NGI The Weekly Gas Market Report / NGI All News Access

Gas, Electric Distributors to Get Lion's Share of Emission Allowances

State-regulated local natural gas distribution companies would receive 9% of the emission credit allowances for free under an allocation method proposed by House Energy and Commerce Committee Chairman Henry Waxman (D-CA) and Rep. Edward Markey in their draft legislation to reduce emissions of carbon dioxide.

Waxman and Markey, chairman of the Subcommittee on Energy and Environment, Friday released the proposed allowance allocations, 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. The allowances for gas distributors would be used to protect consumers from natural gas price increases during the transition to a low-carbon environment and would phase out between 2026 and 2030.

Under the Waxman-Markey allocation plan, the electricity sector would receive the biggest chunk of emission credit allowances -- 35% --which represents 90% of current utility emissions. State-regulated local electric distribution companies would receive 30% of the allowances, and merchant coal and long-term power purchase agreements would get 5% of the allowances. These too would phase out between 2026 and 2030.

The centerpiece of the climate change legislation, which is pending in the House energy committee, is a system to cap carbon emissions and allow polluting industries to purchase and trade emission credits to comply with the cap. Democrats on the committee have been at odds over whether the emission credits should be auctioned for a price or allocated for free, at least at the beginning. The Democrats have been in negotiations for weeks to resolve the issue, and the proposed allocation plan is the result. The climate change bill, which was written by Waxman and Markey, is scheduled for committee mark-up on Monday (see NGI, April 27).

The proposal allocates 2% of the allowances between 2014 and 2017 and 5% of allowances in 2018 and subsequent years to help electric utilities cover the costs of installing and operating carbon capture and sequestration technologies. These so-called bonus allowances were estimated at $75 billion to $100 billion.

Energy-intensive, trade-exposed industries, such as steel, aluminum and paper, would have 15% of the allowances set aside for them in 2014, with the level gradually decreasing based on the percent reductions in the emission targets. The allowances would phase out after 2025 unless the president decides the program is still needed.

Oil refiners would get 2% of the emission credit allowances starting in 2014 and ending in 2026. Rep. Gene Green (D-TX) had pushed for 5% of the allowances for refiners.

Automakers are on tap to receive 3% of the allowances through 2017, and 1% between 2018 and 2025 would be allocated for investments in electric vehicles and other advanced automotive technology and deployment.

States would receive 1.5% of the emission credit allowances for programs to benefits users of home heating oil and propane, with the allowances to phase out between 2026 and 2030. The proposal said 15% of the allowances would be auctioned each year and the proceeds would be distributed to low- and moderate-income families to protect them from energy price hikes. The allowances would be distributed through tax credits, direct payments and electronic benefit payments; these would not phase out.

For investments in renewable energy and energy efficiency, states would receive 10% of the emission allowances between 2012 and 2015; 7.5% of the allowances in 2016 and 2017; 6.5% of allowances between 2018 and 2021; and 5% of allowances thereafter.

An estimated 1% of the emission allowances would be allocated to "Clean Energy Innovation Centers" at research universities and institutions for applied research and development on clean energy technologies, according to the proposal. Moreover, the plan sets aside small allowances to prevent tropical deforestation, protect wildlife and natural resources, and for worker assistance and job training.

Rep. Rick Boucher of Virginia, one of the moderate Democrats on the House energy panel who had several concerns with the climate change bill, last Thursday said he would vote for the legislation in mark-up after reaching an accord with Waxman and Markey on key matters.

Following more than a month of "intensive negotiations, we have achieved agreement on most key matters of concern to me...I intend to vote 'yes' at mark-up" on the legislation, he said during a joint press briefing with Waxman and Markey on Capitol Hill. But he said he reserved the right to work for "further improvements [on the bill] in later stages in the legislative process."

Boucher was the chief proponent of awarding 35% of all emission credit allowances to the electric sector. This "will largely prevent the allocation process for emission allowances from resulting in electricity price increases," he noted.

The agreement did not resolve all of his concerns, Boucher said. "I do have remaining concerns about the bill." For instance, while the carbon-reduction target for 2020 has been trimmed to 17% from 20%, he said he believes a 14% reduction target is "more appropriate and more achievable." The target for reduction of carbon emissions by 2050 still remains at 83%.

And he said he is concerned about the timing of the phaseout of the free allocations, now set to occur between 2025 and 2030. "A longer phaseout period...is more appropriate," Boucher noted.

Waxman had signaled that he hopes to pass the bill out of committee by the Memorial Day recess. This "is tight, but still doable," said energy analyst Christine Tezak of Robert W. Baird & Co. "After House Energy and Commerce completes its work, the bill's fate lies in how fast other committees with jurisdiction, such as House Ways and Means, can wrap up their contributions." House Democratic leaders want to have the bill on the House floor before the August recess.

Republicans on the House energy panel are opposed to the Waxman-Markey legislation. But because there are far more Democrats than Republicans on the committee, Waxman is likely to get the bill passed even without Republican support. However, the lack of Republican supporters could pose problems when the bill reaches the House floor and in the Senate.

©Copyright 2009 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.

ISSN © 2577-9877 | ISSN © 1532-1266
Comments powered by Disqus