A utility-only cap and trade bill has two significant problems. First is how to apply offset provisions to the smaller market. Shrinking the 5.5bn ton (initial) economy-wide market to 2.3bn ton (initial) utility-only market means we can’t allow 2bn tons of offsets each year. The critical provision would be the percentage of an emitter’s compliance that could be met with offsets in a given year – a high percentage means less investment in the game-changing technologies becoming available in electric power. We want our utilities to become efficient energy-service providers, not forestry and methane project-developers. Second is fair economics for PEVs. If a gasoline tax or CAFÉ standards are set low enough that cars and driving aren’t impacted significantly, then electrification gets slighted. Markets should determine if a national fleet of “rolling energy storage devices” (powered in part by decentralized sources) is an efficient solution. Economy cap and trade is best able to do that.

Sixty votes is a rather high bar for anything that will truly make a big impact. Here is a suggestion that needs only 40 votes:

President Obama should make a commitment that he will veto any bill that would take away EPA’s authority under the Clean Air Act to regulate CO2 emissions and also to veto any bill that would pre-empt or undermine the rights of states to set CO2 emission standards, renewable portfolio standards, appliance and building standards, and automobile mileage standards that are tougher than those of the federal government.

It is possibly the most important thing that President Obama can do.

So far as suggestions that might garner sixty votes, the following are consistent with CO2 emission reductions and nuclear non-proliferation. In addition, they do not imply any increase in the deficit.

1. The building standards in the Markey Waxman bill for new residential and commercial construction should be adopted. They require gradually increasing energy efficiency requirements relative to standard construction reaching 70 percent in twenty years.

2. The efficiency targets for new federal buildings in should be equal to or better than for commercial buildings.

3. Passenger vehicle standards in Senator Lugar’s Practical Energy and Climate Plan, which, by my calculation, imply efficiency of about 42 miles per gallon in 2020 and 62 miles per gallon in 2030. These standards could be usefully tightened to 50 mpg by 2020 and 70 mpg (or possibly higher) by 2030, but that may not be practical now and it could be done a few years down the line when the outlook for mass markets for electric cars is more clear.

4. Modest federal incentives, such as a tax write-off for energy audits, for state and local governments to require or encourage the addition of residential and commercial energy costs to the mortgage loan qualification process for existing buildings at or around the time of sale.

In addition, standards for commercial vehicles might usefully be added to this list.

There is also what should NOT be done:

There should be no new subsidies or loan guarantees for any supply technology, including nuclear. Enough is enough. No new subsidies are needed or desirable.

The retention of EPA authority to regulate CO2 and states’ prerogatives to make tighter standards than the federal government, along with the other suggested measures will result in significant reductions in CO2 emissions without a notable increase in the federal budget deficit. It will probably result in net deficit reductions over the next 15 to 20 years due to reduced federal energy costs.

As the Senate debates climate and energy legislation, driving the creation of new clean energy companies and American jobs must be a central focus. This is necessary not only to power real recovery from the current recession, but also to lay the groundwork for a sustainable, competitive 21st century American economy. There has been much discussion of the need to protect and grow these jobs, but without a key policy provision in place, achieving this much-touted goal will be extremely difficult.

If creating clean energy jobs is the major goal policymakers claim it to be, Congress must prioritize passing a strong, near-term, national Renewable Electricity Standard (RES). We believe a strong RES can attract 60 votes, and polling continues to find it overwhelmingly popular with the American people. In a national poll conducted this spring by a bipartisan team of pollsters, fully 77% of voters surveyed (65% of Republicans, 69% of Independents, and 92% of Democrats) supported a strong RES.

A strong RES would create the necessary long-term incentives for expanding and securing America’s clean energy industry. Strengthening our nation’s clean energy sector is fundamental to keeping America competitive in the manufacturing industries of the 21st century, speeding the transition away from dirty fossil fuels, and accelerating the creation of hundreds of thousands of new jobs while protecting the tens of thousands of jobs we already have. These jobs are supporting families in communities all over the U.S. and we cannot afford to let them stagnate or head overseas.

