-- Amy Harder, NationalJournal.com

When the Senate considers clean energy and climate legislation next year, incumbents would be wise to vote for it and candidates would be wise to support it.

There is no question that clean energy will be a 2010 election issue, and a politically potent one at that. When the Senate considers clean energy and climate legislation next year, incumbents would be wise to vote for it and candidates would be wise to support it. Embracing new, clean energy policies while exposing opponents’ ties to the greedy oil companies that oppose energy reform helped propel Democratic victories in 2006 and 2008. And recent polling proves there is strong voter support for concrete legislation that creates jobs, reduces pollution and increases energy independence.

In August, the Benenson Strategy Group, which served as the Obama campaign’s chief pollster during the presidential campaign, conducted a poll in 16 battleground states. When asked a question about the impacts of a bill that limits pollution and invests in clean energy, voters believed by a 2-1 margin that the bill would create jobs and reduce our dependence on foreign oil. Even in Arkansas, where political pundits say clean energy legislation is a hard sell, voters supported a comprehensive energy bill like the House-passed American Clean Energy & Security Act by a solid 18-point margin, according to a September poll conducted by the Benenson Strategy Group. 

What should be most comforting to incumbents and candidates looking ahead to 2010 is that support holds strong even under the most withering and dishonest attacks about the bill. In Arkansas, after hearing a statement representing both sides of the argument, support held at a 19-point margin.

The bottom line is that voters instinctively believe that new energy policies—including a limit on carbon pollution—will have tangible positive benefits for the economy and our security. Next year, candidates would be well served to recognize that support for clean energy and climate legislation represents the convergence of good policy and smart politics.

One area that will clearly benefit from this delay is the pace of forestation.

As I was growing up, my mother always reminded me that “all good things come to those that wait.”  With so much on Congress’ plate, and the economy continuing to falter, Sen. Reid’s decision to slow down the pace of the energy and climate bill and give the Senate more time to work out the details is a wise one.

For agriculture and rural America, it gives much-needed time to model and study all the consequences (intended and unintended) of Waxman-Markey and craft fixes to those problems where possible that already have been discovered. We are confident that the new chair of the Senate Agriculture Committee, Blanche Lincoln, will make good use of this time to better understand the full implications of this legislation and help craft a sound path forward.  

One area that will clearly benefit from this delay is the pace of forestation – the conversion of crop and pasture land to forest – predicted as a result of the offset program under Waxman Markey.  This is not a new problem; EPA has been well aware of it going back to at least its economic assessment of Warner-Leiberman. But it has taken on an air of heightened importance as the prospect of passing climate legislation increased.

Simply put, while the actual rates vary slightly, EPA’s and others’ economic analyses of the bill that were mindful of land use patterns have shown a dramatic shift in acreage from food and feed production to forest land –up to 50 million acres over the life of the bill.  Some, betting on yet-to-be economical technologies for cellulosic biomass conversion to ethanol, are speculating that rather than forests being planted on this cropland landowners would convert to perennial cellulosic biomass crops like switchgrass.  Either way, when combined with 30 million acres already consumed by the Conservation Reserve Program, and another 40 million acres necessary to meet the demands of the ethanol industry’s Renewable Fuels Standard, this could pull more than a third of U.S. agricultural lands out of production feed grain production. Indeed, EPA’s own internal analysis shows the impact of this policy to be up to a 60 percent increase in the price of corn and the loss of significant portions of U.S. livestock, which has seen all its equity eroded in the face of runaway ethanol subsidies and mandates. 

EPA’s agricultural models don’t paint as drastic a long term picture since they considered an 80-year timeframe with some  land slowly reverting back to production after 40 years of conversion to forest. 

Perhaps. 

But even so I know a lot of crop farmers and livestock users of feed grains who will probably be forced out of business in those scenarios’ first 40 years,   That some crop production and some of the lost feed grain supply might recover is no comfort to them and their families, even if the latter 40 year estimates could be relied on. And of course, there are the profound and morally inescapable questions this raises for the 3 billion more people we expect in the world in the next 40 years, a period when most experts predict we need to double food production worldwide.

Taking a step back now and looking at all these issues and thoughtfully addressing them is a good thing.  The Senate’s bill will only be strengthened by allowing the Agriculture Committee additional time to work on their part of the solution.

The Senate should not let the schedule slip beyond early spring.

Extra time might be helpful in pulling together the compromises necessary to reach 60 votes, but the Senate should not let the schedule slip beyond early spring.

Every day that passes increases the risk that climate legislation will be overtaken by 2010 campaign politics, pushing resolution of the issue out for at least another year. Every day that passes increases the risk of the U.S. losing energy technology manufacturing jobs to other countries. Every day that passes brings continuing uncertainty for utilities trying to plan power plant investments that will last for decades. Every day that passes perpetuates America’s dangerous dependence on oil and our vulnerability to hostile oil-exporting regimes.

Congress needs to get off the dime. We urge Senate leaders to work constructively with Lindsey Graham and other Republicans who are willing to work in good faith to pull together a bipartisan climate bill. It’s past time to begin retooling our energy economy so that we reduce climate risks, stimulate growth of new energy technologies, get off the oil dependence treadmill, and move towards a future of clean, secure, and reliable energy for all Americans.

Every day the cap and tax legislation is not on the Senate floor is a good day for American families. Quite simply, the longer it is delayed, the greater the opportunity everyday Americans have to learn about its economic impacts. And the more they learn, the less they like. To even suggest that this job killing bill, which by design is intended to increase the cost of eighty-five percent of the energy we use to heat our homes, fuel our cars and power our businesses, could possibly be considered as part of a larger effort to address the economy is incongruous and unbecoming. Wishful thinking has never created a job. Affordable energy has. Those are the facts. No amount of horse trading, backroom wheeling and dealing, allowances treated, or sweeteners added will offset the long-term damage this massive energy tax will have on our economy. It is time to move on.

It’s better to do it right than to do it fast – so I think Senator Reid is making the right call.

While I’d certainly prefer to have a climate bill sooner rather than later, delaying debate until the spring gives time to draw together the set of compromises that are going to be needed to make the bill palatable to at least 60 Senators – and especially to address concerns of the group of moderates who are running for re-election next year. 

The Kerry-Graham-Lieberman process is a welcome development, and their process will be further enhanced with the engagement of the Obama Administration. Having a fully engaged Executive will help steer the process toward an outcome that meets the environmental need while stimulating new economic activity. 

This is a golden moment, when the President could help galvanize a broad political consensus around an emissions trading solution to climate change. I think the President may find some interesting allies, given the positioning of interest groups, The power sector is ready for a solution – they need the certainty to build new clean-energy infrastructure, and they want to avoid the morass of an EPA-regulatory regime that is moving forward in response to the Supreme Court ruling in 2007. Many large industrials are in the same posture. So roughly two-thirds of the covered industries are ready to deal. 

It is important to acknowledge that the Waxman Markey bill got a lot of things right. If Senator Reid and the Administration are to be successful in the spring, they’ll do well to build on the fundamental model of emissions trading that won a majority vote in the House. They can keep costs down with banking, borrowing and use of domestic and international offsets. The cost containment provided by international offsets is dramatic and critical – every major study of greenhouse gas regulation has reached this conclusion. In fact, the EPA’s analysis of the Waxman-Markey bill found that the costs of the cap and trade program would increase by 89 percent without international offsets. And by cutting the costs of a cap and trade program almost in half, international offsets also preserve U.S. jobs and competitiveness

So what are the biggest problem areas? 

Most of the angst about the major bills arises from the oil industry, because refiners are required to purchase all of the allowances to compensate for use of their fuels. They run the ads and confuse the public with cries of high taxes and economic pain. It would be better to see them offer constructive suggestions about how best to adapt the emissions trading model so that their sector does its fair share of emissions reductions. 

Some Senators are worried about whether the “trading” part of the policy could be abused. The new market oversight system that emerges from the Financial Services Reform efforts will provide effective CFTC oversight of carbon markets – so Senators can take comfort in the fact that these new markets will be regulated in parallel with other energy commodity markets. 

Finally, I hope Senators take note of the newest information on the success of the EU ETS. Emissions are down – industry is coping – and Europe is well on its way to meeting its emissions reduction goals. IETA released a study two weeks ago highlighting the success of this and other environmental markets in delivering on the promise of meeting emissions goals at low cost. 

I think one aspect of the EU system goes unheralded: the strong industry support for emissions trading that has appeared, now that the system is operational. It offers proof that a simple emissions trading system works – using effective limits on emissions, ample flexibility to comply with on-system controls or emissions offsets – and a an integrated system of market oversight for energy and emissions markets. 

In the case of this week’s announcement of the Senate delay, inactions speak louder than words. By suspending further consideration of the climate bill until 2010, Democrats are signaling that it’s not high on their priority list. This move also suggests that they’re starting to realize that the high cost and incredible intrusiveness of cap and trade would only exacerbate the problems evident in trying to pass comprehensive health care legislation. So, from a political perspective, this delay wasn’t just a smart choice; it was a requisite one.

Senate leadership is likely gambling that by spring the public’s unhappiness with Congress and the actions that triggered the Tea Parties will have passed. Though the odds of that happening in the next four months don’t look good, their better than current chances. Moving ahead now would mean almost certain failure.

During the ’92 presidential campaign, James Carville crafted the now famous statement, “It’s the economy stupid.” Almost two decades later, that lesson seems lost on Congress. Many members are showing that they are out of touch with a large segment of the American electorate who’s first, second, and third priorities are the economy. And the public’s growing disappointment with Congress’s failure to fashion policies that will enable a faster recovery is starting to become palpable in Washington – especially as many legislators begin to look ahead to the 2010 midterm elections. 

Piling on more and more debt and taking actions that increase costs to the consumer at a time of severe economic difficulty is in direct conflict with our best interest. And few things exemplify this Congressional disconnect with the priorities of Main Street America more than the Senate’s cap and trade bill. On climate, as well as health care, lawmakers are forging a dubious path that few Americans want to follow.

