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Climate Bill Called Recipe for Failure; Senate Battle Ahead

The House climate change and energy bill (HR 2454), which narrowly passed the House late last month, is a "public policy abomination" that "should be opposed by open-minded climate scientists and climate economists of all political persuasions," an executive told the Texas Energy Summit last Wednesday.

The summit, held at the University of Houston-Clear Lake, brought together energy experts and elected officials to discuss HR 2454 and its possible impacts on Texas and the nation. The bill, which seeks to boost investment in renewable fuels and fundamentally change the direction of the energy industry, squeaked by in the House by 219-212 and now awaits Senate action (see NGI, June 29). Forty-four House Democrats voted against climate change and only eight Republicans voted for it, which points to just how divisive the issue is.

Robert L. Bradley Jr., CEO of the Institute for Energy Research (IER), spared nothing in his criticism of the legislation. The nonprofit IER, which also has blasted cap-and-trade emissions plans and disputed job creation figures for green industries, maintains that freely functioning energy markets provide the "most efficient and effective" solutions to global energy and environmental challenges. HR 2454, which was chiefly written by Reps. Henry Waxman (D-CA) and Edward Markey (D-CA), doesn't pass muster, Bradley said.

"HR 2454 is a recipe for public policy failure and wealth destruction," Bradley said. It "is all pain and no gain; it is punitive regulation for its own sake. There is no public purpose in this proposal, because it cannot pass a realistic cost/benefit test."

As far as benefits, the legislation is "climatically inconsequential," he said. "Even the unrealistic aspirational goal of an 83% reduction in U.S. greenhouse gas [GHG] emissions by 2050 would avoid only 0.09 of one degree Fahrenheit warming if you believe the high-climate-sensitivity climate models -- and even that estimate may be too high."

To achieve the 83% reduction in carbon emissions, the climate change legislation would set a cap on carbon emissions and allow polluting industries to purchase and trade emission credits to comply with the cap. The bill would allocate approximately 85% of emission credit allowances for free to affected industries -- natural gas distributors, electricity distributors, energy-intensive manufacturers (i.e. steel, aluminum, paper and chemicals), automakers and refiners -- to offset the costs during a transition to a lower carbon environment (see NGI, May 25).

A "federal renewable mandate [in the House bill] would force unneeded, uneconomic energies into the grid -- sources that are more expensive to produce, still more expensive to transmit and unreliable or intermittent," he said. "Consumers and taxpayers lose, as do those states with less renewable infrastructure and/or potential."

However, Bradley, who once worked on public policy analysis for Enron Corp., said the "real danger" of the bill "is that it puts in place the machinery of economic and social control that will be very difficult to undo...New regulatory regimes typically expand, not shrink and disappear. Waxman-Markey [the HR 2454 bill] is just the opening stanza of something that is likely to grow and worsen once in place."

The climate bill, in Bradley's opinion, "is easily the worst piece of federal legislation since the passage of the Emergency Petroleum Allocation Act of 1973, which put Americans in the gasoline lines in 1974 and 1979 and replaced domestic production with OPEC imports barrel-for-barrel."

Patrick French, senior vice president of the Texas Alliance of Energy Producers (TAEP), said the legislation would damage the state's energy industry.

"Texans will be hit especially hard, because Texas is the largest consumer of energy and producer of crude oil and natural gas in the country," French told the summit participants.

"Texas Comptroller Susan Combs recently estimated that in 2012 Texas could lose 135,000 to as many as 275,000 jobs," French said of the climate bill's impact. "And by 2030 job loss in Texas could exceed 400,000. The cost to the Texas economy would be $20 billion annually in direct economic activity and growing each year because the legislation becomes more restrictive in later years."

The 3,200 members of TAEP "find it hard to believe that nine members of the House from Texas voted with House Speaker Nancy Pelosi to pass the bill," French said. "If those nine had voted with the other 23 Texans, the bill would have failed."

With a global recession pressuring U.S. companies, "now is a very bad time to pass this bill that will definitely create more volatility in energy prices, increase fossil fuel prices and send the economy into a deeper recession," French said. "The alliance encourages the Senate to move cautiously before enacting such legislation."

The closeness of the House vote on climate change and energy legislation presages a tough battle ahead over the controversial issue in the Senate, with some Capitol Hill observers already predicting defeat.

