|Where will the regulations fall? Click to enlarge.|
The two Senators leading the Senate’s Committee on Energy and Natural Resources—Sen. Pete Domenici (R-NM), Chairman; and Sen. Jeff Bingaman (D-NM), Ranking Member—released a bipartisan White Paper on Climate Change.
The white paper outlines key questions and design elements for a national greenhouse gas program in order to facilitate discussion and the development of consensus around the creation of a bill to regulate greenhouse gas emissions in the US.
We recognize that there are many ways to structure such a regulatory program and that there are entirely different approaches that might include a carbon tax, technology incentives and voluntary programs, but we have limited our consideration here to “mandatory market-based systems” contemplated by the Sense of the Senate Resolution.
The paper lists three primary questions and multiple sub categories as an approach to structuring the discussion around the problem. The top level elements are:
Who is regulated and where? The question here comes down to whether or not to build a program on an economy-wide basis or whether to build a program that focuses on just the greenhouse gas emissions of one or more industrial sectors. The second decision is where in the industrial life-cycle of carbon dioxide and other greenhouse gases should the government choose to implement its regulatory program—i.e., upstream or downstream.
The upstream approach places the point of regulation closer to energy producers and suppliers than to end-use consumers. The downstream approach targets regulation at the point of emissions.
It is hard to see how greenhouse gas emissions from the transportation sector could be addressed in a downstream permitting system. Failing to address transportation would leave out one-third of total US carbon emissions. Most of the ways of addressing transportation that have been proposed are variants of an upstream approach.
For example, some have proposed that petroleum refiners be required to hold and turn in permits for the greenhouse gas emission equivalent of all transportation fuels sold. Another option would be to require automobile and truck manufacturers to hold permits covering the carbon emissions from the vehicles they sell, with the emissions estimated based on annual average vehicle miles traveled (VMT) and average vehicle lifetime.
Another proposal has been to allow limited trading of increases in fuel economy performance of new cars and trucks, since increased fuel economy requirements could also reduce carbon emissions from the transportation sector. Such a system would have to exclude from the carbon trading program emissions from vehicles currently on the road. This approach would also have to address the problem that improved vehicle efficiency combined with low gasoline prices could lead to an increase in VMT that would offset the carbon dioxide reduction achieved through fuel economy gains.
Should the costs of regulation be mitigated for any sector of the economy, through the allocation of allowances without cost? Or, should allowances be distributed by means of an auction? If allowances are allocated, what is the criteria for and method of such allocation?. This section on allowances is broken down into eight subsections, examining a range of approaches for producers and consumers.
Should a US system be designed to eventually allow for trading with other greenhouse gas cap-and-trade systems being put in place around the world, such as the Canadian Large Final Emitter system or the European Union emissions trading system? The white paper notes that a greenhouse gas program in the US could be designed to leave open the possibility of trading with greenhouse gas systems in other countries, and touches on potential opportunities and challenges that arise with this type of linkage.
If a key element of the proposed US system is to “encourage comparable action by other nations that are major trading partners and key contributors to global emissions,” should the design concepts in the NCEP plan (i.e., to take some action and then make further steps contingent on a review of what these other nations do) be part of a mandatory market-based program? If so, how?
Climate change is a global environmental problem that requires action by all major emitting countries. Participation by all key emitters is critical for two reasons. First, only with a global effort will it be possible to make sufficient progress to address the potential effects of climate change. Second, without greenhouse gas mitigation efforts by all major emitters, including our largest trading partners, the US economy could be placed at a competitive disadvantage.
Thus, an important component of a US program could be to encourage major trading partners and large emitters of greenhouse gases to take actions that are comparable to those in the US. As noted above, some key developed countries, such as those in the European Union, are already implementing emissions trading programs. Other countries have developed efficiency standards and additional policies that reduce energy use and greenhouse gas emissions.
The Energy Committee will hold a climate change workshop this spring and will select panelists based on specific proposals in response to this paper.
Legislation regulating greenhouse gases and stipulating mandatory emissions cuts would face—at least with current conditions—an uphill battle in Congress, not to mention with President Bush.
Senior Senate staffers did not think a bill would get far this year, but that the activity could lay the groundwork for action in a future Congress. (Reuters)