The following comments are from Congressman Donald M. Payne, Chairman of the Subcommittee on Africa and Global Health

At first glance, climate change is a lot about numbers – temperature rise of 2 degrees, 450 parts per million, a 25-40 percent reduction in greenhouse gas emissions, one percent of allowances. The list goes on.

However, climate change is more than science and numbers. At the end of the day, climate change is about people. Climate change is happening far more rapidly than first thought. For the world’s poor the climate crisis is not looming on the horizon. It is happening today. The impacts are hitting the world’s poorest first and worst – those least responsible for climate change.

Poor communities – individuals eking out an existence on less than $1.25 a day – are the hardest hit and have the fewest resources to adapt. Harsher climate conditions mean these vulnerable communities are facing more severe, more frequent, and more intense floods, droughts, and cyclones – leading to natural disasters and major disruptions in agricultural growing seasons. Climate change is increasing malnutrition as agricultural productivity declines. In Africa, agricultural productivity is predicted to decrease by as much as 50% over the next decade. A quarter billion people will be facing water scarcity. The United States will not be isolated from these events. If left unabated, the spill over caused by climate change will be visited upon US shores.

As resources like water and arable land become scarcer, outbreaks of conflict, mass migration, and refugee crises will rise. A recent report released by CARE, UN University, and Columbia University’s Center for International Earth Science Information Network reveals that climate change is expected to spur human migration and displacement on a scale never before seen. According to the International Organization for Migration, as many as 200 million climate migrants may be forced to cross borders by 2050.

One man from Niger interviewed for the study said: “I have been suffering from the rain water shortage, which made the river very shallow and decreased my fish production, which had negative implications on my income. If the situation does not improve, I might leave for another country like some of my friends and relatives did; they left for Nigeria and Burkina Faso and settled there.” Left unchecked, climate change will force him, and hundreds of thousands like him, to migrate from home.

These negative impacts will be even greater on women and girls. As primary family caretakers, food providers, and health care providers, women will be forced to walk further to collect ever scarcer water. They will have to work harder to squeeze a harvest out of the earth to feed their families. As the burden increases, children will be pulled out of school – the girl child will undoubtedly be first.

Passing HR 2454, the American Clean Energy and Security Act, was imperative. It begins our journey of tackling climate change. It begins to assist poor communities in their efforts to adapt to climate impacts. The challenge of climate change is not insurmountable. We know adaptation works – and it can be fairly simple -- though it can also require substantial resources. Development assistance organizations like Oxfam and CARE are allies in this struggle. For example, Oxfam is working with communities in El Salvador to plant mangroves as a natural coastal buffer to protect against severe storms. CARE is partnering with women in Bangladesh who identified duck rearing as a viable adaptive alternative to rearing chickens, since chickens were getting wiped out in increasing flood disasters.

The reality for poor vulnerable communities on the receiving end of the effects of climate change, is that the situation is dire. The least developed countries face the brunt of the impacts but contribute less than half a percent of global greenhouse gas emissions. Climate change is not something of the future, the impacts are already happening. For over 100 of the countries most vulnerable to the impacts of climate change, international adaptation will be the key that unlocks their commitment to a global agreement on climate change.

Climate change is a study of injustice – those hardest hit by climate change are the least responsible for it. As a global leader, the US has a critical role to play: our leadership can help bring other countries on board – we simply cannot tackle climate change alone. This bill provides President Obama with some of the tools he needs to conclude a global climate agreement. As a global problem, climate change requires a global solution based on a shared sense of community. That solution has started here with this bill.

While we might focus on the numbers in this bill, let us remember, that this issue is really about people everywhere. People matter. The poor matter. Their livelihoods matter. Their survival matters. This bill marks a historic beginning of putting the U.S. back in the fore of global leadership on climate change.

Three decades after a truncated start in the 1970s, the “American Clean Energy and Security Act” – if enacted – would begin to move us toward a clean energy economy. It contains several key provisions that would ensure we addressed our carbon overload, the most important of which is a cap on heat-trapping emissions. This cap would ratchet down over time to require an 80 percent reduction in heat-trapping emissions by mid-century. This target is aimed at preventing the worst consequences of climate change.

The bill also has strong energy efficiency and building code standards, which the American Council for an Energy-Efficient Economy (ACEEE) determined would cut 133 million metric tons of carbon dioxide emissions in 2020, the equivalent of taking 22 million cars off the road for a year.

The bill’s cap-and-trade system would feature an auction in which the federal government would sell allowances, or permits, to emit. Revenue from that auction would be available for a range of purposes, including helping developing countries cut their emissions. One provision would provide funding – from the sale of 4.5 percent of the auction allowances – to preserve tropical forests in developing countries. This would help take a big bite out of one of the world’s largest emitting sectors: About 20 percent of the world’s global warming emissions come from clearing tropical forests.

Another provision would provide funding – from the sale of nearly 4 percent of auction allowances – to developing countries to help them deploy clean technology. The countries also could use some of the funding to adapt to rising sea levels and other effects of climate change.

Such provisions should help foster agreement on an international climate treaty. The United States and other nations are working to finalize a treaty by December in Copenhagen. One sticking point has been whether industrialized countries will help developing countries address global warming.

Another important, but little discussed, provision would provide funding for the United States to adapt to global warming, including its health effects.

There been a great deal of debate over the potential costs of the legislation. In crafting the bill, Reps. Henry Waxman (D-Calif.) and Ed Markey (D-Mass.) were extremely careful to protect consumers. According to the Congressional Budget Office, as a result, households in the lowest income bracket would save $40 in 2020. The second lowest income households would pay only $40 in 2020. The rest of the population would pay 60 to 90 cents a day – a small price considering the cost of not addressing climate change.

The CBO did not review all of the bill’s provisions, including one that would increase energy efficiency, which likely would reduce costs. According to the ACEEE analysis, the efficiency and building code standards in the bill could save the average household a cumulative $1,050 by 2020.

That said, the bill could have gone further to reduce energy costs by providing more funding for energy efficiency and renewable energy. The Senate should require utilities to spend at least one-third of the funding allocated to soften the impact on ratepayers on energy efficiency and renewable energy. Since energy efficiency spending saves ratepayers $3 for every dollar invested, this requirement would provide much more consumer protection than direct refunds or rate reductions.

The Senate also should strengthen the renewable electricity standard in the bill, which would ensure more clean energy jobs and could lower costs for consumers.

Unfortunately, the bill would provide large subsidies to the coal industry for carbon capture and storage technology, which has not been shown to work on a commercial scale, and those subsidies would continue for decades regardless of how much the projects cost. The Senate should reallocate funding in favor of proven, low-cost, low-carbon technology and tie funding for carbon capture and storage to its effectiveness.

The Senate also must reduce the number of offsets in the bill. Offsets allow regulated polluters to purchase emissions reductions from unregulated sectors and countries that do not have caps instead of reducing an equivalent amount of their own emissions or buying allowances from other regulated facilities. In addition, the Senate must strengthen the criteria for offsets to ensure that the activities they fund permanently remove carbon from the atmosphere beyond what would happen in a business-as-usual scenario. And the Senate should establish a more substantial role for the Environmental Protection Agency (EPA) to oversee offset quality. The House bill gives the job to the Agriculture Department, which does not have as much experience as the EPA in this area. The EPA has been managing offset programs for nitrogen oxide and sulfur dioxide under the Clean Air Act since the 1970s.

