U.S. Senate Climate Bill Released – Economy-wide Implications
Senators John Kerry and Joe Lieberman have released the much anticipated American Power Act in the midst of a challenging political environment. This comprehensive energy and climate change legislation establishes an economy-wide greenhouse gas (GHG) cap-and-trade program designed to cut U.S. emissions to 17% below 2005 levels by 2020 and 83% by 2050. Under the draft bill, electric utilities would fall under regulation starting 2013 and the program would expand to include manufacturers in 2016.
In an effort to facilitate passage of the bill, several cost control measure were included:
- Manufacturers avoid restrictions of the GHG emissions cap until 2016 and will receive allowances to cover compliance obligations until 2026.
- From 2013 to 2016, manufacturers receive free allowances to cover increases in energy prices resulting from pass-through costs due to the cap on electricity sector emissions.
- Oil refiners receive enough allowances to cover compliance obligation through 2026.
- Utility companies receive enough free allowances in 2013 to cover compliance obligations.
- Allowance prices are controlled by a floor ($12/MT CO2e) and ceiling ($25/MT CO2e).
- Monthly refunds and tax credits will be provided by the federal government for eligible, low income households to cover increased energy prices.
The debate surrounding this bill will play out very publicly during midterm election season. Not surprisingly, initial comments associated with the release of this bill have been strong and mixed.
The American Materials Manufacturing Alliance (AMMA), a group of energy-intensive, trade-exposed industries representing the aluminum, chemical, forest and paper, iron and steel, fertilizer, and cement sectors released a statement recognizing that the bill invests in U.S. manufacturing competitiveness, but outlined several objections. Concerns highlight the emission allowance distribution system, the lack of funding for energy efficiency and clean energy technologies, and inadequate protection against increased energy costs.
The National Association of Manufacturers (NAM) also expressed concerns related to potential impacts to global competitiveness resulting from additional burdens on manufacturers that will raise energy prices.
Over 170 U.S. businesses organized by the We Can Lead coalition issued a letter to Senate Majority Leader Reid urging the Senate to enact comprehensive climate and energy legislation this year. Signatories of this letter included companies from the electric power, manufacturing, clean tech, technology and consumer products sectors.
While vigorous debates will continue and this current bill may fail to garner the political support required for passage, the Democrat-led Congress and Obama administration remain committed to enacting comprehensive climate change regulations. Now is the time for business of all sizes and industry sectors to develop a clear understanding of their assets and liabilities in carbon terms.