If unemployment is still hovering around 10% next spring and there are not clearer signs of a stronger economic recovery, it is hard to see moderate Democrats voting for a bill that will raise energy costs and add to unemployment. This could further damage the relevance of Sen. Boxer’s Environment and Public Works Committee while correspondingly increasing the importance of Sen. Bingaman’s Energy Committee. Providing opportunities and incentives for domestic energy development, including nuclear, is clearly in the national interest. The faster that is done, the faster we will reduce the growth in imports from insecure sources and create the high paying jobs associated with oil and gas exploration. At the same time, the Senate Energy Committee could identify and act to remove barriers to faster deployment of energy efficiency technologies to continue the good progress in reducing carbon intensity.

The recent acknowledgement by U.N. officials that next month’s climate meeting in Copenhagen will not produce a new global mandate to force costly reductions in greenhouse gas emissions should send a message to the Senate that programs that are not practical and grounded in reality are doomed to failure. Cap and trade is just another version of the failed Kyoto Protocol. And if not abandoned, it will fail – taking political careers down with it.

Decades ago, Senator Everett Dirksen said that when he felt the heat, he saw the light. Right now, Senators are feeling a lot of heat. Time will tell if they see the light.

We can't afford to wait and let clean energy jobs go to other countries ready to invest in clean energy.

Hope springs eternal, but the idea of waiting to "spring" for Senate action doesn't fill me with hope. In 2010, the Senate will convene in January, not March. The Senate's unfinished business on clean energy and climate should be on deck as the Senate's highest priority after health care. Speaker Pelosi and the House worked impressively already this year to pass a clean energy jobs bill that puts America on a leadership pathway for reducing pollution and tackling climate change. When health care is done, the Senate needs to turn to the energy reform and climate package that Majority Leader Reid has put in motion. As we head into 2010, President Obama should make clear that delivering the clean energy jobs & climate bill to his desk is his top priority for unfinished business.

In the meantime, President Obama will send a team to the climate negotiations in Copenhagen. He has been an impressive leader on climate change in his first year -- from tailpipe standards to a promising new dialogue with China. But Copenhagen and the coming months will be the pivotal test of whether he can break through the politics of inaction and the millions of dollars spent by oil companies and their allies to block progress. It is unlikely that the President will close the final deal on a new global agreement in December. More likely, he will prepare the way with an interim deal and ask the world to wait on Congress for the final package. If so, it will take a vigorous White House determination to advance the bipartisan efforts being led by Senators John Kerry, Lindsey Graham and Joe Lieberman to the front of the line.

Americans have had enough delay. We can't afford to wait and let clean energy jobs go to other countries ready to invest in clean energy. We can't wait to break our addiction to oil. We can't wait to take the responsible steps necessary to protect people and wildlife from a warming world.

Congress runs the very real risk of letting EPA’s regulatory deadlines overtake the legislative process.

Yes, extra time can allow fresh ideas to enter the debate, but Congress also runs the very real risk of letting EPA’s regulatory deadlines overtake the legislative process. EPA action before Congress has had adequate time to develop a sound greenhouse gas reduction policy is the worst-case scenario. As early as March, EPA could issue rules that would lead to regulation of GHG emissions at stationary sources. This would stop smart investment in American manufacturing dead in its tracks. The very investments the United States needs to make for an energy-efficient economy would be subject to permitting by EPA.  At a time when Congress and the Administration are getting ready to unveil a job creation agenda, EPA’s planned regulation of GHG emissions will drive even more manufacturing jobs out of the country. Congress should redouble its efforts to develop effective emissions reduction legislation, but I would argue that Congress’s top priority is to stop EPA from moving forward with a regulatory train wreck that EPA estimates could cost as much as $55.5 billion and deliver, by its own admission, "absurd results."  EPA is trying to contain the worst of the harmful results, but its workaround (the tailoring rule) may not withstand legal scrutiny.  The best action here is for Congress to give EPA a "time out" from proceeding with its rulemaking affecting stationary sources and have time to pass its own effective emissions reduction policies.

In the face of such uncertainty, should Congress give the U.S. oil industry a boost? Should the Senate climate change legislation include provisions to encourage domestic oil development -- as recommended by Senate Foreign Relations Chairman John Kerry, D-Mass., and Sen. Lindsey Graham, R-S.C.? If so, what kind of language would you like to see included? Would oil drilling provisions help the Senate reach the 60 votes necessary to pass a global warming bill?

America’s onshore and offshore oil and natural gas production has an exceptional record of safety and environmental stewardship.

We cannot discuss the issue of domestic oil development in a vacuum because natural gas development is part of that story. That said, the short answer is yes, any legislation should include provisions to encourage domestic oil development. And it is not only the oil and natural gas industry that supports domestic production. Developing a reliable and home-grown energy supply is also a vital part of our national security. Many citizens of the states in which it would occur strongly support increasing domestic oil—and natural gas—production because they recognize both the importance of developing home-grown energy options and, especially now, the financial benefit to their states in the form of leasing royalties and jobs. However, politics and the politics of fear—specifically baseless claims about the environmental and safety threats posed by domestic production—habitually frustrate the efforts of those who wish to take action to reduce America’s dependence on foreign energy.

America’s onshore and offshore oil and natural gas production has an exceptional record of safety and environmental stewardship. There has not been a single significant oil or natural gas spill from a production rig for more than 40 years, including in the Gulf of Mexico during Hurricane Katrina! Domestic production also reduces America’s overall carbon footprint because, in addition to natural gas being the cleanest fossil fuel on the planet, local production of oil would reduce the demand for foreign drilling, storage and transportation via enormous tankers, all of which make significant contributions to carbon output.

Finally, the best way to address climate change, while still providing America with the energy it needs to grow its economy, is with a wide-ranging set of options, which is why AGA has long supported, to the fullest extent possible, the development of a diverse domestic energy supply, including oil, nuclear, wind, hydro, solar and, of course, domestic, abundant and clean natural gas.

Accessing and utilizing natural gas, and all of America’s other energy resources, is a key piece to solving the energy, energy security and climate change puzzle. But it is also important to note that increased fuel diversity would also allow more natural gas to be used directly in the residential and commercial market, where, for more than 40 years, natural gas customers have led the way in increasing energy efficiency and conservation, while reducing greenhouse gas emissions.

Congress does not need to provide the oil and gas industry with any more “boosts” – the industry has been coddled by Congress with sweetheart tax breaks, exemptions from key environmental statutes, and various other benefits for far too long.

These policies have been quite successful to date in encouraging the “Drill America First” energy policy that has resulted in the U.S. having more oil and gas wells by far than any other country, and an oil and gas industry with ready access to tens of millions of acres of onshore and offshore federal lands.

The Obama Administration is on the right track with its proposals to get rid of various unmerited federal tax provisions that have in effect subsidized the oil and gas industry for decades. Instead of providing even more taxpayer subsidies for the world’s’ richest industry, the tax loopholes that have benefited the oil and gas industry for decades should be closed, and the additional revenues that would flow to the Treasury – tens of billions of dollars – should be devoted to assisting in the development of new, clean technologies and the implementation of the vast array of energy-efficiency measures that will reduce our dependence on fossil fuels, while maintaining and strengthening our economy.

The cold hard facts are that the world needs, desperately, to burn less, not more, oil.

The initial postings from oil industry spokespeople on this blog don't look very promising for the idea of a compromise over energy and climate legislation -- at least with the oil industry.

The cold hard facts are that the world needs, desperately, to burn less, not more, oil -- and that the US with only 3% of the world's oil reserves cannot expect, affordably, to continue to burn 25% of its annual production of oil.

Nor can thise nation keep itself safe while continuing to rely so heavily on a fuel whose reserves are largely located in countries who wish us ill -- or whose stability is highly dubious. (Yes, there are Canada and Mexico, but they alone cannot sustain anything like current US demand.)

Opening additional areas off the coast or in our remaining wild spaces to the oil industry won't meaningfully change any of  these facts or the need to make a rapid transition to clean energy. Congress being Congress, something may end up in the final bill.  It will make the legislation slightly less effective at reducing our addiction to carbon.  It won't help us get off oil imports, whatever the industry says.  But given the tepid industry response to the last leases offered in the Gulf of Mexico, it may do much of anything -- the resources simply aren't there.

Which may explain why -- at least in the first three postings -- the industry is desperately trying to shoot down this idea.

Of course, they don't offer anything better, or new -- just get out of our way, let the prices go back to $4/gallon, and let us bring in as much as we can from wherever it comes at whatever price.  It's the siren song of a pusher to an addict.

The oil industry has done a good job of meeting consumer needs without intervention from Capitol Hill.

This week’s question brings to mind Will Rogers’ observation:

Never blame a legislative body for not doing something. When they do nothing, that don't hurt anybody. When they do something is when they become dangerous.

That has certainly proven true in the last year when the government took over major companies in the name of saving our economy. Now, the last thing we need is more bureaucratic intervention in the private sector.

The oil industry has faced supply and demand uncertainties for its entire history and has done a good job of meeting consumer needs without intervention from Capitol Hill. It was not too long ago that Washington attempted to deal with shortages caused by the Arab oil embargo and, consequently, managed to make a bad situation infinitely worse. That experience proved the law of unintended consequences.

Without any help from the government, the oil industry has developed advanced technologies for more accurately finding oil and gas, for going back and recovering oil left in place with the then current technology, and for drilling at great depths—the Gulf of Mexico—and hostile environments—Alaska and Iceberg Alley off of Nova Scotia. Moreover, domestic companies have done this all without taxpayer money. The energy sector has built an elaborate refining and distribution system again with its own capital. And, given the opportunity, it will invest in finding new supplies based not on today’s prices but estimated prices over its long investment horizon.

Yes, demand will increase as economies recover from this global recession. But so will exploration activities. Today, the world’s excess production capacity is three times great than it was when oil prices spiked a year ago. And, while IEA projects a rise in future demand, it also projects that demand has essentially peaked and will not reach levels projected a few years ago.

A number of factors converged to send prices to $140 a barrel before the economic collapse caused it to drop precipitously. And, a lack of excess production capacity was just one of those. Before Congress lends a helping hand, it would do better to figure out all of the reasons that caused oil to spike last year and what role legislative and regulatory actions played in causing that spike.

The best things that Congress could do for the energy industry, American consumers and the larger economy involve removing regulatory barriers to domestic exploration, increase onshore and offshore leasing, adopt non-discriminatory tax policies, encourage more R&D and then let the industry do what it does best—find and produce abundant and affordable oil and gas. In addition, it should abandon its pursuit of a low carbon fuel standard, which has been shown to neither increase energy security nor reduce greenhouse gas emissions.