In sum, the “American Clean Energy and Security Act” is a compromise bill that has the backing of many environmental and science groups, as well as unprecedented industry support. It would provide a critical framework for reducing carbon emissions and transitioning to a clean energy economy. With some strengthening in the Senate, it could go further to reduce energy costs and ensure that we make adequate emission cuts here at home.

Reduction of U.S. greenhouse gases is a worthy goal, but there’s very little to celebrate in the House passage of the Waxman-Markey bill. Try as they might, Congress simply cannot escape the laws of economics. Substituting more expensive energy for cleaner energy comes with a high price tag. Under a cap and trade system, higher prices for electricity, natural gas and other energy sectors will be passed on to consumers that can ill afford higher bills in this difficult economy.

The recent study released by CBO is seriously flawed. It underestimates the allowance price that will be needed and doesn’t a dynamic macro-economic model— thereby excluding significant loss in GDP and jobs. Oil refiners impacted by the harsh regulations of Waxman-Markey will end up importing more oil than they presently do, exacerbating our energy challenges.

One encouraging sign is President Obama’s reluctance to sign carbon tariffs on imports into law. Many experts say that BTA’s could pose a serious threat to the international trading system and could violate provisions of the WTO.

If policymakers conclude that a mandatory federal requirement to reduce greenhouse gases is in order, a carbon tax would be a more sensible alternative that would impose less economic pain than a cap and trade system. A carbon tax sets a price for a ton of emissions and allows the quantity of emissions to adjust to the level at which marginal abatement cost is equal to the level of the tax. Many experts conclude that there are substantial advantages to employing a tax on emissions rather than a cap and trade approach as it provides “where and when” flexibility for businesses and households trying to curb emissions.

Furthermore, technology development and transfer can play a key role in slowing the growth of GHGs. Improving U.S. cost recovery allowances for energy efficient and less emitting technologies and continuing to develop international programs like the Major Economies Initiative and others are cost effective approaches to improving the environment as well as strengthening the U.S. economy.

There are economically viable ways to reduce greenhouse gas emissions, but Waxman-Markey is not the vehicle to do so.

Paper and wood products companies are energy intensive, trade-exposed manufacturers. Energy costs under a cap and trade system will inevitably go up and could potentially harm our global competitiveness. But, paper and wood products companies are also leaders in renewable energy production and utilization. On average we generate two-thirds of our own energy needs from carbon neutral renewable biomass—wood. Wood is also our primary raw material for manufacturing renewable and recyclable products for American consumers. AF&PA has worked hard to minimize the cost burdens of the House energy and climate bill while also maximizing opportunities for the industry to be recognized as a leader in renewable energy.

The Renewable Electricity Standard in the House passed bill gives credit to the industry’s renewable power, which will be essential to a robust supply of credits needed to make the RES function when it begins in 2012. It also ensures that the marketplace, not the federal government, is the determinant of winners and losers in the emerging biomass energy field by leveling the playing field between new and existing renewable energy producers.

An area of the bill that still needs more work is allocations for energy intensive, trade-exposed industries, and the reliance on sector-wide energy efficiency averaging for determining their distribution. The forest products industry makes a far wider array of products than is generally understood—from recycled paper packaging to coated paper products for advertising to lumber and plywood—and energy requirements and emissions vary widely among products. Therefore, a facility-based allocation determination that is based on historical emissions would be more workable than one that tries to impose artificial commonalities on widely divergent products and manufacturing processes. Additionally, a larger number of allocations are needed for the energy intensive sector. Tariffs are not the answer to ensuring the global competitiveness of our industry, but adequate allocations will help.

While the House bill’s definition of biomass has improved significantly from initial drafts, further improvements are worth pursuing to ensure that wood harvested for biomass energy is done according to the same kinds of sustainable forest management practices which are considered best practices in the forest products industry.

Going forward, the Senate should work to address these and other issues that will ensure a strong U.S. manufacturing base to lead the way in the development of breakthrough carbon reduction and storage technologies. Economic prosperity makes environmental improvements possible and thoughtful legislation by policymakers willing to listen to all stakeholders is the first—but most important—step to achieving these goals.

ACES provides a solid policy framework for the United States to reduce greenhouse gas emissions for the coming decades, including long-term emissions reduction goals, initial allocations to the power sector and trade-exposed industries, and market-based cost-containment mechanisms. It powerfully demonstrates that Congress is serious about restoring U.S. leadership in the international efforts to address climate change.

I think that many international observers don’t realize what a major change ACES would represent in the evolution of carbon markets. ACES covers a wider range of emissions sectors and gases than other systems in force internationally and represents a true break-through in global climate policy. The bill covers a large percentage of U.S. emissions, not only including power and manufacturing emissions – but extending to transportation fuels as well. Transport-related emissions represent 2 billion tons of the initial 4.5 billion tons of covered emissions. This will produce a vast new market dynamic with a large amount of purchasing power. The European emissions trading program, in comparison, did not cover transportation fuels.

I also agree with those who support free allocations to the power sector and trade exposed industries in the early years of the program. This provides valuable certainty to the market – and it enables ACES to deliver emissions goals at lower costs to consumers and with less harm to U.S. competitiveness than a fully auctioned scheme. The amount of free allowances diminishes over time, allowing these industries to make long-term investments in carbon reduction technologies and strategies.

ACES also provides incentives for the development, use and export of clean energy technologies by creating a stable market environment that rewards innovation.

Finally, ACES establishes a set of market-based measures to contain costs that will help to maintain U.S. economic competitiveness, including access to domestic and international offsets markets; banking and borrowing of allowances; and access to a Strategic Reserve. These provisions will not diminish the bill’s environmental effectiveness, but they will help protect consumers from higher costs.

I believe the offset provisions can be improved so that the cost-containment benefits work to their maximum effect – but the general direction of a robust offsets component is positive.

Given the challenges of financing and installing new technologies quickly enough to meet early compliance deadlines, the international offsets provisions should be modified so U.S. firms can gain clearer and fairer access to low cost international offsets by removing the compliance penalty applied after 2018. As for domestic offsets, I am pleased that some improvements were made in the Peterson amendment but agriculture and forestry offsets alone will not produce sufficient volumes to meet the bill’s cost containment objectives. The other offset categories should also be considered, such as methane reductions from uncapped landfills, coalmines and natural gas systems. The legislation should be modified to allow these methane sources to produce offsets in the early years of the program. Further, U.S. soil sequestration projects should not be limited to temporary credits that have to be replaced – which fails to recognize the true value of these projects.

The bill also provides for regulatory oversight of the carbon market. But lawmakers need to ensure that these provisions do not limit the “trade” part of “cap and trade” to deliver cost savings benefits. While FERC can effectively oversee day-to-day trading of allowances and offsets, it will be important to clarify that CFTC is not required to regulate offset projects development contracts as typical derivatives – because it would be unreasonable to expect every forward stream of offsets to trade on regulated exchanges.

