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Natural Gas a 'Winner' in Boxer Climate Bill

The initial version of a U.S. Senate bill to limit greenhouse gas (GHG) emissions, with some key differences from the climate change bill that passed the House earlier this year, immediately set off a raging debate last week among environmental and business stakeholders faced with battling all over again to protect their turf. It was the first climate measure to include a provision favorable to natural gas, as various supporting congressmen and organizations vowed to gear up activities to expand the role for natural gas in protecting the climate.

The bill left undone an allocation scheme for carbon credit allowances under a cap-and-trade program and made it easier for industrials to offset emissions. On the same day the bill was introduced the Environmental Protection Agency increased the pressure on Congress, issuing its alternative to congressional action with a much simpler and potentially more stringent proposed rule to limit emissions on large stationary sources of pollution (see separate story).

The 800-page Clean Energy Jobs and American Power Act introduced by Sens. Barbara Boxer (D-CA) and John Kerry (D-MA), chairmen of the Environment and Public Works Committee and the Foreign Relations Committee, respectively, would increase the targeted reduction for GHG to 20% by 2020 from the 17% in the House version. It leaves the contentious question of how free carbon allowances or permits to emit carbon dioxide and other heat-trapping gases would be distributed to utilities, manufacturers, agribusiness and other interests to be filled in by the committee. That allocation was the focus of months of wrangling on the House side. The fact that it was not carried over into the Senate version left some stakeholders fuming.

Additional input will be coming from other Senate committees with contingent jurisdiction, including Energy and Natural Resources, Finance; Foreign Relations; Agriculture, Nutrition and Forestry; and Commerce, Science and Transportation, which makes it something of a lobbyist's nightmare.

The bill looks more favorable to business interests than the House version, expanding the available pool of offsets by 40%. It also has what has been called a "soft" carbon collar provision and market stability fund designed to keep the cost of carbon below $28 a ton, along with provisions to limit speculation in carbon credits. There are some added incentives for nuclear power production, but they are not major, nor are they likely to satisfy the nuclear power industry.

The recent surge in lobbying and public relations by the natural gas industry appears to have paid off in the proposed Senate legislation (see NGI, Sept. 28; Sept. 21; Sept. 7).

"In our view the only clear winner in the draft is the natural gas industry -- provisions were included which would establish a fund to support power plants that 'replace or retire' greenhouse gas intensive existing generation assets," according to K. Whitney Stanco, analyst for Concept Capital's Washington Research Group. "The provision appears to encourage fuel switching to natural gas, the deployment of storage technologies and other types of clean generation."

ANGA Applauds Bill's Language

America's Natural Gas Alliance, which represents 28 of the leading North American independent producers, applauded the "natural gas placeholder" language in the bill, which establishes a new Environmental Protection Agency program to provide financial incentives to power projects that reduce GHG emissions that are not otherwise eligible for tax credits. "Natural gas has more to contribute to a climate bill's overall carbon-reduction potential," ANGA President Rod Lowman said, advising that ANGA members would continue working with the Congress on other provisions to expand natural gas use.

ANGA has proposed a "bridge fuel credit," which could be used like an allowance or offset for each metric ton reduction of GHG emissions attributable to the substitution of clean natural gas for another higher emissions intensity fossil fuel such as coal or diesel oil. The group also proposes modifying the availability of international offsets to make room for the bridge fuel credits.

Congress should settle the questions about possible water pollution from hydraulic fracturing by calling for a national study, and adopt measures that would encourage the manufacture and purchase of natural gas vehicles and related infrastructure. One way of doing this would be to exempt natural gas vehicle use from the carbon cap. ANGA also is opposing any proposal to repeal the current treatment of intangible drilling costs (IDCs) under the Internal Revenue Code.

The American Gas Association (AGA) urged Wednesday that any such climate change legislation should take into account "the monumental strides" U.S. natural gas consumers have made during the past 40 years to reduce GHG emissions and increase energy efficiency. If a cap-and-trade approach is implemented, the AGA said, Congress "should maintain or increase the four-year delay for natural gas utilities coming under that program; increase their allowance allocation from 9% to 12%; extend their allocated allowance phase-out from 2030 to 2040; significantly modify or delete the provision that stipulates one-third of the value of allowances allocated to natural gas utilities should go to energy efficiency programs, as this approach will not reduce emissions and will only raise costs; treat all renewable energy sources equally, whether they are used to generate electricity or supplement natural gas supplies; and keep 'carbon footprint labeling' in the legislation, which will help consumers make informed carbon reduction decisions."

