about half the allowances given away at first, phased out to full auction in 10 to 15 years

Waxman-Markey deal-making update: 14% cut by 2020 11

“We’re moving well, making a lot of progress on these issues,” Waxman said. “We’re getting very, very close.”

We’re starting to hear details of the sausage-making led by chief climate chef House Energy and Commerce Chair Henry Waxman (D-CA). Needless to say, it ain’t pretty.

E&E Daily (subs. req’d) reports this morning:

Rep. Henry Waxman (D-Calif.) bought himself a little bit more time yesterday to produce a consensus on global warming and energy legislation….  Waxman pledged to produce a new version of draft legislation next week while again promising to pass the bill out of the full committee before the Memorial Day recess….

Negotiations on the climate bill continue to focus on four key issues: the stringency and timetable of the cap-and-trade program’s emission limits, the use of offsets to ease industrial compliance costs, allocation of valuable allowances and the structure of a nationwide renewable electricity standard.

Waxman met with a cross-section of regional Democratic interests yesterday to work through those areas, including Rep. Charles Gonzalez of Texas; Reps. Brian Baird and Jay Inslee of Washington; and Reps. Zach Space, Marcy Kaptur and Betty Sutton of Ohio.

So what are the compromises?  No big surprise — they are straight out of the (lame) USCAP deal, starting with a bunch of free credits to industry:

Sponsors of the legislation appear to be inching closer to a deal on the distribution of emission allowances that begins by giving away as much as 55 percent of the credits for free: 40 percent for the local distribution companies that service the electric utility industry, and 15 percent for heavy industries deemed especially vulnerable to international trade.

After about 10 to 15 years of the cap-and-trade program, the free credits would phase out in favor of an auction, said Rep. Mike Doyle (D-Pa.).

While the final details remain to be worked out, Waxman acknowledged that he is comfortable with distributing credits for free as a way to help industries transition into a low-carbon economy and during the period when an international climate agreement takes shape. “We’re not using allocations just because people would like some revenue,” Waxman said. “We’re doing it for very legitimate purposes within the integrity of the bill.”

And free allowances may be exactly what some fencesitters need. “I want to vote for a bill, but I’m not going to vote for a bill that’s going to hurt my ratepayers extremely,” Hill said.

As for free allocations, Hill said they could be a stepping stone to his support. “That would be a good thing, if that happens,” he said.

Several lawmakers supportive of a larger auction also sound willing to appease their coal-state colleagues. “You can’t just flip the switch,” said Rep. Peter Welch (D-Vt.). “They’ve got legitimate concerns.”

“There’s an inevitability to that,” Senate Foreign Relations Chairman John Kerry (D-Mass.) said of Congress including free credits in the climate legislation. “I would prefer to have a 100 percent auction, but I’m also a realist and I understand that legislatively we’re just not going to be able to do that. The key is to minimize the allowances in a way that’s transparent, accountable and we go from there.”

I don’t lose as much sleep over the free allocations issue as some, since

  • They were inevitable (as the Waxman and Kerry comments make clear)
  • This addresses the regional fairness issue that even Obama raised concerns about
  • This shouldn’t directly affect the permit price (to first order — more on that in a future post), and
  • They will be sunset.

If you want to know the “logic” behind this, here is USCAP’s justification:

Electricity and Natural Gas Consumers: Because cost-of-service Local Distribution Companies (LDCs) are regulated, unlike other impacted sectors they will be required to pass through the entire value of allocated allowances to their end-use consumers.

This will directly facilitate the key objective articulated earlier for any allocation—facilitating the transition for consumers and businesses as consumers of electricity. Consequently, USCAP recommends allocating a significant portion (e.g., 40%) of emission allowance value directly to these entities specifically to dampen the price impact of climate policy on electricity and small natural gas customers, particularly in the early years of the emission constraint.

The magnitude of allowance value allocated to LDCs should reflect, but not exceed, the share of capped emissions attributed to the consumers served by the
LDCs, and then be phased-out. Consumers would realize this value through some combination of rate adjustment and demand reduction through programs designed to improve energy efficiency and  promote zero- or low-emitting energy technologies.

Also, no surprise, the 2020 target moved back toward the USCAP figure:

Lawmakers are also narrowing in on a 2020 emissions limit, another central piece of a final agreement. Obama’s budget request suggested a 14 percent cut below 2005 levels by 2020, while Waxman had pressed for a 20 percent cut. Several of the Democratic moderates had initially suggested a 6 percent target for 2020, but Waxman balked at that proposal.

Butterfield said yesterday that he would be willing to accept Obama’s targets. “Let’s shoot for 14 percent,” he said. “I can live with 14 percent.”

I will discuss in a later post why this is a mistake, albeit another inevitable one (see, for instance, “Is 450 ppm politically possible? Part 8: The U.S. needs a tougher 2020 GHG emissions target“).

I am, of course, especially interested in whatever deal they come up with on rip-offsets.  With the lower 2020 target — and with the massive reallocation as yet primary cost-containment measure — we shouldn’t increase the number of rip-offsets, nor weaken there oversight.  We should sunset them, just as the free allocations will be the sunsetted (see “The one simple change that could vastly improve Waxman-Markey:  Sunset the rip-offsets“).

I will post more details as they leak out.  Fire away!

Joseph Romm is the editor of Climate Progress and a senior fellow at the Center for American Progress.