For the carbon market to provide its cost containment benefits, some companies will need to guard against price risks far out into the future – which will probably involve options, futures and other derivatives. These risk management tools are key to financing our new, clean-energy infrastructure. Without this full suite of tools, the bill will be more costly for American consumers. Further, I am troubled that the legislation appears to require all carbon derivative trades to be executed on regulated markets (or exchanges). While this will be no problem for standardized trades that extend only 2-3 years out, it will be a big problem for non-standard trades – or long-dated trades extending a decade or more. This provision is likely to limit the number and types of risk management contracts available in the market and hinder the development of risk management contracts tailored to specific long term needs of covered industries. Lastly, I am concerned that the legislation permits state governments to implement duplicative trading restrictions and regimes.

This is an historic bill and a banner year for climate change policy. The House leadership demonstrated it is serious about stemming the tide of increasing greenhouse gas emissions; it is now up to the Senate to demonstrate similar concern. By passing a bill this year, Congress will be improving the Obama Administration’s credibility in working with foreign leaders on an international accord in Copenhagen in December.

While the sponsors of H.R. 2454, the “American Clean Energy and Security Act of 2009,” put in a brilliant political effort together to persuade a very slim majority of the House to vote in favor of the bill, the shear vast content and complexity of the finished product makes the sale to the Senate all but impossible. The content divides the country by economic benefit or harm (The west coast and northeast gain and the middle of the country loses) and the complexity divides between those who believe the government is to protect us by running every aspect of our lives and those who believe that the millions of individual decisions that are continuously made in the free market will result in better allocation of resources and result in greater environmental protection.

Even organizations like the U.S. Chamber that support reducing greenhouse gases in the atmosphere through a global accord find the overall structure of the bill unsupportable. Organizations like the Chamber believe that domestic legislation should:

· Balance environmental objectives with the need for economic growth and job creation;

· Promote technology development and deployment;

· Reduce barriers to the development of climate-friendly energy sources;

· Promote energy efficiency; and

· Implement appropriate steps to address the international nature of global emissions.

H.R. 2454 would not achieve these goals because of the literally dozens of structural problems with the bill. In fact, there are so many serious structural problems that if is almost impossible to even amend the bill. Let me identify a few:

· Carbon-based fuels are and will remain for decades to come the backbone of the U.S. energy system. H.R. 2454 must do a better job of ensuring that cost effective and reliable renewable and alternative energy sources are developed and deployed to smooth a transition to a low-carbon energy future. If the Congress is serious about replacing fossil fuels with “clean fuels” is must authorize a process that would streamline the siting and permitting process that would help eliminate the “green tape” that now delays energy projects, even renewable ones. Otherwise these renewable projects will suffer the same fate as fossil fuels projects, i.e. long delays leading to a loss of financing and project death. Just in the last several years environmental groups substantially delayed or kill over 71 renewable energy projects and 13 grid transmission projects designed to carry the renewable energy from rural areas to urban areas in need of energy.

· International cooperation remains a major stumbling block to addressing global climate change. H.R. 2454 must be conditional on an international treaty that sets binding commitments for all major emitters - from both the developed and developing world - while ensuring that every nation retains the flexibility to attain those commitments however it chooses. Unconditional domestic legislation withoutinternational agreement will remove any leverage U.S. negotiators have in international climate change negotiations, and would put domestic industries at a competitive disadvantage.

· H.R. 2454 allows for the imposition of tariffs on carbon-intensive imports. Such provisions should be rejected because they would likely be deemed to violate U.S. obligations as a member of the World Trade Organization and could spark a trade war. While the trigger dates for border measures in the bill are unclear, there is virtual certainty that after 2020 such border measures would be put in place. Absent a global agreement on greenhouse gas emissions, such a program would invite retaliation against U.S. exporters and make U.S. companies that rely on imports less competitive without any indication that emissions would be reduced. These provisions also violate the April 2, 2009 commitment of the United States and other G20 countries to “refrain from raising new barriers to investment or to trade in goods and services.”

· Dangerous provisions in H.R. 2454 that could lead to widespread lawsuit abuse should be removed or mitigated. Title II of the bill contains a “state attorney general” provision that applies to a variety of manufacturers, including companies that make home appliances, lighting products, plumbing fixtures, and heating and air conditioning products. This provision could result in (1) frivolous and unnecessary litigation, imposing substantial costs on both businesses and consumers; and (2) the distortion and undermining of federal environmental policy initiatives, as non-federal actors - whose incentives and limitations vary from those of their federal counterparts - take on a substantial role in enforcing federal laws. Moreover, without adequate safeguards, this provision will promote the use of problematic contingency fee arrangements between state attorneys’ generals and private plaintiffs’ lawyers. In addition, the “Findings and Purposes” section of H.R. 2454 makes such broad, aggressive statements regarding injuries from greenhouse gas emissions that codification of these findings could be used to generate mass tort litigation.

· This legislation fails to equitably allocate credits to the refinery sector. Oil refineries bear a compliance obligation under H.R. 2454 for more than 40 percent of covered CO2 emissions - refiners’ own emissions plus the emissions generated when the fuels they refined are eventually burned by consumers - yet would receive only 2.25 percent of the allocations. Because oil refiners will be forced to pay for credits, the price of gas will rise significantly for consumers. In fact, the Congressional Budget Office estimates that cost impacts could be as much as $.77 per gallon for gasoline, $.83 per gallon for jet fuel, and $.88 per gallon for diesel fuel, all ultimately borne by the consumer.

· The renewable electricity standard (RES), along with many of the other mandates in the bill, will add costs and distort the workings of the carbon market the bill would establish. If the objective is to allow the market to work to find the lowest cost solutions, picking technology winners and losers like this bill does is not the way to go about it. Forcing adoption of one set of more expensive technologies to meet one mandate will almost certainly lead to greater compliance costs to meet the cap. There is also no recognition of the significant variance of the effects and costs of the RES on different regions.

· The bill should include nuclear energy as an “other qualifying energy resource” in the RES. There is no good reason for keeping nuclear energy, an emissions-free energy source, out of the RES. Last month, the Massachusetts Institute of Technology released a report titled An Update of the MIT 2003 Future of Nuclear Power, which concluded that policies that exclude nuclear and clean coal from an RES “confus[e] the objective of reducing carbon emissions with encouraging renewable energy in electricity generation.” At this critical juncture in the debate over addressing climate change, common sense must prevail over baseless opposition from environmental groups on the issue of new nuclear power.

· H.R. 2454 must be revised to fully and permanently protect America’s 27 million small businesses from being forced to comply with costly, burdensome New Source Performance Standards (NSPS) for greenhouse gases. Although the bill preempts the rest of the Clean Air Act’s regulatory cascade, it leaves a glaring hole through which activist groups could potentially force EPA to impose greenhouse gas NSPS on CO2 emitters below the 10,000-ton threshold. NSPS are triggered by a finding of endangerment - a finding EPA appears poised to make - and some activist groups have already promised to sue EPA to force regulation of small emitters.

