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Republicans May Boycott Mark-Up of Senate Climate Bill

Republicans on the Senate Environment and Public Works Committee are mulling the possibility of boycotting the mark-up of climate change legislation (S. 1733) -- a move that could hang the bill up in committee, a committee spokesman said.

"It looks that way. The option of a boycott is on the table," although "we haven't got word from the [Democratic] majority that they plan to mark up" the Senate climate change bill (S. 1733) this week, said Matt Dempsey, a spokesman for Republicans on the committee. At press time Friday, Boxer had not indicated whether mark-up would occur the week of Nov. 2,

If all seven of the committee's Republicans refuse to participate, Committee Chairman Boxer (D-CA) would not be able to hold mark-up and the Boxer's "mark" of the bill would be stuck in committee. Committee rules require a quorum of at least two minority members to mark up the legislation, which was co-authored by Boxer and Sen. John Kerry (D-MA).

In threatening the boycott, Sen. James Inhofe of Oklahoma, the ranking Republican on the environment panel, cited his dissatisfaction with an Environmental Protection Agency (EPA) analysis of the bill, which was completed in less than two weeks.

"A united Republican boycott could delay a mark-up until the EPA and/or the Congressional Budget Office can complete a more comprehensive analysis of the bill," said K. Whitney Stanco of Concept Capital's Washington Energy Research.

Committee Republicans also are considering doing a "discharge petition," which would allow them to take the climate bill out of committee and bring it directly to the Senate floor, where it would "fail miserably," a natural gas industry source said. Senate Democrats do not have the 60 votes needed to pass the legislation.

Some Democrats on the committee aren't too happy with the bill either. Sen. Max Baucus (D-MT), a senior member of the environment panel and chairman of the Senate Finance Committee, wants the bill to "preclude the EPA from regulating greenhouse gas [GHG] emissions outside of the climate change bill."

Boxer's "mark," which was issued on Oct. 23, is a revised version of the climate change bill that Boxer and Kerry, chairman of the Foreign Relations Committee, introduced in late September (see NGI, Oct. 5). The measure would seek to reduce GHG emissions by 20% below 2005 levels by 2020. But the odds are quickly diminishing that the full Senate will be able to pass climate change legislation this year, let alone reconcile its bill with the House's proposed Waxman-Markey legislation on climate change (HR 2454) and send it to President Obama.

Like the House climate bill, the centerpiece of the Senate legislation is a system to cap carbon emissions and allow polluting industries to purchase and trade emission credits to comply with the cap. The Boxer "mark" also would provide a number of industries with emission allowances, which are aimed at protecting consumers from energy price hikes; assisting industry in the transition to a clean energy environment; and spurring energy efficiency and development and deployment of clean energy technology.

Jack Gerard, president of the American Petroleum Institute, blasted the Boxer mark, calling it "worse" than the sweeping House climate bill that was passed in June (see NGI, June 29).

"It promises more pain to consumers but also imposes much greater burdens on some parties than others. Farmers, truckers, airline passengers, and families and businesses that rely on petroleum fuels will be the clear losers, paying the lion's share of the costs," he said.

At the last of three hearings last week, a Washington, DC-based public interest group said the Senate's cap-and-trade legislation was similar to "disastrous European" plans, while a major utility company called the bill a "good start," yet recommended that the emissions reduction target for 2020 be scaled back. An industrial energy group also urged Congress to consider a non-cap-and-trade bill that would seek to cut back carbon dioxide (CO2) emissions by promoting energy efficiency, the acceleration of the use of existing technology and investment in low-carbon energy.

The Senate climate bill "replicates policies that have been tried and failed in other nations," said Iain Murray, energy policy expert for Competitive Enterprise Institute. The European Union's policies, he said, have been "ineffective at best, detrimental to their citizens at worst." The cap-and-trade plan imposed in Europe has so far cost Europe $171 billion and has not led to much in the way of emissions reduction. He recommended that European and U.S. lawmakers instead pursue other avenues than emissions reduction." Climate change adaptation strategies and building resiliency in developing nations are "more promising approaches," he said.