The recent increase in natural gas production demonstrates that the US is still rich in oil and gas resources. The problem is not a lack of technology or capital to develop them, it is the lack of opportunity caused by government policy. Oil industry jobs and those in its service industries are good, high paying ones. When investments are made in other countries, those jobs are created there, not here. By opening up oil and gas bearing tracts to exploration, those good paying jobs would be created here while the growth in imports from insecure sources would be reduced.

The government should uphold and live up to the principles that created the hugely successful oil and gas lease program for government lands.

The cap-and-trade proposals Congress is considering are bad bills for many reasons, not the least of which is that they have the potential of costing millions of American jobs and driving up energy costs. Just as a new paint job would not make a clunker a better car, adding provisions to encourage domestic oil and natural gas development would not sufficiently improve them. Most senators understand that and are unlikely change their minds because of it.

The industry is not seeking help from the federal government. What it asks is that it be allowed to do its job of providing Americans the energy they need and want, in a safe and environmentally compatible manner. To that end, the government should uphold and live up to the principles that created the hugely successful oil and gas lease program for government lands, offshore and onshore. If allowed to work, this program would not only provide America with greater energy security, it would supply billions of additional dollars in revenue to state and federal coffers and add to the 9.2 million jobs for which the oil and gas industry is responsible.

As we’ve stated many times: we believe climate change needs to be addressed, but not through Kerry-Boxer, which, like Waxman-Markey, treats the country’s various economic sectors inequitably and adds significant costs to American consumers. It would make no sense to first take a positive step to help meet U.S. demand for fuels and natural gas, and then punish the people for using it. The best way to a low-carbon energy future is through research and development on new low-emission energy technology. That is why the U.S. oil and gas companies invested $58 billion since 2000 into this research -- which is nearly half of the total investment by all U.S. companies and the federal government combined.

The experts tell us that oil and natural gas will continue to meet more than half of our nation’s energy demand for decades to come. As the IEA tells us, we will need more oil as world’s economies recover. Unless we want to see yet more economic disruptions, our industry must be allowed to provide that energy.

Any government policy -- whether it’s designed to deal with climate change or energy -- that fails to recognize that truth is doomed to failure.

A proposed reduction in crude imports through increased domestic production incentives would actually result in increased imports of refined products.

As the Kerry-Boxer cap-and-trade legislation emerges awkwardly from the Senate Environment & Public Works Committee to face an unknown fate, the whispers of “compromise” are already being heard in the cloakrooms. But what compromise could possibly make a cap-and-trade climate bill, in the midst of a severe recession, 10 percent unemployment, and fears of a jobless recovery, more palatable to legislators on the fence and environmentally conscious consumers back home? Not much of one.

The idea of providing incentives for increased domestic oil exploration and production through a “compromise” makes little sense within the context of climate change legislation written to specifically drive the refining community into economic oblivion, as the House and Senate versions of the bill set out to accomplish. H.R. 2454 and S. 1733 are purposely crafted in such a way that refiners are forced to pay for the free emissions allowances that other industrial sectors receive. The costs to domestic refiners, both large and small, would be staggering, and, as we’ve stated before, would result in reduced operations and potentially more facility closures beyond what has already occurred due to the recession and decreased demand. That means lost refining capacity -- capacity that would be needed to process whatever additional crude would be delivered under any proposed new incentives for domestic crude production. The Energy Policy Research Foundation (EPRINC) recently reported that even before domestic refiners face rising costs from carbon emissions, they will face a higher cost structure and increased foreign competition that threatens 2.5 million of the current 17.5 million barrels per day of domestic gasoline and diesel fuel refining capacity with permanent closure. The EPRINC study also found that in addition to the 2.5 million barrels per day of capacity at risk given the current economic climate, an additional 2 - 8 million barrels per day of domestic refining capacity would be threatened by the regulatory framework in H.R 2454, which mirrors S. 1733 in relation to transportation sector emissions.

If the United States produces more oil and gas domestically, but is forced to send its refining capabilities overseas, as would occur in the pending cap-and-trade proposals, then Congress would simply have endorsed the concept of exporting American oil to India and the Middle East to be refined into gasoline and diesel that they, in turn, would sell right back to American consumers at their costs under their own terms. A perceived benefit for the domestic oil, gas and refining community, under these circumstances, would in reality increase the nation’s reliance on foreign fuels – through the use of our own nation’s resources. In other words, a proposed reduction in crude imports through increased domestic production incentives would actually result in increased imports of refined products. A most counterproductive compromise indeed.

Should the Senate stop trying to pass an all-encompassing bill and instead concentrate on enacting the bipartisan energy package that the Energy and Natural Resources Committee approved earlier this year? What would be the ramifications -- both for the political landscape and the nation's energy mix -- of splitting the cap-and-trade bill from the energy measure? Can efforts by Kerry, Lieberman and Graham save climate change legislation?

Finalizing a bill similar to the one the Senate Energy Committee passed in June would take us a step backward.

The Senate should not abandon its work on a truly comprehensive climate and energy package. We need a cap on carbon to reduce emissions and renewables and energy efficiency to reduce the cost of a climate bill.

In fact, finalizing a bill similar to the one the Senate Energy Committee passed in June would take us a step backward. For example, the federal renewable energy standard in the bill -- which ostensibly would require utilities to increase their reliance on renewable energy sources over time – actually wouldn’t deliver any more renewable energy than we would expect without the new standard. It certainly wouldn’t help us significantly reduce the carbon overload in the atmosphere. And if the Senate passes legislation that doesn’t effectively reduce carbon emissions, it would make difficult international climate treaty negotiations even more difficult.

The reality is that renewables and energy efficiency combined with a carbon cap offers the best – and cheapest -- climate solution. Renewables and efficiency work together to reduce the overall cost of a climate bill and create new domestic jobs. In turn, the allowance revenue from a climate bill would generate funds to promote more renewable energy. Such a serious, comprehensive approach is necessary for negotiating a successful international climate treaty.

It won’t be easy to get 60 votes for a comprehensive climate and energy bill, but Sens. John Kerry, Joe Lieberman and Lindsay Graham have established a good process for moving forward. Now they have the committee-passed “Clean Energy Jobs and American Power Act” to work from.

Many of the same swing votes that are needed to pass a comprehensive energy and climate bill would also be needed to pass a stand-alone energy bill. Wavering politicians should trust their constituents: The American public overwhelmingly supports moving to a clean energy economy and joining the rest of the world in reducing carbon emissions. They should also listen to climate scientists, who tell us that the task of dramatically reducing carbon emissions becomes even more critical as carbon dioxide stays in our atmosphere longer and the effects of climate change accelerate.

When we look objectively at the science of climate change and the politics of climate policy, there is only one choice: The Senate needs to follow the House and pass a comprehensive bill.

We need to do something smart and long lasting, not just something that is politically and diplomatically expedient.

Overbearing partisanship has been the ruin of the ability of our leaders to make proper decisions in a timely manner on some of the most important issues we face.

Such partisanship and group think also seem to be leading us into "two huddles in the muddle" on energy and climate legislation. This is not a true debate, but a simple taking of sides, on the very important issues that we face. The country deserves better.

Can there be benefits to having the energy and climate bills being separated out? That depends on how the final makeup of these separate bills will be. If they work together and there are no contradictions and mixed messages from the two bills that would help. However, if the two bills contradict each other and if they give mixed incentives then separating them out might be worse than keeping them together. However, such cross-bill contradictions can also exist within a bill that includes both climate and energy. It could be a washout either way. One thing to be sure: the results will be far from perfect and there will be lots of ruffled feathers.

If the point in separating them out is to get them done in a certain time frame then we have to seriously consider why there is a rush. If it is to beat the Copenhagen Deadline in order for the US to say that they got something done then we might be trading off short term diplomatic expediency for long term policy returns for the country. We may make things a bit easier in the meetings in Copenhagen, but at the same time reducing the chances for making real positive policy change for a better energy and environment future.

It is important that we have the fullest, most comprehensive and most forward looking policies. This may likely take a lot more time than we have prior to the Copenhagen Deadline or even some upcoming deadlines for elections in the US. Elections drive votes and debates, surely. But the issues being debated are long term problems and these long term problems demand long term solutions. Our leaders need to take the high road to see the long view. The best leaders see this and it would be good if they could lead others to see things this way. 

Cap and trade can be a good idea. But it needs to be developed properly. What I have been hearing is a lot of wooly thinking about what the caps might be and what the trading framework might be. Cap and trade markets are by nature somewhat synthetic in many ways, especially in the pricing of the carbon based in what seem arbitrary caps with lots of loopholes.

Also, and I have yet to read a full answer that makes good sense to me from political circles about what exactly are the costs to the US per ton of carbon. Surely there are lots of studies by think tanks and others, but when one digs deeply into their assumptions and more one could see the weaknesses in many of these studies. Furthermore, C02 is a global issue, not just a US issue.

 It is clear to me that carbon disequilibria are a major problem. We have been burning hydrocarbons into the atmosphere that were buried for 100s of millions of years until the Industrial Revolution started the rapid acceleration of the burning of coal. Then we later also started to use oil in rapidly accelerated burning for transport, electricity and more. After that we also started to burn more and more natural gas. The atmosphere, given its inherent flexibility, could take this for a while. However, the post-Industrial Revolution carbon disequilibria have increasingly stressed out our atmosphere over time.

Something needs to be done. Energy change is a big part of this, especially given that the major sources of C02 globally and in the US are electricity production and transportation by burning fossil fuels. Energy issues and climate issues are intertwined. The energy-environment nexus is nonlinear and complex, and sometimes unpredictable. We need to do something smart and long lasting, not just something that is politically and diplomatically expedient. We also should not make the solutions worse than the problems.

Studies from EPA, EIA, Brookings, MIT, and others all agree that cap-and-trade will reduce GDP and kill American jobs.