· The legislation must fully and permanently preempt state and regional greenhouse gas programs. Delaying these programs for five years accomplishes very little. Compliance with the bill’s federal cap and trade program would be extraordinarily complicated for businesses, which would be forced to comply with hundreds of new regulations and mandates. To tack on state or regional programs is to make an already-cumbersome cost of compliance tantamount to an incentive to relocate a business to another state, or, worse yet, another country.

· This bill will clearly have a cost, and while free allocations may keep some prices down, others will skyrocket. A May 2009 study released by the National Black Chamber of Commerce estimates annual drops in gross domestic product (GDP) of $170 billion in 2015, $350 billion in 2030, and $730 billion in 2050. More troubling is the effect on jobs, as the study concludes that 2.3 million to 3 million net jobs will be lost - a figure that accounts for all the “green” jobs created. Provisions should therefore be included in H.R. 2454 to safeguard against devastating economic losses, such as a safety valve on the price of carbon credits or lowering the overall emissions caps.

· The derivatives provisions in H.R. 2454, which as written would hinder the ability of companies to use over-the-counter (OTC) derivatives to manage risks associated with day-to-day operations, should be removed. The scope of this provision goes beyond the establishment of an oversight structure for carbon derivatives, and extends to the broader OTC and exchange-traded markets.

· The imposition of a user fee on transactions cleared through derivatives clearing organizations (DCO) is a transaction tax that would adversely impact liquidity on U.S. futures exchanges, because it would fall disproportionately upon the market makers who provide liquidity to the exchanges through the frequency and speed of their transactions. In addition, it would have negative competitive implications for the U.S. by driving trades to foreign or untaxed markets. Lastly, at a time when policymakers are trying to enhance transparency and encourage central clearing, this provisionwould create a strong disincentive to clearing through a DCO.

· The application of the Davis-Bacon Act, will not in anyway further the United States’ ability to reduce climate emissions, and would result in diminished competition, shutting out many qualified minority, small, and non-union businesses from the entire market. Applying the Davis-Bacon Act to programs in H.R. 2454 would increase costs to taxpayers, who would pay more to get less. The Davis-Bacon Act has been shown to increase public construction costs by anywhere from five to 38 percent above projected costs for the same project in the private sector.

Finally, H.R. 2454 contains over 1,400 new regulations and mandates that impact almost every aspect of life from selling a home to what products we buy, the sales commission on the products to the energy that will be available to us. As structured H.R. 2454 is not a climate change bill; it is an effort to cover us with a massive blanket of regulation which in the end will do little to address climate change since it does not impact in any manner the massive amount of emissions coming from the unregulated world.

ACES is right in one important aspect—allocating a sizeable portion of emission allowances to regulated local electricity and natural gas distribution companies (LDCs). This policy ensures that State regulators or other regulatory bodies will be able to use regulatory tools to capture the allowance values for the benefit of retail ratepayers. NARUC has been an early advocate of going this route, as it places those whose chief responsibility is ensuring fair utility rates—State regulators—in charge of determining the best ways to mitigate the impact of increased energy prices on consumers during an initial transition period.

That said, the legislation the House debated last week includes conditions and requirements on State regulators that will complicate their ability to tailor the benefits of allocating allowances to LDCs in ways that best meet the needs of retail consumers. For example, while the House’s intent is understandable, provisions of the legislation that require State regulators to distribute the allowance values “ratably” among consumer classes (with refunds coming from the fixed portions of ratepayer bills or through a fixed credit) will render the bill less workable if enacted. In addition, the bill states that if someone determines that the legislation increases rates for industrial consumers, LDCs will be required to pass through to these consumers their “ratable share” of the allowance proceeds.

Essentially, these conditions tie the hands of State regulators from determining the best use of the allowance proceeds. While some States may feel that rebates are in the public interest, others may determine that using allowance values to reduce compliance costs, support energy efficiency efforts or low-income consumers will also be beneficial. We accept that some federal oversight of this massive market is necessary; after all, we are talking about potentially billions of dollars. However, the overly prescriptive provisions in the bill may complicate how regulators respond to the need to reduce the overall impact of carbon prices across customer classes.

I would also like to comment on the transmission title of the bill, which has not received as much attention. Importantly, ACES correctly recognizes the continued need for a bottom-up, State/regional approach to planning and siting transmission. ACES also gives the federal government expanded authority to overturn a lawful State decision in the Western Interconnection, while it retains the existing backstop-siting authority in the East. But we do not believe that additional federal transmission siting authority is necessary, particularly in the West where siting on Federal lands presents a higher hurdle to new transmission lines than decisions at the State level.

Waxman-Markey misses the mark for energy and for consumers. It would be a great idea to combine climate change legislation with a robust, balanced energy policy that properly utilizes our current energy resources while building a bridge to a diverse energy future by 2050. But Waxman Markey does not work to ensure that our energy needs will be met, nor does it protect consumers from the higher costs that will inevitably result from this legislation throughout the economy. At a time of deep recession, high unemployment and uncertain recovery, it is troubling that this bill hits America in the pocketbook.

The best thing about ACES is that it gets us going. It commits America to the first-ever targets for reducing global warming pollution, and it holds us to a firm timetable for making those cuts.

It creates jobs. ACES will help spur $150 billion in clean energy investment, which will create good-paying jobs throughout the United States.

It also saves consumers money on energy bills. Americans in nearly every state will save on their monthly electricity bills under ACES, thanks to its energy-efficiency and consumer protection provisions.

Still, as the legislation moves to the Senate, it needs to be strengthened in several key areas in order to prevent the worst effects of global warming and in order to seize the full opportunity for job creation, consumer energy savings, and clean energy.

The science calls for reducing carbon pollution at least 20 percent by 2020. We can achieve these reductions while creating jobs and cutting energy bills by directing additional allowance value to cost-effective energy efficiency improvements.

NRDC believes that, as Chairman Waxman and Chairman Peterson have acknowledged, further work is needed on provisions related to bioenergy and offsets. It is essential to safeguard our national forests and sensitive ecosystems, fully account for emissions from bioenergy production, and ensure the environmental integrity of farm- and forest-based offsets.

Furthermore, NRDC believes that national limits on global warming pollution should build on the existing tools of the Clean Air Act, not replace them.

This post was authored by Jim Kerr and his colleague Neal Cabral, a partner with McGuireWoods in the firm's Washington D.C. office.

Waxman-Markey needed to achieve two objectives to be a "successful" climate change bill, and generally we think it met both targets. First, it had to set up a reasonably sensible and reasonably effective cap-and-trade system that would achieve meaningful reductions over time, and it does so by retaining the relatively aggressive 17% decline in the cap from 2005 levels by 2020, with further and steeper declines thereafter. Second, and much more difficult, it had to do so in a way that will be politically sustainable over time so that the cap is not later abandoned as costs to pay for the carbon reductions come due (and they will). It probably achieved that goal as well, although that may be a closer issue since the bill passed by one vote, and needed fully seven of the eight Republicans who voted for it to pass.

