Chuck is out for the day, so Rob Thormeyer, NARUC's Communications Director, is responding on his behalf:

I just wanted to weigh in and express NARUC’s support for allocating any free emissions in the electricity sector to Local Distribution Companies. We first proposed this policy in November 2007 and recently wrote to the White House explaining how this will prevent windfall profits in a cap-and-trade market (http://www.naruc.org/News/default.cfm?pr=135).

I don’t need to repeat the strong points Ms Claussen and Mr. Rogers have already eloquently stated. As they made clear, State commissions are obligated to keep rates fair and affordable in return for reliable service. Congress is considering multiple pieces of energy legislation that will impact this obligation, and while we support federal action on climate change, we must do so in a way that lessens the burden on ratepayers as much as possible.

We are already asking a lot of our ratepayers without climate legislation—rates are going up nearly across the board. And in an uncertain economy with folks more cash-strapped than ever, we are about to ask even more. This is why it is so important that State regulators remain critical cops on the consumer-protection beat.

The climate debate has swung to auction versus free allocation, and hopefully, how many bells and whistles (in the form standards and subsidies) consumers can afford having added to cap and trade’s market-based incentives. Eileen and Jim’s commentary is great and hopefully enlightens the path to a constructive compromise on the allowance distribution issue. While these numbers are illustrative, if free allocations were done upfront in 5 year blocks, with 60% free for the first 5 years, 30% for the second 5 years, and 15% for the last 5 years - almost 80% of the allowances over the life of the policy would still be auctioned. Such “front-end loading” - besides aiding consumers (via LDC grants) and trade sensitive emitters - would triple the initial “float” relative to an annual 100% auction, making a more liquid and less volatile carbon market. Hopefully an allowance distribution compromise is forthcoming.

The Waxman-Markey climate change bill is the opening gun in what will be a long and detailed race to reduce U.S. greenhouse gas emissions. Two leaders in the climate debate are weighing in on the debate over congressional legislation and the Obama Administration's approach to climate change with a joint blog entry: Eileen Claussen, president of the Pew Center on Global Climate Change, and Jim Rogers, president and CEO of Duke Energy.

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Let’s get one thing straight: Though not perfect, we like the way President Obama and his team are addressing the potential catastrophe of climate change.

The Administration unequivocally accept the underlying science. They realize that the cost of not acting will be far greater than the cost of taking responsible action – and that the longer we wait, the greater the costs will be for American consumers. Their emissions goals are ambitious but achievable, as is the timetable to meet them. And we agree that cap and trade is the right way to go. It’s based on common sense capitalism: it puts a price on carbon and rewards facilities that can reduce carbon dioxide and other greenhouse gases at the lowest cost, even as it provides incentives for others to find more economic ways to reduce their own emissions.

Where we temporarily part ways is when it comes to the Administration’s proposal calling for a full auction of emission allowances. How these allowances are distributed doesn’t change the overall environmental goal set by the cap. We believe it is critical that a number of them be used to reduce price impacts on households and businesses – in the early years of the program. Just this week Chairmen Waxman and Markey released a discussion draft of energy and climate legislation that leaves open how we can best address this critically important issue.

In all states, electricity is distributed by local companies regulated by public service commissions whose fundamental purpose is to protect consumers and keep electricity rates low. We recommend protecting households and businesses that purchase electricity from utilities by providing allowances to the regulated distribution companies during a transition period.

There is little question that an auction, in which allowances to emit specified amounts of carbon are sold to the highest bidders, will result in a price spike for electricity in some regions. That price spike will hit households and businesses the hardest, and for some, it will be very tough to manage.

We believe we need a climate change plan that protects against price spikes in electricity bills. Our plan would effectively curb carbon, limit the risk of price volatility, target relief to those who need it most, and take advantage of the distribution companies’ and public service commissions’ ability to deliver energy efficiency.