Furthermore, a strong RES would provide, from renewable energy sources and energy efficiency, over 60% of the reductions needed to cut total power sector CO2 emissions by 17% by 2020 (and a quarter of the reductions needed to cut economy-wide CO2 emissions by 17% by 2020).

The global clean energy race will be decided in the next few years, and the rest of the world isn’t letting this once-in-a-generation opportunity pass them by. China has committed to bringing 138 GW of wind energy online by 2020 and Europe is working toward a stated RES of 20 percent by 2020. If we don’t act now, American will lose manufacturing jobs to those countries with a strong RES.

It’s time for the United States to get serious about clean energy. To stop climate change and protect our role as the world’s energy innovators, comprehensive climate and energy legislation must include a meaningful RES with near term targets that keep the industries developing at their recent pace.. That’s how we’ll create the American jobs we want to have, and protect the jobs we need to keep here at home.

Is a utility-sector-only cap-and-trade bill a workable Plan B?

It’s not hard to see the appeal of such an approach. Whittling the cap-and-trade program down to a single sector could yield a simpler design than the economy-wide programs contemplated by the Waxman-Markey and Kerry-Lieberman bills.

The utility sector has been there, and done that. Power companies can draw on over a decade of experience with the highly successful cap-and-trade program for acid rain. The acid rain program has been a market unblemished by trading scandals.

In addition, shrinking the cap to the utility sector does not necessarily mean giving up a lot of emission reductions. EPA modeling of the economy-wide bills consistently has shown that the bulk of near-term reductions would occur in the power sector anyway.

Focusing on the power sector first also could offer an opportunity to rationalize the variety of other conventional pollutant regulations currently coming at that sector, including rules related to particulate matter, mercury, and coal ash.

Senators could couple a utility sector cap with any of a range of other provisions that have bipartisan appeal. These might include a new regime for oil spill liability, the Stabenow offsets bill, some version of the Lugar bill’s approach to future motor vehicle standards, the Rockefeller bill’s suspension of EPA GHG regulation of stationary sources under the Clean Air Act, or others.

However, no one should be under any illusion that the shift to a utility sector cap (much less a mash-up with other bills) will be easy to pull off in the 30 or so legislative days left in this Senate session. The approach raises some of its own tricky design questions.

For example, what do you do with emissions from industrial sources? Do they simply get the benefit of a temporary suspension of EPA regulation under the Clean Air Act, and then potentially become subject to such regulation? Can they opt in to the power sector cap in return for some favorable initial allocation of allowances? Should there be a Congressional study?

Also, what do you with the costs borne by industrials, particularly those that are energy-intensive and trade-exposed? Even if they are free of direct regulation, industrial still would incur higher energy costs as a result of a utility sector emissions cap. However, with a utility-sector-only cap, there would be fewer allowances available for EITE relief.

The smaller quantity of allowances would have implications for many other interests as well. If the utility sector were singled out for regulation then utilities presumably would want as least as good an allocation deal as they have had before. This would leave a small number of allowances available for “dividends” or other rebates to consumers, funding of carbon capture and sequestration projects, investment in clean energy R&D, and any of the other policy ends that the Waxman-Markey and Kerry-Lieberman bill would fund through allowance auctions or allocation. Indeed, previous designs effectively have counted on substantial purchases of allowances from the transportation sector in order to raise revenues. These extra revenues would not be available under a utility-sector-only design.

Keep in mind, too, that a key criterion for any near-term climate legislation is whether it inspires corresponding commitments from other countries. Part of that equation is financial transfers from the United States to at least some developing countries. To this end, Michael Levi of the Council of Foreign Relations has made the point that a utilities-only bill would result in diminished U.S. demand for international offsets, and a smaller amount of allowance value for international assistance – thereby shrinking two potential sources of financial transfers. See http://blogs.cfr.org/levi/2010/06/21/in-qualified-praise-of-utility-only-cap-and-trade/.

In short, a cap-and-trade program only for utilities may be simpler, but it’s not easy.

This essay does not necessarily represent the views of Van Ness Feldman, P.C., or its clients.