Thus, decisions to ensure that offsets remain available as a serious cost mitigation option, giving away most of the allowances for free, and combining the renewables targets with energy efficiency targets, and then allowing renewable resource poor states to forgo some level of renewables for greater reductions from energy efficiency, all tended to reduce regional cost differences and placate important constituencies. While some have called these decisions "giveaways," many of these "giveaways" were politically sensible and even necessary to make the program palatable over the long term, and all are largely meaningless in the face of an aggressive, hard and fast cap.

For example, the decision to issue free allowances to cover much of the power sectors emissions, and, under different criteria, emissions from much of the industrial sector, achieved several important objectives. First, it lowered the direct consumer cost impacts of the bill (a consumer rebate of auctioned allowance revenues may have achieved similar cost results, but would probably not have been perceived that way by the electorate, and would have done to little to mitigate costs for institutions such as hospitals or schools ). Second, it freed up monies for investment in carbon reduction efforts that the power and industrial sectors would have otherwise had to spend on buying allowances. And third, it addressed many of the regional concerns that turned on higher power costs having to be borne by more coal-dependent states and by states more reliant on heavy industry for their job base (a consumer rebate funded by allowance purchases would not likely have addressed this issue because ratepayers in coal-dependent states would pay more in, but rebates would flow inequitably on some per capita basis). Notably, the decision to give away most of the allowances has no impact on the cap or its reduction targets. And the bill includes an energy efficiency standard, which will mandate that utilities simply achieve many of the efficiency reductions that were expected to be achieved through the stronger price signal sent under a large-scale auction.

While some might contend that having USDA oversee the generation of offsets from the agricultural sector constitutes a "'giveaway," that giveaway is largely meaningless, it not being seriously contended that differences in the level of EPA versus USDA oversight on agricultural offsets would seriously imperil the legitimacy of the cap. These and other provisions added to the bill to address important agricultural interests, including additional allowances for rural electric co-ops, and provisions to address biofuels life-cycle issues, were critical to passage because agriculture faces the same rising cost issues from climate change legislation (through increases in power prices and fertilizer prices), yet their issues had not been addressed as comprehensively as industrial or power issues.

The same is true in a broader perspective with respect to the reduced renewables targets. Under a cap, the market will seek out the least cost solutions, which may or may not be renewables for particular states or companies. To mandate the result in advance through an aggressive RES simply undermines the market-based functioning of the cap. However, recognizing that renewables are a favored solution by many groups, a pertinently large renewables target was maintained, with some flexibility to substitute energy efficiency for part of the RES goal. That compromise ensured that renewables will play a strong role in generating emissions reductions, but did not impose so strong an RES mandate to cause renewable poor states to object to the whole bill, or to cause the overall cost-effectiveness of the market-based cap-and-trade system to be seriously undermined.

Moreover, because the bill's core cap-and-trade program is relatively sound, many of the changes or additions that some would like to see in the bill can simply be added over time as separate legislation, as circumstances and politics warrant. In other words, this legislation is an acceptable place to start.

Should the Senate take up the legislation, we would favor retaining: (1) the core cap-and-trade legislation and reduction targets; (2) the compromise on allowance allocations; (3) the compromise on renewables and energy efficiency targets; and (4) the compromise on offsets. After that, the objective should be to "build a big tent" by packaging as many additional elements as possible to generate more than 60 votes. If Senators seek additional support for nuclear, provisions to address that can be added without compromising the core bill. If additional support is desired for renewables, inducements other than an increase in the mandated RES can be cobbled together. Indeed, the current Senate energy bill provides a roadmap for building a bigger tent by adding some of its elements such as the “green energy” bank, which effectively provides additional support for renewables without mandating a higher RES, provisions to address nuclear waste so that carbon reduction option becomes more viable, and a carbon capture and storage indemnity for first mover projects so that technology may move forward. The Senate’s provisions to increase domestic production of offshore oil and gas would also appeal to many, and can be seen as a “safe” addition to a climate change bill that will increase the cost of fuels and promote (and eventually require) lower fuel consumption.

There will also be a need to make some substantive changes to some of the specific provisions of Waxman-Markey. For example, we agree with NARUCs call to loosen the restrictions governing use of allowances allocated to LDCs that are to be used for the benefit of ratepayers. What types of actions best benefit ratepayers will necessarily differ by state and region, and state regulators, unlike Congress, are expert at addressing these issues and making these decisions. Hence, greater freedom for state regulators to address ratepayer mitigation is a change we would support. But, we note, it is not the kind of “core” change that seems likely to upset the delicate political balance struck in forging Waxman-Markey.

In the end, Waxman-Markey barely passed a "majority-rules" House, and if the Senate produces a mere 60 vote bill, the politics behind the legislation will roil for years, and continued support for the program will remain in jeopardy as its costs escalate. If Congress is going to enact what will be the most expensive piece of legislation ever passed or ever to be passed, it should seek to do so with broader support. If that means more "giveaways," in non-core elements of the bill, so be it. We note, by way of example, that several prominent national environmental groups looked at the bill, with many of their favorite programs and policies reduced or removed completely, looked at the cap, held their noses and voiced their support. Their approach should guide the Senate in its deliberations.

The steel industry believes this bill has moved at a rushed pace that has not allowed for full debate of provisions that are critical to the steel industry, as well as other energy intensive manufacturers. The fact that the bill passed in the House by only seven votes is strong evidence of this. The bill, as passed, will need important modifications as it moves through the Senate.

I can say – with certainty – that if this bill is enacted as it presently stands, U.S. steelmakers and our workers will be at a significant competitive disadvantage in the global marketplace. Several modifications must be made to achieve the bill’s stated purpose of avoiding job loss and emission migration to overseas markets.

Energy Intensive Industries

One area of the bill that needs to be modified as it moves over to the Senate relates to recognizing the challenges of energy intensive industries.

With this bill, all forms of energy – coal, natural gas, biomass and electricity – have the potential to suffer a dramatic cost increase due to fuel switching, deployment of waste gas capture/regeneration technology, carbon capture and sequestration technology, and wind, solar and other clean energy technologies. Energy intensive industries should be rebated allowances to recover consequential cost increases resulting from this legislation, and not just emissions costs.

Emissions Allowance Schedule

Another area of concern in the House bill is the arbitrary formula used to lower the emissions allowance schedule to energy-intensive manufacturers below 15 percent after beginning in 2015. This deprives energy-intensive manufacturers of nearly one billion allowances over the life of the program. Energy-intensive manufacturers should receive the same emissions allowance schedule that is applied to every other recipient of emission allowances.

Border Adjustment Tariffs

Regarding border adjustment tariffs, this is a critical issue with a clear and straightforward answer. First, if major manufacturing countries adopt comparable and enforceable climate policies there is no need for a border adjustment mechanism. But if they do not, then anyone who believes global warming is a serious problem that needs to be addressed immediately should be in favor of a border adjustable carbon tariff.

The American market is a green market, led by industries like steel, which emits the lowest CO2 per ton in the world. So why, if the desire is for a green world and the concern is truly over reducing global CO2 emissions, would we encourage increased production of steel in higher-CO2 emitting industries to be shipped here at a climate-induced competitive advantage? A border adjustment system is needed in the even other major manufacturing countries do not adopt comparable climate policies to make sure that the costs we incur from our rigorous climate programs, that are not borne by competitors in places with weak climate policy, do not put us out of business.