During the transition period from granting allowances to a full auction, there would be no windfall for utility companies or their investors. The legislation itself and actions by public service commissions would guarantee it. On the flipside, there would not be huge price increases for electricity in coal-fueled states and a much smoother transition to a cleaner economy. If this approach is not taken, the whole argument for climate change legislation could be moot – senators and representatives from those states might effectively kill legislation mandating cap and trade.

Overall, we think a cap-and-trade system that shifts from granting allowances to a full auction over time will provide the most reasonable transition to the low-carbon and thriving economy we all desire. To help ensure a smooth transition, granting allowances and auction revenues should be used to help cushion workers, households, and vulnerable industries from volatile prices. It should also support the development of critical low-carbon technologies like carbon capture and storage, and assist in efforts to better adapt to the climate change we are already beginning to experience.

With a price on carbon, energy companies will more rapidly invest in clean technologies, as long as they can be certain that future regulations neither bankrupt them nor mandate that they bet on specific untried technologies. It will also help them look deeper into renewable sources of energy, be they solar, wind, hydropower, or even agricultural waste. They will rethink nuclear power which, despite its scary image, is actually a safe, clean way to generate electricity.

We know that some of those technologies still need the kinks worked out, and that others remain prohibitively expensive. But this is where the government could use some of the revenues that it gets from auctioning allowances to other emitters now, and to utilities and competitively challenged manufacturers down the road.

We’re not ostriches, and we’re not Pollyannas. We know there is a cost to addressing climate change, and that this cost will filter down to big business, to small business, and to households. Utilities that buy carbon allowances or shift to lower-carbon generating options will have to increase their rates, but energy efficiency can lower customer bills even in the face of rate increases. And there will be far less economic upheaval if higher prices come gradually, which our transition program would ensure.

Updated at 2:22 p.m. on April 2.

Donna Harman's otherwise thoughtful comments finished on a note that merits comment: "making emissions cap reductions timed to the availability of new, energy efficient technology". It is a classic chicken and egg problem that private capital will not flow in response to a policy that is timed for the very innovation that needs the capital in the first place. That approach leaves only Government to pick winning clean technologies and provide capital. I hope manufacturers and other emitters build trust in the incentives provided through the carbon market to create low-carbon alternatives. Particularly if there is some degree of free allowances.

As Congress considers comprehensive energy and climate change policies it is important to keep in mind that their successful implementation depends on American manufacturers’ ability to remain competitive in the global marketplace, since that is what will enable the development and deployment of innovations in environmental technology.

The key to competitiveness is keeping compliance costs of climate change legislation as low as possible, especially for energy intensive industries whose overseas competitors' operating costs do not include carbon emissions regulations. Unless costs are kept low, U.S. manufacturing capacity will be supplanted by increased capacity overseas, resulting in job losses and economic decline here at home and a net increase in carbon emissions globally.

The U.S. is essentially an open market for forest products, with paper and paperboard imports comprising about 20 percent of U.S. consumption and lumber imports comprising 36 percent of U.S. consumption. Despite this, the forest products industry and the American Forest & Paper Association (AF&PA) have a strong historic commitment to free trade, believing in its long term benefit to our industry, economy, and standard of living. Free trade is also the single most important policy we can pursue to create the prosperity in developing countries essential to protecting natural resources and the environment—without which our industry’s raw material cannot be renewably and sustainably produced.

While proposals such as border taxes, import tariffs and anti-dumping actions are tempting in their directness and simplicity, they all bring consequences that render them ineffective. Developing countries can easily neutralize the impact of border taxes by reducing domestic operating expenses for their industries, tariff increases that conflict with our WTO commitments will be overturned, and anti-dumping actions are futile given that their calculation must be rooted in the comparative cost of exported products in their home countries, not in the U.S. Moreover, border measures do nothing to address manufacturers’ ability to compete in export markets.