With unemployment above 10 percent and poised to go even higher, Congress’ time would be best spent on anything other than these expensive, economically harmful energy policies. Asking whether the Senate should stop trying to pass Kerry-Boxer to focus on an alternative package is like asking Americans if they prefer to have their wallets stolen or be robbed at the ATM.  Whether it is cap-and-trade or a nationwide renewable electricity mandate, the result is the same: these plans will hurt American families.  After all, in order for these policies to work as the proponents intend them to, they must significantly increase the cost of the energy we currently use to heat our homes, fill our gas tanks and run our businesses.

Studies from EPA, EIA, Brookings, MIT, and others all agree that cap-and-trade will reduce GDP and kill American jobs. This is an unavoidable outcome of artificially increasing the price carbon based energy. The  American people want job security and improved economic conditions.  Cap-and-trade legislation will do just the opposite.   

The same is true of a nationwide renewable electricity mandate. Forcing ratepayers to use less efficient and more expensive sources of energy will, quite obviously, increase electricity rates and disproportionately hurt certain regions of the country.  They’re also, in many cases, duplicative.  Already, 35 states have imposed their own renewable electricity mandate or goal. States are obviously free to enact these costly mandates and have regularly done so without federal intervention.  

Lastly, it is not clear what Senator Graham hopes to achieve with his alliance with Senator Kerry. Senator Graham claims to want to improve access to offshore oil and gas production, but the OCS is already open.  The hold-up is the Obama Administration’s stalling of the regulatory process, not a lack of Congressional authorization.  Their policies are also holding up new investments in nuclear power, in coal mining and new generation coal plants, and refineries are closing while they are opening around the world.   

“Can efforts by Kerry, Lieberman, and Graham save climate change legislation?” For the good for everyday hard working Americans and our future economic opportunity, let’s hope not.

AGA’s position on climate change legislation is that our legislators can reach our nation’s energy goals sooner by recognizing the important role that clean, efficient and domestically abundant natural gas can and must play in combating climate change.

Regardless of whether or not Congress passes a comprehensive climate bill, there are several important issues that it could address right now to help lower emissions and save energy.

Congress should expand the existing Federal Trade Commission EnergyGuide labeling program for home appliances to include carbon footprint information. Clearly explaining the true carbon impact of major appliance purchases will allow consumers to make informed decisions about their own carbon footprints. The labels would also help consumers choose appliances that have the lowest total environmental impact by giving them a way to compare across fuel types.

Congress should also support the implementation of full-fuel-cycle measurement, which is the most accurate way to calculate energy consumption and carbon emissions of home appliances. Right now, efficiency ratings only consider energy consumption at the point of end use, such as the burner tip and electric outlet, and fail to take into account energy lost in the production, generation, transmission and distribution processes.  Using this more accurate method, natural gas is far more efficient than either electricity or fuel oil.

AGA also supports the development of cost effective building codes and standards, in particular the Environmental Protection Agency’s (EPA) approach of developing and implementing building energy codes and standards based on source energy use. EPA has clearly stated that source energy is the best common unit of measurement to capture a building’s efficiency because it represents the total amount of raw fuel that is required to operate the building. According to the EPA, “source energy incorporates all transmission, delivery and production losses, thereby enabling a complete assessment of energy efficiency in a building.”

If Congress is serious about taking measurable and meaningful steps to achieve a carbon-neutral future, these are three smart and easy ones with which to start.  Any legislation looking for bipartisan support, whether or not it includes a cap-and-trade provision, should reflect the large and growing role that natural gas can play in that future.

As long as the energy bill remains on hold, we’ll continue to forgo its potential benefits.

Substance aside, the process was enough to kill the climate bill in the EPW Committee. Climate legislation will require support from both sides of the aisle, but the only bipartisan feature of that bill was the opposition to it. It’s past time to start discussing what comes next.

It’s important to act on climate change – but it’s more important to get it right. To develop a policy that balances environmental progress with economic strength, we must fully account for both goals at the outset.

This will take time – perhaps more than some would like – but it doesn’t mean that progress can’t be made. Before the end of the year, the full Senate should consider and pass the bipartisan energy bill approved by the Senate Energy and Natural Resources Committee.

Some are concerned that we need the energy bill to be part of a climate bill to provide the necessary “lift” for the climate portion. I hold we need to develop a climate bill that has sufficient merit to pass on its own. The Senate energy bill does not contain a price on carbon that many feel is so important. It would, however, significantly reduce our nation’s emissions without threatening our already fragile economy. As long as the energy bill remains on hold, we’ll continue to forgo its potential benefits.   

While cap-and-trade proposals considered thus far have laid claim to greater greenhouse gas reductions, they have also been universally shown to come at an untenable price in these difficult economic times. It’s becoming apparent that incremental progress on climate change is more achievable than attempting to get an economy-wide program enacted in one fell swoop. It will take time legislatively, technologically and internationally to complete such a complicated endeavor.

Unlike the Kerry-Graham effort, the Senate Energy and Natural Resources Committee has produced an actual bill with bipartisan support. While my colleagues’ statements and actions are commendable, it will take time to translate their good intentions into legislative text and more still to determine whether or not their bill can garner enough support to pass the Senate. It took our committee more than five months and 11 markups to complete the energy bill. More than 100 amendments were considered, and yet we did not allow the process to bog down in partisanship. 

As apparent as it has become that the Kerry-Boxer bill cannot pass the full Senate, legislation developed outside the jurisdictional confines of a committee system has not fared much better in the past either. Proposed immigration reform was developed through a model similar to that which Sens. Kerry and Graham are pursuing. Our immigration policies remain unchanged.

High gasoline prices last summer gave rise to a “Gang of 20” that sought energy production on the Outer Continental Shelf (OCS). That effort never led to the writing of a bill, let alone consideration of one by the full Senate. Ultimately, many of the Gang’s objectives were ironically achieved through legislative inaction as Congress allowed an OCS moratorium to expire and President Bush eliminated a similar executive prohibition. All that’s missing now is the political will to provide revenue sharing to states outside the Gulf Coast, finalize and implement a five-year plan, and centralize all OCS permitting with the Minerals Management Service.

My concerns about these past efforts notwithstanding, they were at least bipartisan. Legislation to address global climate change this Congress has taken the opposite approach. This has resulted in an over simplification of an incredibly complex policy matter – either you support an introduced climate bill, or you’re against protecting the environment. This perception ignores the fact that senators from both parties are concerned about the protection of our environment and the strength of our nation’s economy. I applaud Sens. Kerry and Graham for reminding people of this fact.

Proponents of a cap-and-trade bill believe that passing a standalone energy bill would be a sign of the Senate’s inability to act on global climate change. I disagree. You cannot utilize remote, renewable energy resources unless you can string transmission wires to those areas; you cannot raise capital for clean technology investments unless the impediments to borrowing are reduced; you cannot, indeed should not, simply eliminate conventional resources from our energy portfolio; and you cannot reduce the amount of energy that must be produced in the first place unless efficiency is improved. The Senate energy bill tackles all of these issues and many more. We can have a positive impact on the environment and the economy by adopting that legislation now, while continuing to develop climate policies in preparation for a much-needed debate on a bill – that can actually pass the Senate – next year. 

It is foolish to think two different packages could be achieved within such a relatively short time.

A year ago the strategy of two separate packages made sense – given the amount of time required to build consensus regarding climate, energy legislation could have moved as a high priority on a separate and faster track in the first half of 2009.  A renewable energy standard had broad support and could have served as an early stage “down payment” on climate. An energy bill also would have allowed more time and attention for important questions such as how to get a more robust transmission infrastructure built in this country.

But that was last year.  There is a limited legislative window available to get things done before the 2010 elections.  At this point it is essential that the U.S. put in place a clear, Congressionally-approved climate policy, and with the mid-term elections next year that policy must be in place no later than the spring of 2010.  Given the limited floor time available, it is foolish to think two different packages could be achieved within such a relatively short time, and it is clear that policies such as a renewable energy standard and cap-and-trade are in fact complementary and can be addressed in one package.

It is encouraging to see Kerry, Graham and Lieberman stepping forward to try to forge a middle ground on climate. It will not be easy, but such a broad collaborative approach is essential to getting agreement on climate in the Senate.

Passing Both In Tandem Is Crucial

We need both, we need them both quickly, but we need for them to work in harness.

Any sensible plan to develop an innovative low-carbon, clean energy economy needs four elements:

1)      An investment strategy to develop, scale and bring down the price of new clean energy technologies.

2)      A set of market reforms designed to ensure that cost-effective clean energy solutions are not slowed down or denied market access by institutional barriers or the resistance of incumbent energy sector players with assets invested in the fossil fuel sector.

3)      Incentives or mandates to accelerate market deployment of new, clean energy technologies to overcome the inertia created by the enormous current investments in high carbon energy sources.

4)      A way to pay for 1-3.

 The idea of somehow separating legislation dealing with climate from legislation dealing with energy reform is, looked at through this lens, simply preposterous. It is impossible for Congress to figure out which market reforms, incentives and mandates are cost-effective unless Congress knows how fast we plan to decarbonize our economy.   Taking up climate later leaves such awkward questions as “what do we do about very high carbon, dirty, but geographically close energy sources like Canada’s tar sands?”  If you leave climate out, it is almost irresistible for Congress to postpone the single most important climate question -- how to clean up the carbon emissions from coal.

 Separating these legislative efforts means – almost certainly – creating two different payment mechanisms, and it is the payment mechanism which is politically most controversial part of this legislation. Several of the most likely candidates as incentives in a climate bill --- whether cap and trade, cap and rebate, oil imports limits or a carbon tax – could also serve as important financial mechanisms for energy sector technology development and market incentives.  And without taking climate into account, we will almost certainly fritter away the opportunity to think strategically about how to combine strategies like tropic forest protection with clean energy deployment – we need both, we need them both quickly, but we need for them to work in harness.

 Those who want to take up climate later because they don’t like cap and trade ought to offer their alternative – not for consideration later, but as part of the mix in this Congress – because we are almost certainly going to design a better climate+energy bill than separate climate and energy bills taken up by two different Congresses.

 Members of Congress may not like to cast tough votes. That’s what we pay them to do – not in my personal opinion enough – but they did apply for the job.

China will install more new wind generation capacity than any other country in the world--a position the U.S. held just last year.

We thank Senator Graham for his courageous effort to break the partisan gridlock on energy and climate legislation, and very much hope that his work with Senators Kerry and Lieberman proves successful.

