Is The Senate Climate Proposal All That Different From The House Bill?

by Bradford Plumer | March 18, 2010

More details about the forthcoming Kerry-Graham-Lieberman climate bill are bubbling out. Here's the latest from Congressional Quarterly, though keep in mind this Senate proposal is still in flux:

As expected, the measure would set a mandatory cap on carbon emissions across the economy but apply different sets of regulations to different polluting sectors….

• An economy-wide cap on carbon emissions that would begin in 2012, with a target of reducing carbon pollution 17 percent by 2020 and 80 percent by 2050.

• Separate caps on carbon emissions by the electric utilities and manufacturing sectors, which would have to buy permits to pollute from the federal government.

• A straight fee or tax, paid by consumers at the pump, on transportation fuels. The levy would be linked to the carbon content of the fuel and the price of carbon in the other markets.

• A combination for the regulated sectors of a “cap and trade” model, under which polluters could trade pollution permits on an open market, and a “cap and dividend” model, which would return revenue from the sale of permits directly to consumers.

• Direct rebates to consumers of half the revenue from the sale of pollution permits.

• Delay until 2016 in starting the phase-in of carbon caps on manufacturers.

• Application of a “carbon tariff” to imports of goods from countries that do not regulate their carbon emissions.

• A “hard collar” on the price of emission permits of no less than $10 per ton of carbon emitted and no more than $30 per ton. The government would keep a strategic reserve of 4 billion credits, and would flood the market if the carbon price exceeded $30 per ton. The price would be indexed to inflation rates and rise over time.

• A threshold of 25,000 tons of carbon per year before a polluter would be subject to regulation.

• A single federal system to cap emissions, pre-empting separate state limits.

• Sections or titles devoted to oil refining, farming, coal, clean energy innovation, and increasing production of nuclear energy and oil and natural gas drilling.

Honestly, this sounds pretty similar to the Waxman-Markey climate bill that passed the House last June. See this chart from Brad Johnson for a side-by-side comparison. Like the House bill, the Senate proposal aims to cut emissions 17 percent by 2020—which is, as I've mentioned before, a much weaker goal than many scientists have said is needed to stave off drastic climate change. That said, it is the short-term target the United States committed to at Copenhagen.

The most obvious difference from the House bill is that utilities and manufacturers and refiners would all get regulated separately, rather than placed together under one big cap-and-trade system. From an economic standpoint, that's less efficient, but this patchwork approach appears to have been crafted in the hopes of placating oil companies. We'll see whether it sells politically. Meanwhile, it's possible that the Senate bill would auction off a greater fraction of pollution permits to emitters, raising more money that could be refunded back to households. But without hard numbers, it's impossible to tell.

One potential red flag here is the price collar. In theory, a price collar for a cap-and-trade system makes sense—after all, carbon prices are likely to fluctuate as permits get traded, and you don't want carbon prices to shoot up so high that they crunch the economy and cause riots. But a lot depends on how the price ceiling is designed. If the government just starts selling an infinite supply of additional permits once prices rise above $30/ton, that would bust the overall cap—more permits means more overall pollution. On the other hand, if the government sets aside a reserve of allowances in advance and uses those to prevent prices from skyrocketing, that doesn't affect the overall cap. The House took the latter approach.

In any case, a lot about this bill will no doubt shift in the months ahead. For one, legislation always get torn apart and weakened in the Senate; getting 60 votes to beat a filibuster is an ugly process. What's more, consider the flurry of stories this week about how the Chamber of Commerce's chief lobbyist, Bruce Josten, thought the Kerry-Graham-Lieberman bill was "largely in sync" with industry demands. And yet, judging from the early rumors, the proposal doesn't sound radically different from the House bill (which the Chamber loathed). Surely both things can't keep being true, right?

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