In the end, we cannot expect other countries to shoulder the responsibility of preserving the global competitiveness of American industry in the wake of new climate change policies that America imposes on itself. We must be as innovative in creating solutions that protect our economy and jobs from developing countries without climate change regulations, as we are in developing our climate change policies themselves. Otherwise, America’s ability to be a global leader in climate change will be undermined by the reduced economic clout and increased global carbon emissions resulting from our own efforts to reduce greenhouse gas emissions.

The recently-unveiled legislation by House Energy and Commerce Chairman Henry Waxman recognizes the limitations of a border-focused strategy in protecting American competitiveness and rightly focuses first on helping U.S. industry cope with carbon regulation compliance costs. Policies rooted in this approach, and which allocate an adequate portion of carbon emission allowances to the manufacturing sector, are essential under the types of cap-and-trade programs proposed by Chairman Waxman and other congressional leaders.

Allocated allowances are essential to the survival of energy-intensive industry that compete in global markets. Even though paper makers generate two-thirds of their own energy needs onsite from renewable biomass, energy remains their third highest manufacturing expense. With little ability to pass on increased costs in a competitive world economy, the U.S. forest products industry would see its slim profit margins significantly reduced or eliminated if carbon allowances were auctioned.

For example, the industry’s profit margins, measured as a percentage of sales, averaged just 3.7 percent from 2000-2007, compared to more than 8 percent for all U.S. manufacturers. Meanwhile, in 2006, members’ pulp and paper facilities emissions were 61.5 million metric tons of carbon dioxide equivalents. At an allowance price of $30, purchasing allowances at auction would cost pulp and paper manufacturers nearly $2 billion, or almost half of their net income. At $50 per ton, approximately three-fourths of the pulp and paper sectors’ profits would be eliminated. No manufacturer of low-margin commodities in an international marketplace could sustain this impact. It is likely that many U.S. facilities would shut down and their production—and jobs—would shift to other, unregulated regions.

Concerns that U.S. climate change policies could result in manufacturing facilities relocating to other countries with less-stringent—or non-existent—climate regulations are well-founded. This would lead to unemployment and economic decline here at home and an increase in carbon emissions globally. Therefore, in addition to securing an international climate change agreement that requires all major emitters—both developed and developing countries—to cut their emissions, the best U.S. climate change policy option for addressing competitiveness concerns is ensure that the cost of domestic climate change legislation is as low as possible for U.S. industry. This means allocating long-term full allowances for the manufacturing sector, instituting flexible offset policies, and making emissions cap reductions timed to the availability of new, energy efficient technology.

Environmentalists may feel good about adding renewable portfolio standards to the existing renewable production credits, loan guarantees and other subsidies for renewable energy. But aren’t we just deferring the tougher decisions that power companies would otherwise make about nuclear power and large-scale CCS? And might not that deferral put the 83% carbon reduction target by 2050 at risk?

Climate policy can be quite simple - limit the quantity of co2 emissions or set a price on them. In either case letting private enterprise compete, on a level playing field, for the cheapest alternatives. And trusting that the twin co-benefits of energy independence and domestic job creation are inherent in either policy. But the Waxman draft is a kitchen sink full of rules and regulations telling producers and consumers how best to de-carbonize.

If policy makers cannot return to the cap and trade basics started by McCain-Lieberman in 2003, then the idea of a carbon tax might be revived. That would not assure abatement - since risk-averse emitters might abate much less than the amount projected for a given tax rate. Yet it might isolate a few simple legislative decisions - the initial co2 tax rate (plus appreciation), the form of revenue recycling through tax cuts, and perhaps an agreement to fund the Obama $15 billion in annual R&D to fill-in private sector investment gaps.

The trade-off between abatement certainty (a cap) and cost certainty (a tax) comes down strongly favor of a cap if you believe climate policy is about hedging against a looming fat tail risk of irreversible catastrophic consequences. But the public bears the uncertain cost of an emissions cap. And the public deserves competitive choices - with a minimum of standards, regulations, and subsidies dictating actions.