Late last week it was revealed that Reps. Tim Murphy (R-PA) and Dan Boren (D-OK) are laying the groundwork for a bipartisan Congressional Natural Gas Caucus to focus greater attention on natural gas on Capitol Hill. The two so far have recruited more than 20 House lawmakers to join the new caucus, which is expected to be formally launched later this month.

And a bipartisan group of nine senators, mainly from southwestern producing states, has sent a letter to the committee espousing items favorable to natural gas similar to those on ANGA's list.

The bill is somewhat less favorable to coal interests than the House version, including a provision that leaves oversight of stationary pollution sources, such as coal-fired power plants, under the jurisdiction of the EPA. A main reason for the support of climate change legislation by coal-related interests has been to avoid almost certain imposition of strict emissions restrictions by the EPA if Congress fails to take the lead.

Jack Gerard, president of the American Petroleum Institute, said, "Boxer-Kerry leaves unaddressed key elements of how it intends to constrain carbon emissions. Unfortunately it appears to be following the pattern the House followed, which resulted in a political bidding process that picked winners and losers."

Noting that the bill omits many key details, the National Association of Manufacturers (NAM) said it was concerned that the current draft introduced Wednesday would increase costs for manufacturers and consumers. "The bill calls for a 20% reduction of carbon dioxide emissions from 2005 levels by 2020. The House bill set a target of 17% reduction, which is itself an ambitious and potentially costly goal. The increase represents an even more significant technological and economic challenge to manufacturers while resulting in little benefit to the environment," said Keith McCoy, NAM's vice president for energy and natural resources.

Coming at it from another angle, Climate SOS, a coalition of scientists and activists who support science- and environmental justice-based climate legislation, characterized the Senate bill as an "irresponsible non solution."

"Cap-and-trade is the worst choice for pricing carbon. It is proven ineffective even in its best incarnations, is influence-prone, creates a huge, risky, game-able carbon market that is extremely complex, subject to manipulations, whose likely bubble-bust will overshadow the mortgage or the dot com bubble. While cap-and-trade is the scheme of choice for polluters and Wall Street executives, a revenue-neutral carbon tax-and-dividend program would be much more straightforward, equitable, less prone to fraud and gaming, and would compensate people, not corporations, for the costs of pricing carbon," according to Maggie Zhou, a Climate SOS organizer.

And in the realm of things you never thought you would see, ExxonMobil's CEO Rex Tillerson agrees with the environmental activist group. Thursday, Tillerson, noting that it is very difficult for him to advocate a tax, reiterated his position in favor of a straight-forward, revenue-neutral tax instead of a cap and trade program that also amounts to a tax (see related story).

The group maintains that any bill that embraces cap-and-trade, offsets, inadequate emission reduction targets, and counter-solutions such as biomass burning, nuclear power and more coal fired power plants (under the guise of partial carbon capture technology that is as yet unavailable) will fail to meet its stated goal of forestalling catastrophic climate change.

Political slight-of-hand in the realm of allowances and offsets allow politicians to claim ambitious emission reduction goals, while in fact reductions would be "pathetically trivial," according to Climate SOS. Numerous independent studies have borne out the group's claim that a tax system would be much more efficient and effective than the cap-and-trade scheme.

Some observers said the new bill, if enacted, would prove to be an unfair burden on taxpayers. A new study conducted by the National Center for Policy Analysis said the legislation could cost taxpayers more than $1,761 per family annually and would not reduce global warming temperatures any more than one-tenth of a degree by 2050.

"The bill will do nothing to effectively address global warming, will cause more harm than it prevents, and will impose enormous costs on American families," said H. Sterling Burnett, senior fellow with the National Center for Policy Analysis and author of the study on the legislation.

The study concluded that cap-and-trade would cost an average of $314 billion a year in lost gross domestic product, or $9.4 trillion over the period from 2012 to 2035. The study also said the legislation would increase the cost of residential electricity between 31-50% by 2030 and job losses would total 2.5 million by 2030.

Sponsors of the legislation likely will have the votes to get a measure out of committee without too much delay. Mark-up has been scheduled for the end of October. Hill watchers, however, see chances of a reconciliation with the Waxman-Markey bill passed by the House and final passage this year as highly uncertain (see NGI, June 29). That would move the bill into 2010, an election year, which also makes passage unlikely.

"We continue to believe that odds for passage of an economy-wide cap-and-trade bill are low before the 2010 election," Stanco said.

While the administration has been pushing to have U.S. climate change legislation completed before the international summit on the subject scheduled in Copenhagen, Denmark, in December, it may have to be satisfied with touting the "progress" embodied in separate House and Senate products.

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