However, an early and vocal advocate of climate change legislation, John W. Rowe, CEO of Chicago-based Exelon Corp., called the Kerry-Boxer bill a "good start toward a cost-effective, efficient, market-based response to the climate change challenge." Still he recommended a number of changes, including scaling back the emission reduction target for 2020.

"We believe that the targets and timetables for greenhouse gas reductions in the Kerry-Boxer draft, which are also in the chairman's mark, are overly aggressive" and unachievable due to the fact that many of the emissions-reduction technologies will not have been developed and commercially deployed yet, he said. "For example, we do not expect substantial deployment of either new nuclear generating stations or new coal generating stations with carbon capture and sequestration in a time frame that will achieve the results mandated by the draft.

"Consequently, we believe that a goal of reducing emissions 14% below 2005 levels by 2020 is much more appropriate and achievable than the 20% goal included in the Kerry-Boxer bill," Rowe said.

The Industrial Energy Consumers of America (IECA) said the Kerry-Boxer cap-and-trade legislation would "immediately and significantly drive up the demand and price for natural gas and electricity." If, as expected, "the electric power sector uses natural gas to displace coal to achieve 100% compliance, it would consume the equivalent amount of...about 4.6 Tcf, or roughly a 70% increase over 2008 power industry consumption. The largest increase in domestic [gas] production was only 3% from 2006 to 2007. Clearly the ability to rapidly [ramp up] production of natural gas to meet even a small portion of this potential demand does not exist," said IECA President Paul Cicio.

And "because natural gas-fired generation sets the marginal price of electricity in a growing portion of the U.S., as natural gas prices go up, so will the price of electricity to every homeowner, farmer and manufacturer," he noted.

Still the IECA said it preferred that Congress address the climate change issue legislatively, rather than have the EPA taking action under the Clean Air Act (CAA). "Manufacturers do not want the EPA to regulate GHG emissions under the Clean Air Act. The Clean Air Act was never intended to regulate carbon emissions. That being said, Congress needs to advance non cap-and-trade legislation that is cost-effective, does not impair competitiveness and removes the potential for regulation under the CAA."

The Senate climate change legislation also would unfairly target Midwestern states and force a disproportionately large portion of the cost of cap-and-trade on utility customers in those states, state regulators and analysts told the Senate environment panel.

"I understand the desire to reduce our carbon footprint, and I think we should, but I am concerned that this bill is not fair and I am concerned that it hurts consumers, especially Midwestern consumers, far more than it has to," said South Dakota Public Utilities Commissioner Dustin Johnson. The Senate climate change bill would result in a 25% increase to utility bills in his state by 2012, he said.

Cost associated with the bill would fall disproportionately on the Midwest, Johnson said, because the bill "picks regional winners and losers...under this bill California would receive 12 million more carbon allowances than it needs and little South Dakota would be left about three million allowances short. Other Midwestern states are left in similar situations, and that is going to mean a very real transfer of jobs and billions of dollars from our nation's heartland to the coasts."

Boxer's mark of the Senate bill "is worse for consumers than the [House] Waxman-Markey bill," Johnson said. A "soft collar" included in the mark would not do enough to limit speculation or control price impacts to Midwestern ratepayers, he said.

According to Joel Bluestein, senior vice president of Fairfax, VA-based consulting firm ICF International, utility customers in Missouri would see rate increases of 42-77% if the Senate bill is passed in its current form.

Others were more optimistic about the bill's economic impact. "Every credible economic analysis, and I've looked at them all, shows that we can grow our economy very robustly with a cap on carbon...the economy will be much larger in 2020 and 2030 and 2050 than it is today, regardless of what we do," said Nathaniel Keohane, director of Economic Policy and Analysis for the Environmental Defense Fund. "What this is about is protecting our future and making an investment in the future...it is something we can absolutely afford."