The Deepwater Horizon oil spill is a real event--the most significant and far reaching environmental disaster in our country’s history. The spill may have resulted from a succession of human errors, but the underlying cause of the catastrophic character of this event is a dependence on increasingly scarce and valuable petroleum products that leads us to take greater risks to sustain the supply of oil—like drilling in 5000 feet of water.

In my view, our dependence on oil is just one aspect of our country’s risky behavior in our ongoing attempt to live beyond the means of Earth’s finite resources.

Yes, BP must be held strictly accountable for the damage it has caused, but the oil spill can and should also be seen as a turning point in a broad range of efforts to achieve sustainable use of our natural resources and to take advantage of the long term economic benefits from such action.

Toward this end, a number of measures are being considered in the Senate and the House that we at the Conservancy believe should now be drawn together to put our country on a new path that will allow us to live within the constraints of our Earth’s resources.

First, we must move as quickly as possible to enact comprehensive climate and energy legislation that will accomplish the following:

• reduces greenhouse gas emissions from energy and land use in the U.S. and abroad,
• provides incentives for moving to lower-carbon sources of energy, and
• helps all nations adapt to the impacts of a changing climate.

This legislation should include a cap and trade approach to putting a price on carbon.

But Congress should not rest on climate and energy legislation. We should revise leasing of the nation’s marine waters for energy production and other purposes to ensure that future development avoids the highest risk sites, is subject to strict and effectively enforced safety measures, and requires environmental investment to offset impacts that cannot be avoided. Environmental agencies must be fully involved in the siting and leasing process.

We should also hold oil and gas producers strictly liable for their actions; they should pay fees into the Oil Spill Liability Trust Fund sufficient to produce rapid and effective action in the event of a disaster.

We should dedicate a significant proportion of revenues from offshore energy development to the protection of our nation’s oceans, coasts, land and freshwater through the creation of an Ocean Trust Fund and through full and dedicated funding for the Land and Water Conservation Fund (which is already paid for with offshore oil royalties).

The Land and Water Fund is a 40 year old example of how effective and popular it can be to use income from the exploitation of non-renewable resources to make permanent investments in the health of America’s most valued places.

Finally, in concert with restoration from the spill, we must also address the long term damage to the Gulf ecosystem. We should immediately create a Gulf of Mexico restoration program to address the Gulf’s underlying problems and, ultimately, to repair the damage to other coastal waters. Otherwise, President Obama’s goal of making the Gulf better than it was before the spill will not be accomplished.

Over the next few months, Congress has a unique and historic opportunity to address all of these issues. This can be done in a way that is not only affordable, but that has an immense long term benefit to America’s economy and to the natural resource-based economies of the Gulf of Mexico states.

The Sunday morning political analysts might well be skeptical about such a broad based approach, but I am more interested in the views of a different panel of commentators—my grandchildren 30 years from now. What is their likely view on a Sunday morning in 2040 if our country’s leaders don’t act to protect the air land and water that sustain our lives? What if we don’t act even in the midst of the greatest environmental disaster in U.S. history, even with the overwhelming scientific evidence of a changing climate, even given the absolutely clear importance of coastal and ocean resources, including the Gulf of Mexico, to our national economy and welfare, and even with 100 years of evidence of the success of conservation in America?

The President’s speech can inspire Congressional initiatives on a whole range of good ideas. It is time to get on with it.

Unfortunately, insufficient collegiality and trust among Washington lawmakers has poisoned the atmosphere in the Senate. Efforts to represent the public’s interest have given way indulgent pursuits of partisan advantage. In almost any climate, it would be hard for Sen. Reid to secure 60 votes for a controversial energy/climate bill before the summer’s end. In this poisoned climate, it’s nearly impossible.

The Majority Leader has shown little interest in finding common ground or pursuing compromise to achieve truly bi-partisan legislation. And it is doubtful that he will start now.

The legislative climate proposals Democrats will consider this week all involve setting arbitrary caps on greenhouse gas emissions. These limits along with mandatory timetables will raise America’s energy prices and create faulty incentives for the type of exploitation that has been rampant in the EU’s emission trading system. Motivation for pushing this kind of legislation stems from a desire to appease hard line environmental groups when legislators’ focus should be the kind of policy that contributes to strong and sustainable economic recovery, energy security, and increased pace of decarbonization.