We continue to support passage of a comprehensive energy and climate bill and to urge that it include a strong renewable electricity standard (RES) that will provide the certainty businesses need to invest billions of dollars in America and create hundreds of thousands of jobs

In doing so, we note:

1) The public overwhelmingly supports clean renewable energy.  This was confirmed most recently just last week with the report of a Sooner Survey conducted in the state of Oklahoma.  It found that fully 91 percent of respondents "approve of the further development of wind power for producing Oklahoma's needed electricity."  Furthermore, In fact, Oklahomans are so supportive of using wind power that they break against their normal antiregulation and anti-mandate sentiments: 67% favor a requirement that 20% of the nation’s electricity needs be met with wind power by the year 2025.

2) The U.S. is currently paying the price for 30 years of neglect of energy policy.  This year, China will install more new wind generation capacity than any other country in the world--a position the U.S. held just last year.  Other countries with strong national commitments to renewable energy are reaping the benefits in increased domestic energy production and jobs.

The global wind power industry is currently building out its factories and supply chain, and making decisions where new manufacturing facilities will be located.  We have a world-class wind resource and a once-in-a-generation opportunity to build the market that will bring those facilities and the jobs they create to America.  Now is the time to seize that opportunity and make our nation a global leader in clean, renewable energy by passing comprehensive energy and climate legislation with a strong RES.

Simply put, the cap's the thing. Doing an energy bill without directly addressing our global warming pollution would miss the point of why we’re addressing the issue in the first place. Putting a limit (and with it, a price) on our global warming pollution will send a vastly clearer signal to the market than floating a raft of subsidies and hoping the folks downstream get the message.

I’d also take issue with your contention that clean energy & climate legislation needs “saving.” In the House, the American Clean Energy & Security Act got more Republican support than the heath insurance reform bill and economic recovery package combined. That was despite a massive campaign against it led by major polluters. And just last year, similar legislation earned the support of 54 senators despite opposition from President Bush. With President Obama’s support and a bipartisan path to the finish line, we have reason to be confident.

The National Wildlife Federation is confident Senators Kerry, Graham and Lieberman – with the support & guidance of Senators Reid and Boxer – will shepherd this historic legislation to passage.

If there was important energy legislation that could be passed and should be passed soon, it would make sense to separate energy from cap and trade. However, Washington has already generated two comprehensive pieces if energy legislation in the last four years. And since those policy acts included steps to increase investment in nuclear power, research and development in energy technology, improvements in energy efficiency and alternative energy, it is unclear what pressing energy needs must still be met by this Congress.

Legislation to encourage more domestic oil exploration is important to slow the growth in imports and increase domestic investment that will create good paying jobs here instead of other countries. Yet, the Senate leadership seems to be long on talk about reducing dependence on insecure sources of oil and short on action to actually accomplish it. On the other hand, those same Congressmen are taking great strides to use this next energy bill to increase renewable energy requirements -- a move that will simply drive up the cost of electricity and increase subsidy requirements for energy systems that are not cost-competitive.

The Senate would serve the best energy interests of the American public better if it re-examined how well the Energy Policy Acts of 2005 and 2007 were working and then took corrective action where they aren’t. One form of corrective action involves making sure that the Executive Branch has moved swiftly to implement past legislative requirements especially with respect to leasing, improving the grid, and deploying improved energy technologies. 

Congress is very unlikely to ever pass a cap-and-trade system.

The question of splitting climate reforms and the energy package comes down to how urgent we consider passing the energy provisions, since it’s clear that the Senate will not enact Kerry-Boxer or any other cap-and-trade system this year.   In politics, it’s usually better to take a half loaf than none; but since the other half of this loaf is the most important part, it comes down to whether climate reforms can pass without energy reforms. The answer to that question is more complicated than it seems, since the hard truth is that Congress is very unlikely to ever pass a cap-and-trade system. One reason is that economists have pointed out how a cap-and-trade system inevitably makes energy prices much more volatile, as it has in Europe. Beyond people’s predictable reactions to even more volatile energy prices than today, businesses won’t undertake the huge investments required to develop more climate-friendly fuels and technologies unless they can project their returns based on a stable price for carbon.   Cap-and-trade is also so complicated that it’s been easy to encrust it with crippling, special-interest exemptions and “offsets,” a phenomenon observed equally in the European Trading Scheme and the House-passed Waxman-Markey bill. The first priority, therefore, should be to open up the debate to a “Plan B” that doesn’t have cap-and-trade’s serious drawbacks. Let’s start with what has worked well in Scandinavia -- a carbon-based tax, but one in which we also protect the economy by recycling the revenues in other forms of tax relief. If we can get that debate going, we may not have to pick and choose between climate and energy reforms. 

Passing any energy bill without significantly reducing greenhouse pollutants simultaneously would be a tremendous missed opportunity.

The old Midas television commercial summarizes it all right now with regard to U.S. energy policy: “you can pay us now or pay us later.” Every day that the United States puts off passing strong science-based climate legislation the more expensive the final bill will be, and the more damage human beings and the natural environment will suffer. This is not to say that strong energy legislation that ramps up investment in renewable energy is not a good idea. It is (and will create many long-term sustainable job opportunities as an added bonus). But the Senate Energy and Natural Resources energy bill is flawed, and passing any energy bill without significantly reducing greenhouse pollutants simultaneously would be a tremendous missed opportunity. Even the Kerry-Boxer climate bill that passed out of the Senate Environment and Public Works Committee has several debilitating flaws: first it does not set science-based pollution reduction standards (i.e., anything remotely close to 350 or even 450 ppm of CO2), second it does not aggressively go after methane reductions despite the technological ability to do so today at basically no cost, and third it waives the very portion of the Clean Air Act (i.e., the National Ambient Air Quality Standards or NAAQS) that could actually provide the tool to achieve science-based standards in a familiar way to various levels of government. So as we consider pouring literally hundreds of billions of dollars into the coal industry, offshore oil drilling and new nuclear investment with current legislative proposals, shouldn’t the taxpayer ask: is this going to get the job done on global warming? It isn’t victory merely because the President signs a bill that says “climate” (or “energy”) in it. But that cynical scenario is where we are headed without true leadership by our elected political leaders. And the fossil fuel industry knows it.

Climate should go first for 3 reasons: 1) coincidence with clean domestic energy, 2) international credibility, and 3) inherent simplicity. Simple cap and trade might be something as follows: 83% cut by 2050 from large electric & industrial sources - with 2/3 to 3/4 auctioned and free pro-rata allocation (to emitters) in the early years. Energy policy is more complicated (note: 1426 pages of HR2454 avoided most real energy decisions). There should be 3 core components to an energy bill: transportation policy & fuel taxes, electric power supply, and electric power distribution (including incentives for utility agents to support individual and national energy productivity). Kerry, Graham, and Lieberman have stepped boldly into a void created by "kitchen sink" legislative alternatives and Executive branch silence. They can succeed.

Editor's Note: This week, Sen. Jeff Bingaman, D-N.M., chairman of the Committee on Energy and Natural Resources and a contributor to this blog, is providing the question.

Last week, the Committee on Energy and Natural Resources held a hearing to examine the increased supply estimates for domestic natural gas from shale formations, and the contribution that those projected supplies could make to our energy security and climate protection objectives. One of the witnesses put forward a proposal to replace the least-efficient coal-fired electricity generators with newly built natural gas plants. He testified that replacing about 8-10 of these old coal plants per year in this manner would account for about 10 percent of the cumulative 2020 domestic emissions reduction contemplated by pending climate bills, and that these reductions would come at a cost equivalent to about $13 per ton of CO2 reduced.

What would be the pluses and minuses of such an initiative? If we greatly expand our use of natural gas in the utility sector, how would that affect the manufacturing sector, which also has a growing need for natural gas? How likely is it that utility fuel will switch to natural gas in any case, independent of the passage of climate legislation or specific initiatives?

-- Jeff Bingaman

AGA’s position with respect to natural gas versus coal for electricity generation is:   we need natural gas and coal for that purpose, just as we need to aggressively develop all of our other energy resources—nuclear, wind, solar and hydro, along with technologies that will maximize the utilization and efficiencies of each fuel.   After all, demand for electricity will continue to grow, so our optimum energy strategy—both from a domestic-security and infrastructure-capability standpoint—is a flexible, diverse and regionally appropriate blend of electricity generation, in which natural gas plays a role, but so does every other fuel source.

Certainly, in a carbon-constrained world, natural gas, which is by far the cleanest and most efficient of the fossil fuels, can make a significant contribution to electricity generation, especially since new natural gas resource estimates indicate we have about 100 years of domestic supply. Thus, replacing the least efficient coal-fired generators with new natural gas plants would be a clear, and cleaner, step forward.

That said, we cannot lose sight of the fact that the most beneficial use of this premier fuel is directly in the home and business, or in other end-use applications such as natural gas vehicles.   Natural gas from the wellhead to the burner tip in homes and businesses loses only about 10 percent of its useable energy. Converting natural gas into electricity to power comparable electric end-use product in the home or business results in the loss of about 65 percent of its useable energy, and results in increased greenhouse gas emissions.   That is why diverting from its direct-use applications the significant volume of natural gas needed to replace the generating capacity of 8-10 coal plants every year is a less than ideal scenario. 

We all understand that natural gas is a key piece to solving the energy and climate change puzzle.  But increased fuel diversity would allow more natural gas to be used directly in the residential and commercial market, where, for more than 40 years, natural gas customers have led the way in increasing energy efficiency, conservation and greenhouse gas reductions.

Replacing the coal plants with natural gas plants is not the best option in the long run.

The dichotomy of coal or natural gas is not that clear. There are technologies to make natural gas out of coal, aka, coal gasification. This would be energy using and will produce effluents. However, the final result, syngas, or synthetic natural gas, burns more efficiently and cleanly than the original coal. In net effluent terms syngas can be more environmentally sound, if it is done right. We also have coal bed methane. There is methane, natural gas, locked into coal beds by water. By taking the water out and filtering it properly, natural gas can be produced. This is an increasing source of natural gas in the US and in many other parts of the world with large coal deposits. 