If other countries do not adopt comparable climate measures, a border measure will make imports and downstream goods more expensive. The cost of battling climate change is not free and it is not small…wait until you see your 2012 electric bill. And, yes, absolutely, it should include tariffs on imports from countries that fail to adopt comparable and enforceable climate policies. And if people want to call this a protectionist measure, just remember, it’s the environment it protects.

The unexpectedly close House vote (219-212) reflects the widespread concern that the climate bill’s impacts on employment, the economy and energy security will be severe. This is very complex legislation. It will affect every aspect of the American economy including our ability to compete in the world and provide secure and affordable energy to American consumers and businesses.

Despite the efforts made by many in the House to address the deficiencies of the bill, those members who voted against H.R. 2454 did so based on their convictions that this was not the right climate policy for their constituents and the country. NMA agrees with that assessment.

We are hopeful the many reservations with this bill expressed by ordinary Americans—including America’s mining community—are fully aired and rigorously evaluated in the Senate during its deliberations on energy and climate policy. For our part, we urge the Senate to:

• Ensure American jobs and the nation’s economic and energy security are not jeopardized by timelines and policies that move far ahead of the technology needed to meet emissions reduction mandates and needlessly displace coal—America’s most abundant and reliable domestic energy resource— in our energy mix;
• Contain costs to avoid volatile or excessively high carbon prices that lead to high energy prices;
• Assure the global competitiveness of U.S. industries, including U.S. mining, that are energy intensive and trade exposed;
• Provide incentives and support, including a legal and regulatory framework, to accelerate the deployment of carbon capture and storage technology;
• Avoid duplicative and conflicting authorities to regulate greenhouse gases; and
• Structure a global, rather than a unilateral, approach to climate policy.

At a time when our economic recovery remains uncertain and when all Americans are worried about their jobs and ability to provide for their families’ future, legislation of this scope and potential impact deserves full and careful deliberation.

The American Clean Energy and Security Act (H.R. 2454) establishes the critical framework for America to reduce its greenhouse gas emissions, finally starting us down the long-delayed path to protecting our communities and natural systems from the damages of global warming. This bill has the added benefit of jumpstarting our economy by creating millions of green energy jobs and steering the country towards energy independence. Of course at Defenders of Wildlife we are particularly focused on how this legislation will address global warming’s impacts on our wildlife and natural resources.

Climate change poses an urgent threat to our natural world, our economy and our health. A recent report by the nation’s leading scientists, “Global Climate Change in the United States,” makes the case that climate change is already having dramatic, far-reaching impacts on our water resources, forests, coastal areas, fish and wildlife, and other resources and ecosystems on which humans rely.

H.R. 2454 addresses the three key elements of a successful strategy to address global warming: sound science, comprehensive planning and core funding. This legislation establishes the national policy framework and a new funding stream critical to begin tackling the impacts of global warming on wildlife and natural resources. The bill’s comprehensive planning provisions include an interagency strategy led by the Council on Environmental Quality and state natural resources adaptation plans. The bill also directs increasing percentages of federal revenue generated from the auctioning of pollution permits, beginning with 1% from 2012 through 2021, to protect wildlife and natural resources and to support and increase the resiliency of ecosystems.

While this funding stream is a necessary first step in protecting our wildlife and natural resources in the face of global warming, it is only the beginning of what will be needed to complete the job. Ultimately, billions will be needed in the coming years to address the needs of our ecosystems and wildlife as they are forced to adapt to a changing climate. Moreover, this funding needs to be truly dedicated and not subject to any risk that they will be diverted or not spent on natural resource adaptation. The Senate can now finish the job that the House began by allocating five percent of the total allowance value to funding for natural resource adaption, rather than the one percent that the House passed in H.R. 2454, and by making that funding truly dedicated, rather than subject to future appropriation. This will ensure that our natural systems are given the support necessary to adapt to a warming world.

The Waxman-Markey bill is a jobs-generator and a money-saver that offers a comprehensive solution to our energy, national security, economic and climate challenges. With Friday’s historic vote, Congress sent a signal to the world that America plans to lead the world in both the global race for clean energy jobs and on the moral imperative to cut carbon pollution.

The bill reduces carbon emissions from major U.S. sources by 17% by 2020 and over 80% by 2050 compared to 2005 levels. It requires electric utilities to meet 20% of their electricity demand through renewable energy sources and energy efficiency by 2020. It mandates new energy-saving standards for buildings, appliances, and industry.

To ensure that there are strong incentives for the deployment of the clean energy technologies needed to ensure that the bill's targets are met, Waxman-Markey makes innovative use of the carbon pollution permits created under the bill by directing $190 billion worth of allowances to fund new clean energy technologies and efficiency investments -- including energy efficiency and renewable energy ($90 billion in new investments by 2025), carbon capture and sequestration ($60 billion), basic scientific research and development ($20 billion), electric and other advanced battery technology to build the clean battery-powered cars of tomorrow ($20 billion). These investments should help move us to a world where our children ask the question, “what was it like to pump gas?”

These investments will create millions of new clean energy jobs that can’t be shipped overseas. A unifying theme during Friday’s House debate, where Rep. Tim Ryan (D-OH) gave a floor speech on behalf of the manufacturing workers in his district, while Democratic Caucus Chair John Larson (D-CT) drove home the point that it’s finally time to end our addiction to foreign oil.

The Waxman-Markey legislation accomplishes this goal in a fiscally responsible way. After finding that our plan would not increase the federal deficit, the Congressional Budget Office and the Environmental Protection Agency also settled the cost debate. The CBO found low income families would benefit under Waxman-Markey and EPA found that in 2020 household costs would be as low as $80 and as high as $110 – around the cost of a postage stamp a day.

The American people are ready for the change they voted for. According to a Washington Post/ABC News poll last week three-quarters of Americans want federal action in the fight against global warming pollution. Those numbers jump among younger voters who see the clean energy economy as ripe with job opportunities.

As the Waxman-Markey legislation now moves to the Senate, I am optimistic of the prospects for passage. Henry Waxman and I built this legislation on the foundation of compromise reached with a diverse coalitions including: environmental organizations, business leaders, labor unions, electric utilities, agriculture and farming organizations and consumer groups. Each and every region and sector of the economy helped work with us to craft a policy that will unleash investment in clean energy, creating millions of jobs while cutting billions of tons of carbon pollution. We believe that the resulting legislation represents something that can be enacted into law this year.

As the President Obama heads to the international climate conference in Copenhagen this December, it’s important to arm him with legislation, so the rest of the world will know the United States is finally ready to take a leadership role in the fight for a clean energy future.

The President likes to say this “cap-and-trade” bureaucratic nightmare is a jobs bill, and he did so again today. But this comes from the same Administration that said its trillion-dollar “stimulus bill” would keep unemployment from going over 8 percent. This is a jobs bill alright – for China and India. Here in the United States, it will destroy 2.3 to 2.7 million jobs each year.