A good place to start would be providing incentives for greater use of natural gas in power generation. Recent advances in technology enable industry to tap America’s rich natural gas resources. New federal policy incentives to turn over our power generation capital stock would lead to a shift to natural gas and, as a result, to a significant reduction in carbon emissions.

In spite of rhetoric to the contrary, neither the US nor the world will soon turn away from oil as the transportation fuel of choice. Alternatives are more expensive and lack oil’s versatility and energy content. We are, therefore, faced with the choice of producing more here or importing more from less reliable sources that do not share our commitment to environmental protection. This is not just the view of oil industry professionals; Washington Post columnist Robert Samuelson -- whose views have proven right over time -- articulated the point well in his piece this week.

Investing in domestic production leads to increased employment in good paying jobs and benefits the economy. The tragedy in the Gulf is no reason to stop offshore drilling. The safety record of the offshore industry is truly impressive. Rather than continue a moratorium that will shift investment elsewhere and lead to more unemployment in the Gulf region, our leaders should take actions that will make deepwater drilling even safer and clean up more effective.

In addition to an abundance of natural gas, the US has a great supply of coal which we should not turn our backs on. The challenge is to capitalize on its economic benefits while simultaneously minimizing the environmental impacts of its extraction and use. One route is coal liquefaction. While the technology to turn coal into liquid has been known for decades, it is not yet cost-effective. Perfecting that technology would allow us to reduce our dependence on foreign oil sources. Again that would contribute to increased energy security.

The challenge of using energy to grow our economy and improve live standards while reducing greenhouse gas emissions is a technological one, and a long-term one at that. Technology assessments conducted by various groups have concluded that the global economy will need a whole new set of energy tools and processes to meet that challenge. Legislation that focuses on the long-term nature of climate risks and recognizes that energy systems need to be cost-competitive without subsidies can begin to build the foundation for common political ground. In the meantime, we can continue to make gains in energy efficiency, find ways to lower the cost of nuclear power and improve hybrid and internal combustion technologies.

The rhetoric to move “Beyond Petroleum” was a slick marketing gimmick that is now being adopted by the President and some in Congress to use this tragedy to push an energy agenda that cannot stand on its on merits. That is not the route to 60 votes.

As Senate Majority Leader Harry Reid (D-NV) gathers with the Democratic caucus again this week to discuss the way forward on energy, he will do so knowing that the window for moving a bill this session is closing fast. We remain hopeful that the requisite 60 votes are there to bring a comprehensive energy and climate package to the floor this summer that includes the necessary provisions to get us on the path toward a clean energy future. Ideally, these would include a price on carbon; a strong renewable electricity standard (RES); low-cost financing for renewable project deployment; and increased federal procurement of renewable energy.

The American public is certainly supportive of integrating more renewable energy into the nation’s overall energy portfolio. According to Applied Materials’ second annual summer solstice survey, which was released today, three-quarters of Americans feel that increasing renewable energy and decreasing U.S. dependence on foreign oil are the country’s top priorities. In addition, 67 percent of Americans would be willing to pay more for their monthly utility bill if their utility company increased its use of renewable energy. These statistics are definitely compelling and should be taken into account as the caucus shapes its proposal in the coming days.

The Senate is stalemated over climate policy for an obvious reason. The policies on offer – cap-and-trade, renewable electricity standards, “clean energy” subsidies – would inflict potentially high levels of economic pain for no measurable environmental gain. Few Senators can get excited about such policies – especially in an election year, especially in the midst of a recession.

Instead of trying to fool the public by rebranding cap-and-tax as “comprehensive energy legislation,” they should try a different approach – one that improves environmental performance by getting government out of the way.

A popular phrase among climate advocates is “win-win.” They claim that by forcing us to use less energy, their policies will save us money. The catch, of course, is that their strategy is to make energy more costly. If carbon taxes increase gasoline prices to $7-9 a gallon, as Harvard University’s Belfer Center advocates, people will drive less and ‘save’ money. Most consumers, however, will not feel better off!