It is indeed the case that natural gas burns more cleanly than coal given the average technologies we have today. Clean coal technologies are not exactly diffusing at a rapid pace given their costs and other reasons. Some even question whether clean coal technologies fit their name.

Replacing the coal plants with natural gas plants is not the best option in the long run. It may be a small start toward a full phasing in toward a new energy future. Natural gas plants also produce C02, albeit less than coal plants. Less C02 is better than more, but there are better ways of getting to less.

If we are focusing on C02 reductions then nuclear plants might be a better choice, if it were not for the time it takes to get these up and running and the big problem of what to do with the waste. Solve these two problems and nuclear could be on a roll.

Renewable technologies could also be used to replace the coal plants and these renewable technologies have a very small carbon footprint compared to fossil fuels. What I am thinking about, amongst many thousands of other possible ideas on this, is geothermal, concentrated solar power, solar updraft towers of significant size, and, in some areas, tidal power such as can be found in Canada near the Bay of Fundy. (You might want to look at what is happening with the DESERTEC project to get a sense of the potentials here.)

Sure many of these technologies have their problems, but if you calculate in the reasonable environmental, military, diplomatic and other costs of using fossil fuels per KWh produced many of the renewable technologies become quite competitive.

Another option we need to consider that is far more important in the long run than switching from coal to natural gas is improved efficiency in electricity production in fossil fuel plants. Right now we are losing 70 plus percent of the fuel put into many of these plants to heat that dissipates into the air. This holds for coal, natural gas, and oil plants. What is a lot smarter way of reducing the total carbon footprint per usable BTU in these plants is to finally get to the "no brainer" solution: combined heat, cooling and power. Why is it that Denmark and other do this and we do not?

A power plant produces a lot of heat from burning fossil fuels. Most of it is lost at the plant. This heat can be captured for use in municipal or local heating. It could be used for industrial and agricultural processes. It could be used, for example, in greenhouses in cooler times of the year to grow crops. Iceland does this. The heat from these power plants could also be used to produce cooling. How can heat produce cooling? One can do this through the use of absorption chillers that use a liquid that evaporates at low temperatures, such as ammonia, for example.  

Voila, we now have electricity, heat, cooling, industrial processes, agricultural and other processes now using more and more usable energy. Is that not better than just tossing the heat into the air and complaining about the C02, other effluents and energy and national security weaknesses that result from being inefficient when we could be otherwise?

Some of the biggest users of electricity are buildings, including industrial, commercial and residential. If we tightened up those buildings and made them more energy efficient then less C02 would result from each usable ton of coal, billion cubic feet of natural gas and so forth. Here is yet another "no brainer". If one were to follow the typical lighting system of a residential house of the 100 pounds of coal put into the generator furnace about 2 pounds is used for usable light. Our typical lighting systems produce more heat than light with the precious fuels we use to produce the electricity. The typical toaster we use to cook our bread in the mornings in millions of homes is absurdly wasteful.

A lot of energy is lost in the transmission, distribution and use of electricity. We need to change the way we do things at many levels, not just at the generation plant. Smart grids are a start, but I do not see the required money or efforts being put forth for this to happen any time soon. I suspect the waste from electricity production is just being "swept under the rug" in order to not see it for what it is: one of the biggest sources of potential economic and other insecurities in the future -- if we don't do enough to help solve the many problems that will result from it.

In the US and globally the biggest source of wasted energy in the use of fossil fuels is in the production of electricity. The production of electricity is also the biggest source of C02 in total both in the US and globally. So why not focus on tightening up the electricity production, transmission, distribution and use?

The typical economist will say that if there is a $20 bill on the ground, well, it can't be there because someone would have already picked it up. There are trillions of dollars on the ground in energy efficiency. These are not being picked up. They are being swept under the rug of political confusion, and, yes, ignorance about what the real problem is here. It is not just switching from one hydrocarbon to another. It is also making the use of those hydrocarbons far more efficient. (The second largest source of C02 is in transportation, another astonishingly wasteful use of precious fossil fuels and our environment.)

In the long run we will need to move away from those hydrocarbons. But that will take a long time. So in the meanwhile we need to be smarter and more efficient in the use of these hydrocarbons in the production of electricity as we phase in toward a better, more sustainable future. We can do that in the medium run and in some cases even in the long run. That is if we want to. We could just keep on wasting all that heat, all of those fossil fuels, and all of that environmental quality and keep complaining about energy security and global climate change. We could also get smarter and get to more effective strategies for a better energy and environmental future.

A Dangerous Policy with Serious Negative Consequences

Demand for natural gas by the power sector has increased from 5.2 trillion cubic feet in 2000 to over 6.6 trillion in 2008, a 27 percent increase while production has increased by only 6 percent. By anyone’s perspective, this is a significant increase in demand and was done without financial incentives and without cap and trade. Total US natural gas demand in that same time period increased only 7.9 percent.

Consumers take a double hit. When demand for natural gas goes up, prices go up. And, because natural gas powered generation sets the marginal price of electricity in a growing portion of the country, so does the price of electricity.   

There is a direct correlation between manufacturing job losses and spikes of natural gas prices. Several manufacturing industry groups have concluded that high natural gas prices have significantly contributed to as many job losses as 3.7 million out of the total 5.4 million job losses since 2000.        

The power sector has several options like natural gas, renewable, nuclear, and coal to provide power to their customers – but consumers like manufacturers, homeowners and farmers do not. Manufacturers are especially vulnerable because they are dependent upon natural gas for both fuel and feedstock.

Congress should focus on encouraging energy options to compete with one another – when they do – consumers receive the benefits. 

It would be a mistake for Congress to drive natural gas preferentially into power generation.

Natural gas is an important, clean fuel that has a role in climate mitigation. At Dow, we hope the predictions about increased natural gas supply are right, but we think it’s too early to declare natural gas a silver bullet or bridge fuel solution. Natural gas should be a component of a comprehensive energy policy, but we must be sure that policy doesn’t create a “dash to gas” that destroys manufacturing jobs.

As we testified last week, we believe it would be a mistake for Congress to drive natural gas preferentially into power generation, as this could further erode our manufacturing economy and increase the volatility of natural gas. The result will be higher natural gas prices and higher electricity bills, which will be felt by every American. Congress instead should promote a diversity of energy sources while also creating robust energy efficiency initiatives. This will ensure a stable, low-cost supply of natural gas.

Over the last 12 years, there have been five significant natural gas price spikes due to increased demand. Those price spikes contributed to the loss of nearly 4 million jobs in the manufacturing sector. They also turned a $19 billion U.S. chemical trade surplus in 1997 into a deficit from 2001 to 2007. Even as demand for natural gas fell 22 percent from 1997 to 2008, average natural gas prices rose more than 160 percent. This price volatility causes demand destruction and job destruction.

Affordable natural gas adds value to our economy. For example, for every dollar Dow spends on natural gas, we produce over $8 worth of high-value products. Rather than focusing on natural gas as a preferred power generation source, we would see a greater bang for our buck in the economy by spurring increased manufacturing uses of gas. While some call natural gas a bridge fuel, if it causes a “dash to gas” it could be a bridge too far.

A key question is the relative cost advantage of natural gas over coal in a carbon-constrained world.

In assessing the policy proposal to replace inefficient coal-fired generators with modern natural gas plants, many of the responses have cautioned against interfering with market forces in the setting of climate and energy policy.  One responder argued that market forces are so complex that direct action such as this would be fraught with unintended consequences. Other responders have argued that current incentives for coal generation and renewables in pending climate legislation already distort the market for generation, and in this context direct action to incentivize the use of natural gas is necessary to create a more level playing field.

A key question in this discussion is the relative cost advantage of natural gas over coal in a carbon-constrained world, and what the price of carbon would need to be for natural gas to gain an economic advantage. There are many complicating factors, but if one considers only the cost of the fuel for generation, what allowance price makes, say, $6/mmBTU gas equivalent in cost to $2/mmBTU coal?  If one further takes into account the cost of building new replacement generation, at what carbon price do different forms of generation (gas, nuclear, wind, solar, coal with carbon capture and storage) become economically competitive for baseload generation?

It’s highly likely that utilities will “fuel switch” from coal to natural gas to reduce greenhouse gas emissions. In fact, this is already happening. From 1997 to 2008, natural gas consumption for electricity generation went up 62 percent, according to the U.S. Energy Information Administration.  This trend would accelerate in the event of federal climate legislation: Natural gas demand would soar because natural gas is one of the few lower-emission energy sources available today.  Others such as nuclear energy, carbon capture and storage, and alternatives and renewables (e.g. wind and solar) are all important pieces of a sound U.S. energy strategy, and any climate policy should encourage their development and deployment as quickly as possible.  Unfortunately, these sources are not yet available in the quantities needed to meet energy demand, nor is the infrastructure ready to connect these new generation sources with users.  Consequently, in the near-term, utilities would turn to natural gas to comply with climate legislation.  Aggressive, short-term emissions reduction and targets and timelines, in particular, would exacerbate fuel switching. Longer-term, natural gas would still be needed as “back-up” generation for wind and solar, as it is already used today.  Natural gas is used for other clean energies as well, including cleaner transportation fuels, renewable energy production, hydrogen for fuel cells and as a raw material, or “feedstock” for chemistry that goes into energy efficiency and renewable energy applications – from solar panels and wind turbines to building insulation and lithium-ion batteries. There is serious discussion of boosting the use of natural gas in these ways, which would further increase demand.

In recent years, the competition between industrial natural gas consumers and utilities for scarce domestic natural gas supplies created a “zero sum game” in which any increased demand for natural gas by utilities comes at the expense of industrials.  The availability, reliability and affordability of domestic natural gas supplies has been questionable, as evidenced by five U.S. natural gas price spikes since 1997, each caused by large lags between demand increases and stepped-up production.  This is important because chemistry companies make decisions on where to invest in future production largely based on their confidence in long–term U.S. energy and feedstock supplies. More than 120,000 U.S. chemistry jobs were lost – many to nations with lower natural gas prices.  While natural gas prices have since dropped, the assessment of many economists is that the change is largely recession-related industrial ‘demand destruction.’  