Accolades to Waxman for aggressively putting forth an action plan are in order. Now is the time for tough decisions.

“Can Waxman Have It All?” is just another way of asking “Will Congress Do the Right Thing?”

Combining the climate and energy proposals into one package is an approach that makes complete sense, and the Waxman-Markey bill has the broad public support necessary to make it to the president’s desk. During his campaign, President Obama recognized that our dependence on polluting fossil fuels is largely responsible for the huge threat of global warming, that addressing global warming will require a major shift in our energy priorities, and that these issues can’t be tackled in isolation of one another.

With the introduction of their bill, Chairmen Waxman and Markey have proposed a way forward that President Obama outlined during his run for office and that Nancy Pelosi has been advocating from the moment she became Speaker. They know that the country will benefit immensely by acting now to adopt a wise energy and climate policy that reduces costs and increases security.

Predictably, the costs of this investment will draw opposition from those with a large stake in the status quo. What these dirty-fuels advocates don’t want Americans to know is that the cost of inaction on energy and climate is far higher—and infinitely more dangerous to our economy—than the course of action that the President and Reps. Waxman, Markey, and Pelosi advocate.

The longer we wait, the more costly a solution becomes. Last year, Georgia’s drought caused an estimated $1.3 billion in crop losses. Next time it will be worse. Hurricane Katrina has forced us to spend at least $85 billion in housing reconstruction. Next time it will be worse. Taxpayers already are exposed to $1 trillion in insured flood risk, and every day we let global warming build unabated, that risk gets worse.

I urge members of Congress to think about what delay means when Mother Nature is warning us not to ignore the laws of nature. If Congress says “not now,” will we get a better deal later? No. A cheaper deal? No. A quicker solution? Quite the contrary.

Unlike the financial crisis, which can conceivably turn around in a matter of months or a few years, global warming just gets more expensive, the politics more difficult, the risk to the public even greater. To those who refuse to embrace the Waxman-Markey bill, I ask that they at least respect it. It is the equivalent of democracy—a form of government with lots of problems, except when compared to the alternatives.

The Waxman-Markey proposal puts Congress on course to answer the President’s call for comprehensive energy legislation. In combining energy and climate proposals, the draft correctly recognizes our dependency on fossil fuels is a triple-threat to our economy, energy security and environment. In tackling the issues together, Chairman Waxman and Chairman Markey have provided the leadership needed to keep Congress on an ambitious timetable to achieve a clean energy future. Climate scientists have told us we have no time to waste and through comprehensive legislation we can repower America with clean energy solutions that will create jobs, end our dependence on oil, and help avoid the worst consequences of global warming.

The bill includes a number of good proposals including providing a three-way path to the emissions reductions we need to begin tackling the climate crisis - it holds polluters accountable by having enforceable limits on carbon pollution, it will invest in reducing deforestation, and it will encourage emission reductions in areas not covered by the emissions limits. The National Wildlife Federation is also encouraged that the proposal recognizes the need to adequately invest in protecting and restoring natural resources that will be impacted by the inevitable consequences of global warming.

President Obama asked the congress to deliver legislation addressing our energy and climate crises this year. The Waxman-Markey legislation answers that call and we believe it starts us down a path that will get a bill on the president's desk by the end of 2009.

Americans want a better way to power our future and a better way to protect the planet. This legislation moves us in the direction we need.

No, he cannot, as he will find out when he attempts to complete this bill. (Yes, despite its 600-page length, the bill is incomplete as to allowance allocation (except for a 15% set aside for industries in need), consumer protection, developing countries whose ghg emissions already met or exceed those of the U.S., and transmission siting and cost allocation, which is essential to meet the ambitious RPS program here). House rules may enable the majority to pass a bill, but a partisan approach is unlikely to succeed in the enactment of legislation.