"We currently give full enactment of a final bill establishing a cap-and-trade regime for greenhouse gas emissions reductions a 30% chance of success in 2009. We also do not think that any attempts to break apart the bill and move only pieces of it will bear fruit," said energy analyst Christine Tezak of Robert W. Baird & Co.

"It's going to be an uphill battle" in the Senate, agreed Martin Edwards, vice president of legislative affairs for the Interstate Natural Gas Association of America. "It has a chance. It's going to be very challenging in the Senate...but it's not impossible."

The climate change measure is opposed by nearly every Senate Republican and about a dozen Senate Democrats. The Senate leadership doesn't yet have the 60 votes that will be needed to bring a climate bill up on the floor, but Edwards said "they didn't have 219 votes in the House until the very last minute."

While Democrats and a handful of House Republicans were busy passing the bill, an onslaught of phone calls opposing the bill came into the Capitol Hill switchboard, causing it to crash. That's not an uncommon experience with controversial bills, Edwards said.

The House victory has emboldened Capitol Hill Democrats and President Obama, but Edwards doesn't expect to see climate change legislation emerge from Congress this year. "Maybe next year a conference agreement will come out," he said.

"We continue to believe that climate provisions will face an uphill battle in the Senate where regional and trade disparity issues will weigh heavily on senators who generally must balance a broader range of constituent interests than their colleagues in the House," said energy analyst K. Whitney Stanco of Washington Research Center.

"Furthermore, if the economy continues to lag and energy prices increase over the summer, the Republican argument that a cap-and-trade program is really just a 'cap and tax' may resonate more deeply with the public than the Democrat's 'green jobs' talking point."

It's unclear at this stage if Senate Majority Leader Harry Reid (D-NV) will try to attach climate change provisions to the broad energy bill that was passed by the Senate Energy and Natural Resources Committee last month (see NGI, June 22). If Reid takes this approach, it could be the death-knell for an energy bill this year.

The Senate Environment and Public Works Committee is expected to mark up climate change provisions before the August recess. Reid "has indicated he would like other committees of jurisdiction to complete their mark-ups of climate/energy legislation by Sept. 18. In our view, that time line would likely set up a debate in the full Senate around late September or October," Stanco said.

Reaction to the House-passed climate change bill was more favorable on the West Coast. San Francisco-based Pacific Gas and Electric Co., whose CEO has put climate change at the center of the utility's strategic plans, said through a spokesperson that the House action "moves the nation closer to adopting responsible strategies to head off the climate crisis."

California Gov. Arnold Schwarzenegger acknowledged that the bill "is not perfect," but called its passage "a significant step" in a national fight against climate change. He said it "puts the United States in a position of leadership in international climate negotiations that must produce a global solution." He pledged to work with Senate and Obama administration officials "to improve and strengthen" the House-passed bill.

Another California energy company with renewable energy development tied to climate change at the center of its corporate strategies, Edison International and its utility, Southern California Edison Co. (SCE), said the House bill took "the right approach" by supporting "emissions allowances instead of an auction" approach.

"It is important for the nation to achieve meaningful reduction of greenhouse gas [GHG] emissions while minimizing disruptions to our economic recovery," said Ted Craver, CEO at Edison and SCE.

Environment California's chief lobbyist Dan Jacobson said the bill was "a historic step toward a new clean energy economy," although he believes the House could have gone further. Jacobson ultimately is looking for what he called "a dramatic shift in energy policy" that meets more completely the "dire scientific predictions regarding global warming demand. "The first step is always the hardest and Congress should be applauded for taking it."

But the American Energy Alliance, a Washington, DC-based nonprofit concerned about regulation of global energy markets, called the House bill a "job-killing" measure that is "bound for defeat in the Senate."

The DC-based National Association of Regulatory Utility Commissioners (NARUC) was critical of what it perceives as "unnecessary restrictions" on state regulators related to the distribution of emission credits. "NARUC also remains opposed to the allocation of any electric-sector allowances to unregulated merchant generators," said NARUC President Federick Butler, a New Jersey state regulator. "There is no way to prevent such entities from reaping windfall profits, which contradicts the legislation's goal of distributing [credits] in a way that benefits consumers."

NARUC liked the hands-off approach to building more explicit federal authority over transmission siting, but a Michigan-based merchant transmission company, ITC Holdings Corp., raised concerns about the House measure's "lack of needed comprehensive electricity transmission policy reforms."

ITC CEO Joseph Welch acknowledged that the House leadership, under pressure to bring the measure to the floor quickly, was unable in the limited time available to craft the needed transmission provisions to be included.

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