Power generators and gas producers went before the Senate Energy and Natural Resources Committee last Wednesday to make a case for natural gas in the climate bill. They called for incentives to promote the use of more gas, particularly in power generation.

Neither the House nor Senate climate change bills provide incentives to encourage the full use of existing gas-fired facilities, Calpine Corp. CEO Jack Fusco said. Both bills also "unduly favor dirtier generation to the point [incentives] to switch to existing gas generation or build new gas generation are severely blunted," he noted. And he said neither bill provides incentives to utilize existing highly efficient combined heat and power technology.

"I'm here today to tell you that the near- to mid-term solution to our climate change challenge solution is at hand. Natural-gas fired generation is a compelling solution," he told the Senate panel. Calpine is the largest independent power producer in the U.S., one of the largest consumers of gas for generation, and has achieved the lowest GHG emission footprint in the industry, with 62 gas-fired generation plants and 16 geothermal facilities. It uses approximately 3% of the natural gas consumed in the nation.

"We could today, simply through the increased use of existing modern natural gas-fired power plants, meaningfully reduce the [CO2] emissions in the power sector," Fusco said.

Currently only 42% of the U.S. combined-cycle gas-fired generation capacity is in use. If that was increased to more than 55%, it would reduce GHG emissions by 135 metric tons, said Dennis McConaghy, senior vice president of business development for TransCanada PipeLines. This is almost equal to the projected reduction level in the first year of the House climate change bill, he noted.

David Wilks, president of energy supply for Xcel Energy Services Inc., said the investor-owned gas and electric utility is making significant inroads in GHG emissions by retiring coal plants and replacing them with gas-fired generation, as well as making use of solar and wind technologies. He said he supports Congress providing incentives to utilities to retire their aging coal plants.

"Natural gas conversion is an excellent method for reducing emissions. As a rough rule, natural gas combined-cycle plants emit about one-half as much carbon dioxide as coal-fired electricity [plants]. Natural gas generation is a proven technology. It has a lower capital cost and [is] easier to permit than some of the other technology options, such as nuclear energy," he said.

"We support a national climate change policy that creates a level playing field for all forms of energy that produce carbon emissions," said BP America President Lamar McKay. In climate change legislation "gas is being squeezed out of the power sector by mandates for increased use of alternatives and protection of high-carbon coal generation."

If all sources of carbon are treated equally, "we believe natural gas will deliver the greatest emissions reduction at the lowest possible cost using technology available today," he said.

"We strongly believe" that coal is an "absolutely essential part of the nation's energy future, and we are working on technology to reduce carbon emissions from stationary sources, which could be ready for commercial use by 2020. But many of the least efficient, most carbon intensive [plants] may not be candidates for carbon capture and sequestration," McKay noted.

BP's analysis shows that a phased replacement of about about eight-10 of these facilities would deliver 10% of the cumulative 2010-2020 emissions reduction targets now being considered by Congress, he said. If this happens, it would raise annual gas consumption by 1 Tcf over the next decade, he said.

Dow Chemical Co. urged the Senate to take a cautious approach to natural gas in the climate bill. "We must be careful to avoid a dash to natural gas," said Edward Stones, Dow's director of energy risk. The cautionary noted was understandable -- if Congress mandates greater use of natural gas in power generation, less gas would be available for Dow and other chemical companies, which use gas as a feedstock.

"Congress created such a dash in the 1990 Clean Air Act amendment. It then followed with restrictions to access that disconnected supply from demand. We cannot afford to replay that scenario," he said.

"Driving natural gas preferentially into power generation could further erode our manufacturing economy and increase the [price] volatility of natural gas," Stones said. If predictions about bulging gas supply are on target, he believes "it'd be a greater value to our economy for the fuel to spur increased manufacturing investment," rather than power generation. "More industrial users of natural gas will...help dampen volatility."

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