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Energy Innovation: The Senate Starting Point

The Senate Environment and Public Works Committee is holding hearings this week on the new chairman’s “mark” of the draft Senate climate and energy legislation released Friday night by committee chairman Barbara Boxer and Sen. John Kerry. This document will be the starting point for the next round of debate, and with this draft, we get to see for the first time how the bill proposes to allocate the revenue it would raise through the sale of pollution allowances.

So how does it look? Well, as an earlier, less detailed draft released late last month forecasted, the new draft very much resembles the Waxman-Markey bill that passed the House, which means it’s a mixed bag (and quite disturbing on at least one key point). 

On the regulatory side, the outlines are almost identical, with one exception. Like the House, Boxer and Kerry call for a cap-and-trade emissions reduction system, very much like the one the House enacted. Like the House, the senators propose a specific emissions reduction goal--one that would cut emissions by 20 percent below 2005 levels by 2020 and so is slightly stricter than the target in Waxman-Markey. The Kerry-Boxer outline would allow Environmental Protection Agency to set its own emissions regulations for major point sources under the New Source Review provisions of the Clean Air Act while Waxman-Markey would not. But other than that, the bill largely tracks with the House approach on the regulatory side, and even the emissions goal isn’t all that much tighter than that in Waxman-Markey, as a weekend post by Dave Roberts over at Grist makes clear.

As to the important allowances side of the ledger, now that we can see them, these too look very similar to the House schedule, with a few interesting differences, but not enough on the up side, as makes clear a helpful side-by-side comparison posted by the Breakthrough Institute. The main differences here come from two major set-asides. In this connection, set asides for deficit reduction, and to stock a strategic reserve of allowances to stabilize carbon prices if they spike, triple from 4.3 percent of the total allowance value to 12.3 percent. That’s a major difference. 

Otherwise, the Senate starting plan for allowance distribution is only marginally different from the House scheme. One small change increases the allocation for clean transportation and metropolitan transportation planning from an optional 1 percent to a dedicated 2.21 percent--an encouraging bump for metro interests. 

Turning to investments in clean technology and energy innovation, the adjustments are minimal and quite disappointing. Looking broadly to clean tech, Boxer-Kerry would reserve some 12.6 percent of its permit value, or $8.6 billion a year at EPA-projected allowance prices, for clean tech purposes such as investments in renewable energy and energy efficiency, clean vehicle technology, building codes and efficiency retrofit programs, and R&D. By contrast, the Waxman-Markey promises 13.8 percent for clean tech, or roughly $9.7 billion a year--a bit more. Focusing more narrowly on pure R&D, the comparison is a better--but not enough better. Boxer-Kerry on this front would reserve some 1.9 percent of the revenue it raises (or about $1.4 billion a year) for clean energy R&D pursuits, such as the Advanced Research Projects Agency (ARPA-e) and what are termed “Clean Energy Innovation Centers,” which is the latest moniker for the high-intensity energy innovation and commercialization institutes we and others have been proposing. These numbers compare favorably with the Waxman-Markey plan, which reserves just 1.5 percent of allowance revenue or just under $1 billion a year for R&D investments. However, in the larger scheme of things, they count as a major disappointment given that Metro Program analysis holds that the nation needs to be spending at least $15 billion a year on energy R&D, of which it least $10 billion a year might reasonably be expected to come out of the cap-trade system.

In sum, an only marginally different starting point in the Senate from where the House ended does not bode well for the changing the trajectory in Congress on the nation’s energy and climate response. An acceptable regulatory response is falling badly short on applying sufficient quantities of revenues to the essential cause of energy innovation.