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Gas, Electric Distributors to Get Large Chunk of Emission Allowances

State-regulated local natural gas distribution companies would receive 9% of the emission credit allowances for free under an allocation plan proposed by House Energy and Commerce Committee Chairman Henry Waxman (D-CA) and Rep. Edward Markey (D-MA) in their draft legislation to reduce emissions of carbon dioxide (see Daily GPI, April 2).

Waxman and Markey, chairman of the Subcommittee on Energy and Environment, Friday released the proposed allowance allocation plan, which is 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 largest chunk of emission credit allowances for free -- 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 that would set a cap on 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 and released Friday, is scheduled for committee mark-up on Monday.

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.

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 automobile technology and deployment.

States would receive 1.5% of the emission credit allowances for free 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.

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