Waxman-Markey bill, which was passed by the House of Representatives in the summer of 2009. Although they are very similar, the two bills have some differences in detail and emphasis. For example, the Waxman-Markey bill assumed some contribution from nuclear power, whereas the Kerry-Boxer bill makes specific provisions to encourage it.
Both bills use the model of a cap-and-trade system of managing carbon in the United States, a similar approach to the one already used in Europe. The European system, which started in January 2005, is the biggest greenhouse gas emission trading system in the world, but it has drawn criticism from many environmentalists. This is because many of the first emissions quotas were given away rather than auctioned off, so that emissions cuts were deferred. The Kerry-Boxer bill proposes to award 63 percent of permits to the power industry for free and this is proving controversial for the same reasons.
In Europe, carbon was trading at the equivalent of $20 a ton in November. The International Energy Agency said recently that this price would have to double in order to make clean energy economically viable and that it must rise to at least $50 by the year 2020, and $110 by 2050. The Senate has set a maximum price of $48 by the year 2020 and $90 by 2050 in the United States, so there is already some tension in expectations of carbon price.
Some countries such as France are now introducing a carbon tax to be levied on all fossil fuels. This is seen by some as a more direct way of influencing consumer behavior but is also more politically risky. This is reminiscent of the proposed Btu tax, which was eventually abandoned by the Clinton administration in 1993.
It is now unlikely that the Senate will vote on a bill before the Copenhagen climate conference on Dec. 7 in Denmark. In mid November, in a bid to manage expectations, Barack Obama and Danish Prime Minister Lars Lokke Rasmussen agreed that there would be no deal on an agreement at the Copenhagen conference.
• New tougher emissions standards for heavy duty vehicles
• National emission reduction goals and grants to states implementing transport emission reduction programs
Carbon capture and sequestration
• New regulations for certification and management of geological storage of carbon dioxide
• A 10-year, $1 billion/year fund to be used by a new carbon capture and storage corporation to fund large scale demonstration projects
• Voluntary labeling of water products and services with the WaterSense scheme
• Federal bodies are to purchase only WaterSense approved products
• Grants to bodies undertaking incentive schemes to retrofit WaterSense devices into homes
• A grant program for renewable energy
• A national goal for the improvement of energy efficiency in building codes
• Retrofit program offering up to 50 percent funding for states to carry out building energy efficiency retrofit programs. At least 10 percent of this to be directed towards low-income housing
The new bill specifically excludes any agricultural enterprise and any small business that pollutes less than 25,000 tons of carbon-based pollutants a year. This equates to about 60,000MWh a year of electricity.
Offsetting plays a major role in the Obama administration’s carbon reduction strategy and both bills have proposed the offsetting of up to 2 billion tons of carbon per year.
This represents over 35 percent of the emissions of the United States and 42 percent of the targeted reduction. Of those offsets, 75 percent must come from within the United States .There is a strong emphasis on forestry and grassland management as methods of offsetting. Carbon sinks are excluded from the European emissions trading system.
Under the provisions of the bill, offsets can include such things as:
• Capturing methane emissions from mines
• Stopping leaks from oil and gas facilities
• Changes of land use and management
The new bill is unclear when it comes to the difficult subject of international trade. Many Americans fear that a carbon tax would lead to a surge in the imports of goods made in countries without carbon taxes. This has led to calls for border taxes to redress the balance and protect manufacturing industries in the United States. A November study by the World Bank supports the view that a border tax is unnecessary and estimates that it would reduce China’s exports by a fifth. This would seriously damage trade relations and co-operation on climate change policy.
John Piggott is based in the Arup sustainability team in London. He has more than 20 years of experience in the construction and energy industries, working as a consultant, contractor, and program manager. He specializes in sustainability and has particular interest in the economic and business practicalities of sustainability in the built environment. Piggott is an advisor to the Arup global property markets on the carbon economy and is currently working through a carbon economics research doctorate.