House Democrats have released a draft energy/climate bill – a first step toward a cap and trade law for the US, but is passage in 2009 is uncertain. The Senate is bound to move slowly with the legislation. Meanwhile, the State Department’s top climate envoy has promised support from the United States for international climate negotiations. And while legislation has been proposed to accelerate the deployment of carbon capture and storage (CCS), wind and solar projects are fighting for money in the continued US economic slump.

House Democrats release draft energy/climate bill
On March 31st, the Democratic leaders of the House Energy and Commerce Committee published a 648-page draft global warming and energy bill – the American Clean Energy and Security Act of 2009. The proposed legislation, sponsored by Representatives Henry Waxman (D- California) and Ed Markey (D-Massachusetts) would establish a cap-and-trade program reducing US greenhouse gas emissions 20 percent below 2005 levels by 2020, with a target of 83 percent by 2050. It would also create a nationwide renewable electricity standard that reaches 25 percent by 2025, new energy efficiency programs, a low carbon fuel standard, and requires greenhouse gas standards for new heavy duty vehicles and engines.

Waxman, the committee chairman, said “This legislation will create millions of clean energy jobs, put America on the path to energy independence, and cut global warming pollution. Our goal is to strengthen our economy by making America the world leader in new clean energy and energy efficiency technologies.”

In a press release, House Speaker Nancy Pelosi (D- California) called the draft “a strong starting point” in a discussion that will include other committees. Pelosi repeated her plan to bring an energy and climate bill to the House floor this year. This would be the first time the House might consider cap-and-trade legislation. Click here to view a copy of the draft summary.

The Republican minority in the House opposes the proposed legislation. They regard cap-and-trade as an energy tax that many congressmen believe the United States cannot afford in difficult economic times. Congressman Greg Walden (R-Oregon) said, “When you get into the whole cap-and-trade scheme, the whole carbon tax, I look at it and try to figure out how it’s anything but a national energy sales tax. And I don’t know how you can sell that in this economy and why that’s good.” But Pelosi said she wanted to have the climate and energy package on the floor of the House in July (before the summer recess). This would give a further six months to sort out a final bill. In the House, the Democrats have a 254 – 178 majority. Several Republican members predicted that Democrats would have little trouble moving their climate and energy bill through committee and, ultimately the House.

“They’ve got more votes than we do,”said Representative Joe Barton (R- Texas), the ranking member of the Energy and Commerce committee. “The battle will be in the Senate” said Representative John Sullivan (R-Oklahoma). All eyes will now be on the House with the draft cap-and-trade and energy bill headed for a committee vote in the week of  April 27th.

Senate will move more slowly
While proposals move forward in the House, the Senate is moving slowly. On April 1st, the Senate approved 67-31 an amendment from Sen. Mike Johanns (R-Nebraska) that would put major hurdles in the use of the budget reconciliation process for the purposes of moving a cap-and-trade bill. Twenty-six Democrats voted with almost all Senate Republicans to prevent supporters of cap-and-trade attaching such a measure to the Budget bill.

Republicans were pleased. Minority Leader Mitch McConnell (R-Kentucky) said, “Tonight, an overwhelming majority of the US Senate slammed the door on using the fast track process to jam through a new national energy tax. This is good news for families, taxpayers and job creators.”

This debate will continue throughout 2009. President Barack Obama has left no doubt about his support for cap-and-trade. “Our point in the budget is let’s get started now,” Obama said. “We can’t wait. And my expectation is that the energy committees, or other relevant committees, in both the House and the Senate, are going to be moving forward a strong energy package. We’ll get it done and I will sign it.”

US climate envoy promises support for international climate negotiations
On March 29th in Bonn, Todd Stern, the State Department’s top climate change envoy, said that the Obama team will “make up for lost time” in the climate negotiations. “We are very glad to be back. We want to make up for lost time, and we are seized with the urgency of the task before us,” Stern told the delegates to the UN negotiations. Stern pushed back against concerns that the US midterm emissions reduction target is not ambitious enough. He maintained that the United States will be “guided by a combination of science and pragmatism.” He called Obama’s proposed reductions “significant” and noted that the US plans to reduce CO₂ output more than 80 percent by 2050. He said, “what the president is talking about is a pathway that would go all the way to 2050. We think that is not low at all, that it is quite robust and consistent with what the most ambitious countries are talking about.” Stern and his deputy, Jonathan Pershing, said they don’t expect to emerge from Bonn with concrete negotiating language. “This is a meeting to explore options and issues,” Pershing said.

Proposed legislation boosts CCS
The proposed energy and climate legislation contains new funding and programs to accelerate the deployment of CCS. The various provisions include a $1 billion annual fund over a decade to help promote commercial scale use of CCS. Under the bill, utilities would establish a new corporation that would assess fees on its members based on their use of coal, gas and oil to fund the program. Utilities could recover costs from their customers, who the backers of the plan say would see only very small annual bill increases.

The legislation includes new US Environmental Protection Agency (EPA) funding for power plants and industrial operations to use CCS technology, something that is vital to the coal industry’s long-term viability in a carbon constrained economy. The legislation proposes that the EPA be charged with creating a ”coordinated approach,” to certifying and permitting sequestration sites and enacting rules to minimize the risk of the escape of sequestered carbon. It also requires a new report by EPA, working with the Energy Department, that creates a “unified and comprehensive strategy” to address legal and regulatory barriers to commercial deployment of CCS technologies. Reaction to the legislation has been mixed.

Jason Grumet, who was a top environmental advisor to Obama’s presidential campaign, said that the draft provides “vital incentives for commercial deployment of carbon capture and sequestration technology, which is essential to reducing emissions not just in the US, but in China and other key developing countries.” Grumet is the executive director of the National Commission on Energy policy. However, some groups are more cautious. Tom Kuhn, President of the Edison Electric Institute (which represents investor owned utilities) said that the bill’s near and mid-term emissions targets are “very aggressive” and must match up with technology to curb emissions. “It’s important that emissions targets and timetables be aligned with our ability to deploy the full range of technology options, from increased energy efficiency to advanced coal with carbon capture and storage,” said Kuhn.  He also criticized other provisions in the bill: a national renewable electricity standard that requires utilities to obtain escalating amounts of energy from renewable energy sources, and the energy efficiency resources standard under which utilities must push for growing amounts of energy savings among its customers. He alleged these programs, on top of a cap-and-trade system, would raise electricity costs without spurring additional emissions reductions.

Wind and solar projects fight for money in economic hard times
Wind power developers have long relied on tax-equity financing to bring most of their projects to market. But that system has collapsed in the last year leaving the wind sector struggling for cash.

Prior to the collapse of the market, Wall Street institutions like AIG, Wachovia, J.P.Morgan, Wells Fargo and Lehman Brothers would buy federal tax benefits from renewable energy startups that did not have enough taxable income to use the credits on their own. In other words, traded financing to offset tax liability. In the current financial crisis, that system has crumbled. Where to go from here is unclear but the wind and solar industries are hoping that the Treasury will write new rules to allow access to some of the money in the economic bailout package. Until that happens, investment in new wind projects has slowed to a trickle. Oil tycoon turned wind speculator T. Boone Pickens recently described the wind market as “dead as hell” to The Wall Street Journal. Officials at the Treasury Department are reported to be writing the rules for a cash grant system as fast as they can.

Jonathan Temple is the director of Bellona USA