President Obama says that putting a price on carbon will “drive investment” into the “clean energy technologies of the future.” This is the central planner’s fallacy – what F.A. Hayek called the “fatal conceit.” How does Mr. Obama know which technologies are destined to dominate tomorrow’s market place? If “clean energy” technologies are the next big thing, profit-seeking investors will plow capital into them without policy privileges. On the other hand, if such technologies are not commercially viable, mandating and subsidizing them will only suck capital away from more profitable enterprises.

The “win-win” crowd has been working the problem from the wrong end. The surest way to foster sustainable innovation in the energy sector is to remove political impediments to market-driven investment. The Senate should therefore should consider how expensing could enhance firms’ environmental performance while, and by, making them more productive, profitable, and competitive.

Newer facilities and equipment are almost always cleaner and more energy efficient than older capital stock. That is widely understood. So is the fact that advanced technologies face market barriers due to their higher cost. What is not as well understood is that America’s plodding depreciation schedules penalize investment in new energy assets, such as combined heat and power systems, pollution control equipment, and smart meters.

The American Council on Capital Formation (ACCF) commissioned Ernst & Young to compare the tax depreciation rules for eleven types of energy investments in twelve countries. Ernest & young found that, in every investment category, U.S. depreciation rates are the slowest, or among the slowest, of the countries studied.

For example, after five years, U.S. firms recover 29.5% of their investment in combined heat and power systems compared to 49.7% for Japanese firms, 79.6% for Canadian firms, and 100% for Malaysian firms.

Ernst & Young also note that, “Because the United States has the second highest statutory corporate marginal tax rate among OECD countries combined with generally less favorable tax depreciation rules, the differences in effective tax rates are even greater.”

The policymaker’s Hippocratic Oath applies here: ‘First, Do No Harm.’ Freeing up investors to improve both the productivity and environmental performance of U.S. firms should be at the top of Congress’s energy agenda.

As we struggle to manage and clean up the worst environmental disaster in American history, we have a clear choice ahead of us. We can pass comprehensive legislation to drive a transition to clean, renewable energy — or we can continue our dangerous dependence on dirty fossil fuels.

The Senate is now considering several proposals for energy legislation, and there are worthy ideas in all of them. But a vital ingredient in any final legislative package is a price on carbon pollution. That's how we can make big polluters pay for their emissions — and give entrepreneurs the incentive to invest in clean energy and create millions of new jobs — jobs our country badly needs.

But if we fail to put together and pass a comprehensive bill and instead settle for a limited, "band-aid" approach, the consequences will be real. Without a cap on carbon emissions, we'll do little to reduce pollution and create only a small fraction of the 1.9 million jobs expected under a comprehensive bill. We need to give American businesses the confidence that support for clean energy is here to stay.

The American public is firmly behind a comprehensive approach. A new poll from Benenson Strategy Group found nearly two-thirds of Americans support energy legislation that would "limit pollution, invest in domestic energy sources and encourage companies to use and develop clean energy ... in part by charging energy companies for carbon pollution in electricity or fuels like gas.”

A comprehensive climate and clean energy bill must have several other components. By all means, we must directly respond to the impact of the oil spill by providing assistance to those affected, and by setting new, strong safety requirements for oil companies. In addition, we must adopt a national target to reduce our dependence on oil by improving fuel efficiency in our vehicles. And we need to make our buildings and our factories more energy-efficient, which will both reduce pollution and save money.

Once our President and our Senators set a clear course, the votes are there in the Senate for a comprehensive climate and clean energy policy. A majority of the Senate just voted down Senator Murkowski's resolution to let polluters off the hook for carbon emissions. At the time, a number of senators also said they wanted Congress, not the EPA, to take the lead in stopping carbon pollution. The best way is to pass comprehensive legislation this summer.

Now is not the time for small steps. We have the technology and know-how we need to make the transition to a clean energy future. There will never be a better time for our leaders to pass comprehensive climate and clean energy legislation.