Today’s draft legislation released by Chairmen Waxman and Markey builds upon the strong momentum toward a clean energy future that will revitalize our economy and increase national security while at the same time tackling climate change by holding polluters accountable for the greenhouse gas emissions they produce.

Addressing our reliance on dirty fuels and other causes of global warming emissions is an important first step. But, it’s also vitally import that we address the impacts of climate change that are already being seen and felt by humans, wildlife and the natural resources that we all rely on. We are pleased that the Energy & Commerce Committee has recognized the urgent need to safeguard our wildlife and natural resources from the worst impacts of global warming, a sentiment that was also stressed last week by Reps. Markey and Dingell in a hearing on climate change and adaptation measures held by the Energy & Commerce Committee’s Subcommittee on Energy and Environment.

By holding polluters accountable for their global warming pollution, this bill will allow us to tackle both the source of the problem as well as support the solutions we need to invest in the future of our communities and natural resources. We look forward to working closely with the Committee and Congress to swiftly enact comprehensive climate and energy legislation that also provides long-term dedicated funding for the protection of America’s wildlife and natural resources.

Kevin Knobloch is on vacation. Liz Perera, Washington Representative for the Union of Concerned Scientists’ Climate Program, is filling in for him this week.

That’s not just talk; it’s good policy. Cutting emissions needs to go hand-in-hand with clean energy development, reducing costs with energy efficiency and curbing our oil dependence. Complementary energy policies will help us meet an overall emissions cap more effectively.

The discussion draft is going to be the main vehicle for moving legislation in the House and Waxman pledged to get a bill out of his committee by Memorial Day, May 25. The discussion draft puts the committee on a schedule to meet that deadline. And just last week, President Obama strongly reaffirmed his commitment to signing comprehensive energy and climate legislation into law. “We can't wait," he said. "And my expectation is that the Energy Committees or other relevant committees in both the House and the Senate are going to be moving forward a strong energy package. It will be authorized. We'll get it done. And I will sign it.”

The controversy over this bill, unfortunately, will come from opponents who fail to recognize the economic costs of unchecked global warming, the economic downside of staying addicted to fossil fuels, or the economic benefits of a new clean energy economy.

A bill based on this discussion draft would create jobs and save consumers money. Waxman and Markey have included a renewable electricity standard similar to one UCS analyzed that would create hundreds of thousands of jobs and reduce electricity bills by tens of billions of dollars. And its national efficiency standard would save utility customers $168 billion through 2020 and create 220,000 jobs (pdf).

And mainstream economists agree that cutting emissions is far better than adapting to the worst consequences of global warming. Finally, according to a Pew poll, 59 percent of American adults said they support capping emissions.

Clearly, this is the year we’re going to get comprehensive climate legislation. Waxman and Markey have hard work ahead of them to forge consensus around many issues related to energy and climate, but this discussion draft is a promising start.

Updated at 10:28 a.m. on April 1.

It makes no sense to split climate from energy -- one of the main functions of a carbon auction is to finance a new energy economy, and you can't replace fossil fuels just by putting a cap on their level -- you have to provide those who consume energy services with a low cost alternative. Indeed, those who argue that the key to reducing our dependence on carbon is to make carbon based technologies more expensive miss the point -- it's the difference between high carbon and low carbon solutions that matters, and in many cases what drives the cost of low carbon solutions up is the way in which government misregulates the energy sector. For example, in commercial buildings, those who make the decisions about whether or not to waste energy don't pay the bills. Banks don't take the costs of heating and cooling a house into account in setting mortgage levels. Auto consumers can't buy a fuel efficient pick-up truck.

So the only way we can redesign the energy sector so that pricing carbon takes its appropriate place within an innovative, low cost and clean energy future is comprehensively.

The Waxman Markey bill is a broad brush outline -- the details matter enormously. But finally we are taking the energy issue seriously -- yes, twenty years too late -- but better late than never.