How about the supply side of the equation?  We believe recent news of natural gas supply discoveries in the United States, largely from unconventional sources such as shale gas, is positive for the U.S. manufacturing sector.  ACC has long supported efforts to increase U.S. natural gas supplies so that natural gas will be reliable and affordable and U.S. manufacturers can be globally competitive.  However, it will take time to gauge whether these sources will be developed, produced, approved and brought to market in a reliable and timely way sufficient to meet demand long-term.  Daniel Yergin and Robert Ineson had an interesting look at such questions in the Wall Street Journal this week " (America's Natural Gas Revolution," November 2.) They noted that with the new shale gas discoveries, "Energy-intensive manufacturing companies, which have been moving overseas in search of cheaper energy in order to remain globally competitive, may now stay home. But these industrial users and the utilities with their long investment horizons—both of which have been whipsawed by recurrent cycles of shortage and surplus in natural gas over several decades—are inherently skeptical and will require further confirmation of a sustained shale gale before committing."

We are urging Congress – including the new Natural Gas Caucuses in the House and Senate – to balance calls to legislate greater natural gas demand with steps that will create a reliable, affordable, accessible and adequate long-term supply of natural gas.  We hope that the Caucuses and other lawmakers will discuss both supply and demand issues and take care to address the specific concerns of the U.S. manufacturing base.  Doing so will not only strengthen the U.S. economy, but support environmental improvement: American chemistry holds many of today’s ‘green jobs,’ making products used for energy efficiency and renewable energy.  We can help create the lower carbon economy of the future – the products of chemistry save fuel, reduce greenhouse gas emissions, and drive innovation in renewable energy like solar and wind.  (See www.americanchemistry.com/climatestudy). But to do so, Congress must enact policies that will enable us to compete in the global marketplace, invest in higher efficiency plants and equipment, and retain and grow our highly trained and productive workforce.  The availability of a stable, affordable, and diverse supply of natural gas will help achieve these goals.

This proposal must be considered within the context of what already is part of the energy/climate change legislation.

I appreciate the question from Chairman Bingaman and the opportunity to continue the interesting dialogue begun at last week’s hearing before the Energy and Natural Resources Committee. The chairman asks several interrelated questions.

The first question concerns the suggestion that energy/climate change legislation include measures intended to affect the retirement of the least efficient coal fired powerplants. As noted by the witnesses at the hearing, we should not lose sight of the overall purpose of climate legislation, which is to reduce emissions of greenhouse gases. Consequently, we should look seriously at proposals that would accomplish significant near-term emissions reductions on a cost-effective basis while affecting only a limited number of existing facilities. Based on these criteria, the proposal makes sense.

Also, this proposal must be considered within the context of what already is part of the energy/climate change legislation. Should the legislation be enacted as it now stands, the coal industry and the operators of coal-fired power plants will receive significant benefits in the form of free allowances and generous incentives for the development and deployment of power plants with carbon capture and sequestration. As noted at the hearing, these benefits insulate them from much of the effect that would come from a pure cap-and-trade scheme in which all allowances were auctioned. Therefore, in the balancing that must occur as we move towards a final bill, it is only fair that there be some trade off between measures impacting coal-fired electric power generation and measures intended to ensure that coal remains a viable part of the U.S. energy portfolio as we move towards a substantially de-carbonized energy economy.

The chairman’s second question concerns how the demand for natural gas created by increased power generation load might affect industrial natural gas consumers. In answering this question it is important to point to one of the central themes of the testimony received by the committee: unconventional natural gas is a game changer in how we should think about the natural gas resource base and the role it can play in the U.S. energy portfolio. This message is being delivered by not only the natural gas industry, but also by widely respected energy experts such as Daniel Yergin. In this regard, the November 3, 2009, opinion piece, America’s Natural Gas Revolution, authored by Mr. Yergin and Robert Ineson and published in The Wall Street Journal, is well worth reading.

There is every indication that the natural gas resource base will support growth in electric generation demand as well as the historic residential and commercial and industrial natural gas users. Furthermore, while the chairman’s question suggests that the manufacturing sector has a growing need for natural gas, most analyses point to only slow growth in industrial natural gas consumption and similarly slow growth in the residential and commercial market where increased market penetration is offset by increased energy efficiency. While there is no doubt that the industrial sector is affected by energy prices, the forecasted low growth in natural gas demand from this sector is more indicative of larger changes in the U.S. economy as we shift to a more service oriented, high technology economy. In sum, there should be ample supplies of domestic natural gas, supplemented by imports from Canada and opportunistic imports of liquefied natural gas (i.e., LNG coming to U.S. shores when there is slack in global LNG demand) to satisfy reasonable forecasts of natural gas demand growth at reasonable prices.

Chairman Bingaman’s third question asks how likely is it that utility fuel will switch to natural gas in any case, independent of the passage of climate legislation or specific initiatives. Perhaps the best way to answer this question is to reference the August 2009 Energy Information Administration report Energy Market and Economic Impacts of H.R. 2454, the American Clean Energy and Security Act of 2009. Compared to the reference case, natural gas consumption is lower in both 2020 and 2030 under all but one of the six scenarios modeled by EIA due to the effects of the Waxman-Markey bill. As noted by the witnesses at the Energy and Natural Resources Committee hearing, the climate bill in its current form puts a squeeze on natural gas as a compliance option. On the one hand, to the extent that compliance with renewable energy standards results in less reliance on conventional electric power generators, natural gas fired generators get dropped first, because these generators typically have the highest marginal cost. On the other hand, because of the provisions of the bills intended to insulate coal-fired generators from the costs created by the cap-and-trade regime, there is little incentive for coal-fired generators to comply by lowering their emissions. Hence, there is less reason for electric power suppliers to look to natural gas fired generators as a means to lower emissions. 

These forecasted impacts on natural gas would not be the likely result of a cap and trade law that placed a price on carbon and then left it to the market to find the most cost effective solution. Rather, the forecasted results are heavily influenced by add-ons to the cap and trade regime either intended to provide certain energy sources with an additional leg up or intended to shield other energy sources from the intended effects of the cap and trade regulation.

The root of the chairman’s third question would appear to be the statement at the hearing by the witness representing an industrial energy consumer that natural gas will do so well in the marketplace based on its inherent advantages that there is no need to pay special attention to the role of natural gas in crafting energy/climate change legislation. This likely would be true if, in fact, we were dealing with legislation in which the cap and trade program had not been compromised by so many provisions intended either to incent or protect certain sources of energy. That, however, is not the reality of the current structure of the energy/climate change bills that are under active consideration. Consequently, unless the Congress chooses to go back to the drawing board and start with a clean sheet of paper, it is entirely appropriate to be exploring what needs to be changed within the structure of the bills to ensure that natural gas has an opportunity to compete as a compliance option.

These answers are mine alone, and do not necessarily represent the views of INGAA or its individual member companies.

We do not believe that the public interest is well served by policies that approach our energy future as a zero-sum game.

Public policies encouraging the replacement of coal based electricity generation with natural gas are the bridge for accelerating the export of our manufacturing base and, with it, millions of high-wage jobs. Look no further than actual experience over the past decade.   As the use of natural gas increased for generating electricity, our manufacturing sector paid substantially higher prices for electricity (56 percent) and natural gas (200 percent). The Senate Energy and Natural Resources and Environment and Public Works Committees received testimony last week describing the consequences of this one-two punch to the U.S. manufacturing sector, which requires affordable electricity and natural gas to remain competitive. According to the Industrial Energy Consumers of America, our manufacturing sector lost more than 5.1 million jobs in the last 10 years and more than 40,000 manufacturing plants closed between 2000 and 2008. As Dow Chemical Company explained to the Energy and Natural Resources Committee, “The manufacturing sector . . . has become the shock absorber for high natural gas costs.” 

The “dash to gas” began a decade ago and, in its present form, the climate legislation under consideration would further exacerbate the consequences of higher electricity and natural gas prices for every manufacturer, farmer and homeowner. The proposal advanced last week by B.P. America, Inc. to retire 30 GW of coal generation capacity through “transitional incentives” for natural gas is simply a formula for subsidizing the accelerated off-shoring of our manufacturing base. Perhaps, as B.P. America suggests, such a substantial increase in natural gas consumption in the power sector can be met from existing reserves:   But at what price?   Economic dispatch is the reason why natural gas combined-cycle power plants run at less than 40 percent of their capacity. If natural gas could be delivered reliably at a price closer to the $2 MMBTU coal delivered last year, rather than the $9 the power sector paid for natural gas, those plants would run at higher capacity factors. Such a prospect is, apparently, out of the question without suspending the rules of economic dispatch through a natural gas subsidy. 

In a report released last year, the National Energy Technology Laboratory (NETL) warned that “policies that encourage the use of natural gas to substitute for coal in power generation could very well lead to spectacular price increases for households and industry.” Coal-based electricity, according to NETL, restrained the price of electricity and has constrained the price of natural gas from matching the rise in the price of oil. We do not believe that the public interest is well served by policies that approach our energy future as a zero-sum game. As Paul Cicio of the Industrial Energy Consumers of America reminded us last week, “Almost any product produced in the U.S. can be produced offshore and imported.” The shale gas play may be a game changer for the natural gas industry, but we should eschew policies that make it a job ender for everyone else.

In shifting to natural gas as a preferred source we need to be certain that the supply system can be created in a cost-effective manner and in time to meet the emissions reduction goals. We also need to be sure that siting such facilities meets with the expectations of the host communities. If a balanced portfolio of energy sources is to also be met with wind, solar, etc., what percentage is properly allocable to natural gas?

The development and use of shale gas should be determined by the cost of production and technology.

The promise of an abundance of shale gas and a shift from coal to gas in electric power generation is appealing. Clearly, there would be environmental benefits. But benefits that are achieved by interfering with market forces are likely to be illusory.

Not too many decades ago, regulators curtailed natural gas consumption, even limiting its use for home heating as a result of policy induced shortages. Then as a result of decontrol, the pendulum swung in the other direction and federal officials encouraged utilities to switch from coal. That was followed by utilities moving back to coal when natural gas demand outstripped domestic supplies and Canadian imports. As domestic and eastern Canadian production declined, there was increased talk of the need to build LNG facilities to meet our needs for natural gas. Now, there's talk of a natural gas boon that could meet our needs for 100 years, if incentives and policies are structured to unlock the abundance of shale gas. This energy history is reason for caution and prudence.