The path to 60 votes on a comprehensive energy and climate bill will undoubtedly be difficult to negotiate, but one thing’s certain—ensuring strong consumer protection measures is a critical and necessary step for building support for energy and climate legislation.

We saw how important the consumer protection issue was when the House considered and ultimately passed climate change legislation last summer. The potential economic impacts of a major federal climate program, on both individual families and energy-intensive industries, was a major concern for lawmakers. To address this issue with respect to electricity customers, the House took the important step of allocating some of the emission allowances needed by the power sector, rather than requiring utilities to purchase them under government auction. This is necessary to help mitigate electricity price increases, without sacrificing desired environmental gains—and it proved an important concept around which many lawmakers rallied.

The consumer protection issue also was front-and-center in the development of the Kerry-Lieberman climate draft. This legislation includes additional emission allowances and a hard price collar for the benefit of electricity customers. Customer protection is one of EEI’s core principles, and we have worked for more than three years to develop workable legislation that will combat climate change while also safeguarding the nation’s continued economic well-being.

As the President meets this week with lawmakers to discuss options for energy and climate legislation, consumer protection should be among the issues that top the agenda.

“Herein lies the paradox of progress. A society cannot reap the rewards of creative destruction without accepting that some individuals might be worse off, not just in the short term, but perhaps forever. At the same time, attempts to soften the harsher aspects of creative destruction by trying to preserve jobs or protect industries will lead to stagnation and decline, short-circuiting the march of progress. Schumpeter’s enduring term reminds us that capitalism’s pain and gain are inextricably linked. The process of creating new industries does not go forward without sweeping away the preexisting order.” (Cox & Alm http://www.econlib.org/library/Enc/CreativeDestruction.html)

Pass CLEAR. Carbon emissions need to be limited. Selling a shrinking supply of permits to fossil fuel producers is an effective way to do that. Pro-rata dividends for ¾ of the revenue are fair. Business should compete for the cheapest low-carbon energy. Anything added to CLEAR is to solve other market failures (perhaps in nuclear power or the electric grid, if any). Congress, stop protecting business from creative destruction just to pick up a few campaign dollars - and let the market give us efficient clean energy.

America needs an energy bill that will improve the lives of our people and strengthen our economic and national security. This legislation can only be effective if it is based on sound economics and science, rather than soundbites, slogans and political posturing.

Economically and scientifically sound legislation must acknowledge that there is no single answer to America’s energy needs – not petroleum, not coal, not nuclear power, not natural gas, not ethanol, and not solar or wind energy. We need a realistic combination of all these energy sources and more.

Economically and scientifically sound legislation must also recognize that every form of energy – not just petroleum – has its downsides, as well as its positive aspects. And the legislation must accept the reality that petroleum-based fuels and other products will play a crucial part in providing the world with energy and with critically important petrochemicals for many decades to come.

Energy legislation should enable the production of safe, reliable and efficient energy at the lowest possible cost right here at home. It should strengthen our economy by reducing our trade deficit and by preserving and creating good American jobs. And it should enhance our national security by making us less dependent on energy from unstable areas of the world.

Energy legislation must also recognize that at this time of soaring federal deficits, taxpayers cannot continue digging deeper into their wallets to fund endless subsidies to forms of energy unable to compete on a level playing field in a free-market economy.

All these things are popular with the American people and should be able to win enough support in Congress to become law.

What’s proven unpopular and what has deadlocked legislative action are ill-conceived and counterproductive proposals focusing on emissions of carbon dioxide. The carbon restrictions in the Kerry-Lieberman bill in the Senate and in legislation passed earlier by the House amount to crippling self-imposed economic sanctions on every American.

A federal carbon cap-and-trade law would punish hard-working Americans by adding billions of dollars each year to the cost of filling up the family car and heating and cooling the family home. It would throw millions of Americans out of work by raising the cost of the energy that fuels our nation’s economic strength and job-creation engine.

Instead of making a headlong charge into harmful, expensive and ineffective new carbon restrictions, legislation should enable America’s energy companies to produce more energy of all types as cleanly, efficiently, safely and affordably as possible in the United States. Americans deserve no less.