Let’s call it for what it is: a huge tax that will punish middle-class families by will raising gasoline and electricity costs. Even prominent Obama supporter Warren Buffett calls it a “huge” and “regressive” tax.

It creates a slew of new government programs to take and redistribute trillions of dollars from families and small businesses, overseen by a confusing web of government agencies that will ultimately answer to the Environmental Protection Agency. Even my Democratic colleague from Minnesota, Rep. Collin Peterson, admitted in the Washington Post last Friday that: “The truth is, nobody knows for sure how this is going to work.” How encouraging. That night, I went to the House floor and spent an hour raising serious questions about the bill – questions that no one in the House could answer, because the bill was substantially amended at 3 AM, meaning that not one single Member of Congress actually read it.

Republicans believe there is a better route to clean energy and a clean environment than the national energy tax that passed the House passed on Friday night, and we have introduced legislation embodying our “all-of-the-above” energy reform strategy. Our American Energy Act will increase environmentally-responsible production of American energy, promote the use of alternative fuels to reduce carbon emissions, such as clean coal and nuclear, and encourage increased efficiencies and cutting edge technologies to maximize America’s energy potential.

Our plan is also the fastest route to a cleaner, more reliable energy future, by reinvesting billions of the royalties from increased American energy production into development and expanded us of clean, alternative energy across our country like wind, solar, and geothermal, just to name a few. It's a strategy that will create American jobs instead of destroying them; one that will lower costs for American families and small businesses rather than raising them at a time of economic hardship. Unfortunately, Democratic leaders did not allow a vote on our plan. Instead, they chose an approach that will ensure higher costs and higher taxes for every middle-class family and small business owner.

The American Clean Energy and Security Act is an historic piece of legislation that shows the US is willing to lead on climate change. On balance, the bill is a good step forward in the climate change fight. The Nature Conservancy strongly supports its passage and we urge the Senate to take up companion legislation as soon as possible so the United States can go to Copenhagen in December in a strong position to lead the global fight against climate change.

The Nature Conservancy believes that some of the strongest aspects of the bill are the ones that have often been overlooked in the mainstream media coverage of ACES – namely, strong provisions to protect forests in the United States and around the world, as well as the funding and policy support for protecting natural resources and vulnerable communities from climate change.

Nearly 20 percent of the world’s greenhouse gasses come from the destruction of forests – more than from all the planes, trains and automobiles on Earth.

This bill would give the global community its first and perhaps only hope to reduce deforestation dramatically over the next decade. If other nations follow the path laid out in this bill, by 2020 we could reduce deforestation by half.

Allowing businesses to invest in forest carbon projects will also generate the financial incentives developing countries need to protect their threatened forests, lower their carbon emissions and join the global fight against climate change.

We’re also grateful to see the House recognize the need to fund natural adaptation strategies so that nature and communities can cope with a changing climate. As the report from the U.S. Global Climate Change Research Program recently noted, climate change is already affecting many areas of the country. We need to make sure we are beginning to take appropriate measures to protect our natural resources and communities from this threat.

All of that said, the House bill is complex and not without its flaws. There are several things the Senate could do to improve the bill.

There ought to be more money, in predictable dedicated amounts, for climate change adaptation. While we are appreciative that the House has included funding and sound planning language for this purpose, it is our hope that funding can be significantly increased in the Senate.

We also have concerns about some rather detailed provisions having to do with the use of biomass from forests as sources of fuel for transportation and power generation. While in moderation this may be a good thing for sustaining private forestland stewardship, there should be protections to prevent the overharvesting of biologically important native forests for such purposes.

We’d like to see the 2020 emissions targets tightened up. We have a great track record of responding to challenges with innovation here in this country, and I think people will be surprised how quickly we can start bringing down the emissions -- they are already down about 3 percent just in the last year or so.

And finally, we think the outlines of the international forest carbon proposal in the House bill are excellent. But it will be important to make sure that the details match up with the discussions that are going on internationally and the best thinking, which is still evolving, about what is needed to make such a program work successfully. And some refinements will be needed on the domestic side as well.

The Waxman-Markey climate bill was rushed through the U.S. House of Representatives. The goal of spreading costs equitably across society was abandoned in order to meet an arbitrary deadline of passage before the July 4th recess. As a result, several committees were unable to hear testimony at hearings, too little analysis was conducted, and the bill is deeply flawed. We believe it should be replaced with a better proposal that considers the impact of climate change legislation on consumers, businesses and the economy.

In its present form the Waxman-Markey bill is an unbalanced energy tax that will fall disproportionately on people who rely on their cars, on goods shipped by truck, on farm equipment, on construction, and on other sectors and people in America who are working to help our economic recovery. Independent analysis shows the bill could add substantially to the cost of fuels for consumers and businesses. According to the Heritage Foundation, the House-approved legislation could cause gasoline prices to jump 74 percent by 2035. At today's prices that means gasoline would be well over $4 a gallon. A recent study by CRA International for the National Black Chamber of Commerce also estimates a net loss of more than 2 million jobs a year. It also threatens to reduce U.S. energy production and drive production--and jobs--overseas, increasing emissions there. And counter to the bill's intentions, it will disadvantage clean-burning natural gas relative to other sources of power, thus reducing domestic production.

According to independent analyses, the bill will cost Americans billions of dollars in higher costs, kill jobs, and will not deliver the environmental benefits promised. We are hopeful that the Senate will produce a bill that does not harm the economy and includes a more balanced approach to transportation fuels and natural gas.

Few aspects of the Waxman-Markey cap-and-trade bill matter more than the insufficient degree to which it applies future revenue to clean energy technology innovation. Quite simply, the American Clean Energy and Security Act (ACES) makes only a modest start toward investing in the technology breakthroughs that will make clean energy cheap, reduce carbon emissions, and create thousands of cleantech jobs. Correcting that shortcoming must become a top priority of lawmakers in the coming months as action moves to the Senate.

The challenge is clear now that ACES has passed the House. As a recent report issued by my group at the Brookings Institution argues, pricing and regulatory responses won’t by themselves get us where we need to go when it comes to decarbonizing the world economy. In addition, America and the world need to catalyze—with large government interventions—radical scientific and technological breakthroughs and their massive commercialization. How big do those interventions need to be? According to our analysis, America needs to invest as much as $20 to $30 billion per year in energy R&D alone simply to approach the federal R&D engagement level in, say, the health care sector. Look at the pharmaceuticals or IT sectors and you reach far higher benchmarks. All of which means that America must move aggressively to develop and harness a portfolio of truly scalable clean energy sources—which we do not now have—and ensure that they are affordable enough to deploy throughout the world. Consequently, it matters hugely whether America’s climate response channels enough investment into clean energy technology research, development, and deployment.