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  1. Salzman Posted 12:04 pm
    08 May 2009

    Joe Romm says he "can live with" a 14% CO2 reduction by 2020. Joe, you may live but someone will die. This is about 1.4% reduction per year. Any new power plant coming on line between today and then will completely wipe out any reduction. Free permits will sunset? So will the earth. What is behind your completely unjustified support for a phony bill ? You know , or should know, the real science that SHOULD be behind this bill. Yet you are putting your own reputation on the line for a dangerous scam. WHY?

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    1. Christopher S. Johnson's avatar

      Christopher S. Johnson Posted 9:16 pm
      10 May 2009

      Joe didnt say that.  He was quoting Butterfield.  Nobody with half a brain about this thinks 14% less than 2005 by 2020 is acceptable.

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  2. Steven Earl Salmony Posted 8:18 am
    09 May 2009

    Dear Joe,Thanks for all your morally courageous and intellectually honest efforts, even though approaching threats to human wellbeing and environmental health loom ominously before us. Imagine what would immediately occur if everyone followed your good example. In the face of such daunting global challenges as humanity confronts in our time, it is so easy to curse the darkness and, by so doing, choose NOT to light candles, as you are doing. Keep lighting candles, Joe.Always,Steve

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  3. Tasermons Partner Posted 11:53 am
    09 May 2009

    Well, that's better than the 0% we'd probably get under bushy or MCain, but still not very good.However, in dealings like this, this early on, things can change in a heartbeat (for better or for worse), so I'll withhold judgement until the final proposal is put forward (and then ammendments are added in Congress and the House and Senate hash out a final-final-final one for Obama to sign).

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  4. Alec Johnson Posted 7:24 pm
    09 May 2009

    I've been trying to find a definition of rip-offsets and have not been able to. As there is quite a bit of new nomenclature around, I'd be grateful if you'd enlighten us. I can imagine several things it might be and I believe I understand offsets, but the "rip" is somewhat baffling. Surely it doesn't mean "rest in piece," . 

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  5. Delay And Deny's avatar

    Delay And Deny Posted 10:43 pm
    09 May 2009

    This is a very a devisive issue that will split Americans more than they are already split.

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  6. Salzman Posted 5:08 am
    10 May 2009

    To Alec Johnson: Surely you have heard the term "rip-off'? What Bernard Madoff did to his clients, for example, which provoked an alternative phrase: Mad-offsets. To Jabailo: true, it is a DIVISIVE issue, but there are lots of these extant in the USA. Some groups or demagogues exploit them. Others take the opportunity to start useful dialogues between people who disagree. There is nothing wrong with honest disagreements based on informed reasoning rather than ideology or party loyalty. Every four years there are national disagreements on who should be elected president. Surely you aren't suggesting we avoid disagreements? Or would you prefer uniformity, otherwise termed Totalitarianism, where everyone has to toe the party line? Steve Salmony: I respect Joe Romm too but he is not the only person in this debate who is "morally courageous and intellectually honest", though you clearly use this description to suggest that those who disagree with him lack these admirable traits. My feeling is that the Waxman/Markey bill has had an efficicacious effect by stimulating thought and debate on a complex issue. Too many people just sit idly by because they think the issue is too complex and abstruse for them. As the late Dr. John Gofman said regarding the participation of ordinary nonscientist citizens in the debate over nuclear power: You don't have to be a hen to judge the quality of an egg. Romm himself has suggested that Jim Hansen's views are not credible because he has no experience in public policy. If we required this of every citizen before they could participate in public policy debates, we would never allow peoplel to serve on juries....nor would they be allowed to vote in elections. Moreover, Hansen has distinguished himself from most of the rest of the scientific community by recognizing that he has a duty as a citizen, not just a scientist, to take positions and be an advocate. Too many scientists use the pretense that they must be "objective" and therefore refuse to become advocates even on clear moral issues of vital importance.

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  7. Steven Earl Salmony Posted 4:37 am
    11 May 2009

    I did not mean to suggest that Joe was the only exemplar of courage and honesty.  The very same could be said about Jim Hansen.  Of course, there are other great citizen-scientists of the kind exemplified by both these fellows.  I would add Jane Goodall, John Guillebaud, Vivian Ponniah,  John Holdren, Thomas Hawk, Setijati Shastrapradja, the late John McRuer, Madeleine Weld, Peter Vitousek, Jane Lubchenco, Russell Hopfenberg, Colin Butler, David Pimentel, Jan Juffermans, Stuart Pimm, Joseph Baker, Roberto Peccei, Bob Watson, Bruce Alberts, Jeff McKee and Dee Boersma.

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  8. Salzman Posted 5:53 am
    11 May 2009

    Christopher: Joe's own headline on his blog, regarding Waxman/Markey, makes it clear that the bill in its present form calls for a 14% reduction by 2020. Joe is supporting the bill. Therefore, Joe is supporting a 14% reduction. True, he may as an individual support strengthening the bill, but it is unlikely he will prevail. In any case it is well established that we need at least a 50% reduction by 2020. Some people say we need more. But 14% is bubkas. (If you don't know what Rip-Offsets are you won't know what bubkas are either).

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    1. Christopher S. Johnson's avatar

      Christopher S. Johnson Posted 10:25 am
      11 May 2009

      Salzman,  you are welcome to infer Joe's feelings about this, but you can't quote something he never said.  You have to say "it sounds like" or "he might as well have said."

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  9. guade00 Posted 8:10 pm
    11 May 2009

    We better get crackin' on international deals too. This bill is absurd--we all know it--not just because it doesn't go far enough domestically, but also because the real problem is global emissions. We're toast.

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