The problem with Waxman-Markey, in this respect, is that while the legislation provides important placeholder provisions the revenue applied remains paltry. On the positive side, Reps. Waxman and Markey deserve credit, given the circumstances, for setting aside slivers of the 40-year revenue stream of their cap-and-trade system for energy R&D and related activities. It is also good to see the bill embrace new formats for that R&D, most notably the disruptive model of ARPA-E (Subtitle H, section 172) and the start-up of eight “Energy Innovation Hubs” (Subtitle H, section 171)— regional R&D hubs reminiscent of Brookings’ proposal for a network of energy discovery-innovation institutes (e-DIIs) designed to leverage the expertise of universities, national laboratories, industry, venture capital, and others in the transfer of clean energy technologies into the marketplace. At the same time, though, the commitment falls far short of the needed targets. While Brookings calls for a $20 to $30 billion a year R&D outlay, Waxman-Markey would invest just 1.5 percent of the 40-year revenue stream of the cap-and-trade system in the R&D efforts of ARPA-E and the CEICs—which comes to just $1.4 billion a year or so at accepted permit price forecasts. That’s a solid increase from the current $5 billion or so U.S. energy R&D level but in the big picture not enough. And the same goes for the bill’s total investments in clean energy which, defined more broadly, are likely to approach no more than $9 billion annually between 2012–2025. The bottom line: Reps. Waxman and Markey did well to install several crucial innovation provisions in the House bill, but the deals that were required to pass it have left far too little revenue behind for the most crucial use of cap-trade money—investments to catalyze a radically cleaner energy future.

All of which defines the major task before the Senate. Preferably by applying to the cause a long-term revenue stream, the Senate should significantly strengthen Waxman-Markey’s clean energy R&D provisions, principally by investing significantly more in them. To be sure nothing will be easy here. Not only is the Senate far less “fired up” on balance to act aggressively on climate. Also, the Senate is addressing climate and energy in a more fragmented way, with Sen. Boxer’s liberal-leaning Environment and Public Works Committee developing a greenhouse gas and cap-and-trade regime while Sen. Bingaman’s more centrist Energy and Natural Resources Committee advances renewable energy, efficiency standards, and smart grid proposals in a regular bill. In that context, it’s going to require difficult negotiations to get a Senate bill and then to reconcile it with ACES. And yet, it does not seem fanciful to suggest that heavy investment in energy innovation and economic transformation could offer the best route forward. Such investments need to emerge as the needed point of consensus between the greenest of the greens and stalwart defenders of the nation’s economic competitiveness, first in the Senate and then in both Houses. Only through that convergence will the nation gain a truly transformative energy and climate bill that moves the nation soundly toward clean energy economy.

Like any legislation, the Waxman-Markey bill has its share of flaws, but its cap-and-trade system has medium and long-term targets for reducing greenhouse gas emissions that are sensible, and the economy-wide, comprehensive cap-and-trade system is, for the most part, well designed. With some exceptions, the bill's cap-and-trade system will achieve meaningful reductions in carbon dioxide emissions at minimal cost to the economy.

There has been much lamenting about the corporate give-away in the bill, but this is unfounded (see this link). And concerns have been expressed, particularly by Republicans during Friday’s floor debate, about negative impacts on the international competitiveness of U.S. firms. The only real solution to the international competitiveness issue in the long term is to bring non-participating countries within an international climate regime in meaningful ways. (On this, please see the work of the Harvard Project on International Climate Agreements.) But that solution is fundamentally outside of the scope of the domestic policy action of any individual nation, including the United States.

In the meantime, the Waxman-Markey approach of combining output-based updating allocations in the short term for select sectors with the option in the long term of a Presidential determination (under stringent conditions) for import allowance requirements for specific countries and sectors seems both sensible and pragmatic (see this link). Unfortunately, last-minute changes in the bill appear to have changed what was a Presidential option regarding the back-up border adjustments to a requirement that the President take action under specified conditions.

Also, the compromise amendments with the House agriculture committee that provide for generous numbers of potential offsets from the agricultural sector (regulated not by EPA, but by USDA) are potentially troubling — not in terms of driving up compliance costs, but in terms of reducing the real environmental performance of the system. This is because of the general problem of limited additionality of claimed reductions under offset (or emission-reduction-credit) systems, as opposed to cap-and-trade systems, as well-known difficulties of measuring non-point emissions reductions from agriculture.

These and other matters of design will be important topics when the Senate takes up its own climate legislation, although the debate in that body on some of these issues will likely be quite different. For example, there is likely to be more interest in the Senate in the use of a "price collar," i.e. a mechanism to constrain both the maximum and the minimum market price of allowances over time.

When the action moves to the Senate, the greatest attention and the greatest skepticism should be directed not to the cap-and-trade mechanism, which is — for the most part — well designed in Waxman-Markey, but rather to the other elements of the legislation, which are highly problematic. While Titles 3 and 4 of Waxman-Markey (essentially the cap-and-trade system) are -- on balance -- sensible, and will result in meaningful emissions reductions cost effectively, Titles 1 and 2 include a host of conventional standards, which (under the cap-and-trade umbrella) will have minimal environmental benefits, but will constrain action, limit flexibility, and thereby have the unintended consequence of driving up compliance costs. That's the soft under-belly of this legislation that needs to be selectively, surgically removed.

It is the fault of economists – myself included – that we have given so much attention to the cap-and-trade system that we have ignored these other important elements of the legislation, elements that unfortunately are likely to degrade significantly the cost-effectiveness of the package while providing little if any incremental benefits to the environment. Even the Congressional Budget Office, in its excellent economic analysis of HR 254, focused exclusively on the bill’s cap-and-trade program. Going forward, CBO, EPA, and independent analysts need to examine the bill’s other elements, and assess what those elements provide at what incremental cost.

A broader question — also raised by House Republicans — is whether the United States should be moving towards the enactment of a domestic climate policy before a sensible, post-Kyoto international agreement has been negotiated and ratified. Such an international agreement should include not only the countries of the industrialized world, but also the key, rapidly-growing economies of the developing world -- China, India, Brazil, Korea, Mexico, South Africa, and Indonesia -- which are and will increasingly be major contributors to emissions.

It is natural for such a question to be raised about the very notion of the U.S. adopting a policy to help address what is fundamentally a global problem. The environmental benefits of any single nation’s reductions in greenhouse gas emissions are spread worldwide, unlike the costs. This creates the possibility that some countries will want to "free ride" on the efforts of others. It’s for this very reason that international cooperation is required.

That’s why the U.S. is now vigorously engaged in international negotiations, and the credibility of the U.S. as a participant, let alone as a leader, in shaping the international regime is dependent upon our demonstrated willingness to take actions at home. Europe has already put its climate policy in place, and Australia, New Zealand, and Japan are moving to have their policies in place within a year. If the United States is to play a leadership role in international negotiations for a sensible post-Kyoto international climate regime, the country must begin to move towards an effective domestic policy - with legislation that is timed and structured to coordinate with the emerging post-Kyoto climate regime. Without evidence of serious action by the U.S., there will be no meaningful international agreement, and certainly not one that includes the key, rapidly-growing developing countries. U.S. policy developments can and should move in parallel with international negotiations.

So, the Waxman-Markey bill has its share of flaws, but it represents a good foundation for a domestic climate policy that can help place the United States where it ought to be - in a position of international leadership to develop a global climate agreement that is scientifically sound, economically rational, and politically acceptable to the key nations of the world.