Recent energy policies have been dominated by political considerations and rent seeking while energy realities have been ignored. As a result they have neither been stable nor achieved important national objectives.  

Utilities as well as consumers should rightfully be dubious about this latest proposal to replace older generating capacity. The economic forces that drive energy markets are too complex and unpredictable for government to take the regulatory actions to bring about such a shift without creating a large risk of producing unintended consequences than economical supplies of shale gas.

The development and use of shale gas should be determined by the cost of production and technology, not policies that distort market forces. Policy barriers that impede the market’s ability to determine the highest valued use of additional gas supplies -- such as permit and leasing restrictions or tax policies -- should be removed.

An extensive debate about the potential for shale gas has been going on for at least several years. The optimist and pessimist camps have wildly different estimates about production costs, profitability, and production potential. Given our recent experience with bubbles and busts -- and the tendency to underestimate costs to attract investments -- it would probably be prudent to go slow in pushing shale gas. 

There is no doubt about the abundance of shale gas, but the cost of production is currently too high to make it commercially competitive. Many producers are saddled with large debt because they bet on ever increasing natural gas prices.

Instead of crafting a legislative policy focused on shale gas production for use in replacing coal fired generators, a better energy policy would be to increase oil and gas leases, on shore and off, that could lead to increased production of conventional gas.

Policymakers should also examine incentives for accelerating the turnover of older, inefficient power generating capacity and the existing policies that result in “older and inefficient” generating facilities remaining service. It is likely that New Source Review requirements and other Clean Air Act regulations along with depreciation rules create impediments to building new, more efficient generating facilities. Removing policy impediments would be a more productive route and one that would lead to lower emissions.

Fuel switching to cleaner primary fuels for the production of electricity, while we build a more renewable infrastructure, is a perfectly logical bridging strategy. In doing this, it is critical that we create policy that most effectively increases the availability of cleaner fuels, specifically natural gas.

One strategy that is often overlooked, or at least rarely treated analytically inside climate and/or energy policy options, is the major role buildings can play in this.

In 2008, 41% of the energy consumed in the U. S. was used to operate buildings. This was split at 22% residential and 19% commercial. Today, there are about 129 million homes and over 70 billion square feet of commercial space. These buildings are, in general, performing poorly from an energy efficiency standpoint. For example, it’s estimated that some 80 million homes are underinsulated. With some notable exceptions, we continue to add underperforming buildings to this stock every day.

In the context of fuel switching opportunities, it is instructive to look at the impact that energy efficiency gains could have on primary fuels consumed on-site as well as those used to produce the electricity that is delivered to our buildings. The natural gas consumption in buildings, from direct use and electric power generation, is about 12.6 Quads, or 31% of the total energy that buildings use.

The Business Round Table’s report: “More Diverse, More Domestic, More Efficient; A Vision for America’s Energy Future” outlined pathways to achievable building energy efficiency penetration. Savings of 6.3 Quads was found to be quite attainable. Coupling these energy savings with the Department of Energy 2008 Buildings Energy Data Book’s conversions to primary fuel, and looking at the granular savings in space heating, lighting, space cooling, and water heating, we can draw some interesting conclusions.

From implementing these energy efficiency improvements, direct on-site natural gas consumption would drop 1.9 Quads. This liberated fuel could be redeployed for lower carbon electrical production. There is an additional 3.82 Quads of electric use reduction, which would directly drop electricity demand (the remaining .58 Quads comes from other on-site fuels). We could chose, through policy and/or incentives, to remove this 3.82 Quads via low cost, high carbon coal fired electricity. However, lacking policy in this area, it is more likely that higher cost natural gas fired electricity would be idled, of which there is plenty to absorb this demand reduction.

From an energy independence point of view, it’s interesting to note that we could also use this fuel switching to reduce oil imports. The 1.9 Quads of natural gas could go direct to transportation using natural gas vehicles and the 3.82 Quads of electric savings could be deployed to power electric cars or fuel-switched to power natural gas vehicles. In this way, from building energy efficiency savings alone, we could reduce our oil imports by about 28%. This is a critical supporting element of the well known Pickens Plan.

In summary, we need energy/climate policy that:

1) Drives rapid and substantial energy efficiency retrofits of residential and commercial buildings.

2) Assures that the buildings we add to our infrastructure each year are at least 50% more efficient than what we (on average) build today.

3) Assures that the saved on-site combusted fuels and delivered electricity are fuel-switched and managed to maximize carbon reductions.

(One Quad = 10¹⁵ Btu or 172 million barrels of oil equivalent)

There are tremendous opportunities to reduce carbon emissions by putting natural gas to more use in the electric sector.

It’s a no-brainer that we should provide incentives to encourage the retirement of power plants that are inefficient and produce high amounts of carbon, so that they can be replaced with cleaner, more efficient power plants. And it’s equally obvious that there are tremendous opportunities to reduce carbon emissions by putting natural gas to more use in the electric sector. For example, combined cycle natural gas-fired generators are often the most efficient generation facilities in service, but they run at only about 40 percent of their potential. Here's the big advantage to using existing gas-fired plants more often: No new capital investment is needed to reduce carbon emissions. We still need an incentive to retire old, inefficient carbon-intensive plants – and that includes even old, inefficient natural gas plants as well as other fossil fuels -- so that more electric load will switch to existing combined-cycle gas plants that aren’t fully utilized, and we could make significant strides toward meeting our future emission targets.

Would generators eventually move to using natural gas anyway even without a congressional incentive? Perhaps, but it’s hard to say if they would do it as soon because both the House and Senate climate bills contain measures that disadvantage natural gas in the distribution of emission allowances to a degree that could distort and delay a shift to natural gas-fired power generation.

We are aware of the concern in Congress that using more natural gas to make electricity may result in a "dash to gas" and thereby put upward pressure on prices. But our natural gas resources have grown remarkably in the past few years. In fact, new techniques allowing us to economically produce natural gas from abundant shale formations found across the United States have resulted in a recent, astounding 39 percent growth in the estimated amount of natural gas in the U.S. Shale production is a game changer and will enable us to respond quite well to increased gas demand for both generating electricity and satisfying the manufacturing sector. In short, climate change legislation should appropriately acknowledge and encourage the increased use of natural gas for power generation through inexpensive incentives, thereby resulting in earlier carbon reduction than would be possible otherwise.

If there is a devil in the detailed Kerry-Boxer, we're going to get a lot closer to finding it. Environment and Public Works Chairwoman Barbara Boxer, D-Calif., has released her chairman's mark, and the Environmental Protection Agency completed its analysis on the bill. And this week, Boxer's committee begins a series of hearings on the bill, with top administration officials set to testify Tuesday.

What's your initial take on the chairman's mark and EPA's analysis? What changes would you like to see and what changes do you expect? How do you think this EPA analysis compares to the agency's report on Waxman-Markey? Do you think the hearings will help trigger substantive discussion on key provisions now lacking in the bill? Or do other committees need to mark it up before certain provisions can be addressed?

Moderate Democrats Push Back

The big news of day one of the EPW hearings was Sen. Max Baucus, D-Mont., along with other moderate Democrats like Arlen Specter of Pennsylvania, expressing concerns over the greenhouse gas reduction goal for 2020 and EPA's regulatory authority.

Do you agree with Baucus that 20 percent below 2005 levels is too strict a reduction to meet by 2020? Do you think this target will need to be changed in order to get to 60 votes? What else do you think may need to be changed to get the votes?

Will the economics of climate change continue to dominate the debate Wednesday and Thursday?

Congress should treat all renewable energy sources equally, whether they are used to generate electricity or supplement natural gas supplies.

The American Gas Association (AGA) commends Congress for keeping a spotlight on our nation’s energy issues by giving careful consideration to several different bills on the table right now, including Kerry-Boxer.  By recognizing the role that clean, domestic and abundant natural gas can and will play in combating climate change, our legislators can help reach our nation’s energy goals sooner.

AGA also urges members of Congress to take a look at the successful track record of America’s natural gas utilities and their customers. During the past 40 years, while the number of natural gas customers has doubled, actual gas use and greenhouse gas emissions have remained essentially flat. This remarkable success in both reducing natural gas usage on a per-household basis and increasing appliance efficiency should be considered when crafting a national energy strategy. Instead of simply mandating arbitrary prescriptive requirements, a far more effective course of action would be to continue to support these proven and successful approaches.

We believe that natural gas could, and should, be used as a tool to improve environmental quality and energy efficiency. To that end, AGA believes that as lawmakers craft climate change and energy legislation, the following key points should be considered.

If a cap-and-trade approach is implemented, Congress should maintain or increase the four-year delay for natural gas utilities coming under that program, while increasing their allowance allocation from nine percent to 12 percent and extending their allocated allowance phase-out from 2030 to 2040. Congress should also significantly modify or delete the provision that stipulates one-third of the value of allowances allocated to natural gas utilities should go to energy efficiency programs, as this approach will not reduce emissions and will only raise costs.  In addition, Congress should treat all renewable energy sources equally, whether they are used to generate electricity or supplement natural gas supplies.

An approach to reducing emissions that is focused on appliance efficiency standards, building codes, and utility-supported conservation/efficiency programs has a proven track record for residential and commercial natural gas customers. AGA asks that Congress strengthen this approach rather than impose the higher costs and greater uncertainties that would result from a cap-and-trade approach.

Pete Sepp, Vice President for Policy and Communications at the National Taxpayers Union, submitted the following:
 

Households will suffer under a burden of between $2,000 and $4,000 per year.

As the EPW Committee listens to testimonies this week from experts representing small business owners, farmers, truckers, and taxpayers more broadly, we can only hope that all Senators on the panel recognize one fact: millions of their constituents will bear the brunt of this "cap and trade" economic assault. No matter how many bells and whistles are attached to the Kerry-Boxer bill, be it through subsidies, weak nuclear power incentives, or half-hearted offshore drilling provisions, hard-working Americans will suffer under a cap and trade system that is designed to raise the cost of energy and transportation fuels we rely on every day. This is the last thing hard-working taxpayers need just as we're pulling out of recession.

Supporters of the Kerry-Boxer bill have pushed back against these claims, citing lower-range cost estimates from the CBO and EPA. However, these studies tend to employ much narrower assumptions when taking effects into account, such as discounting. The fact that the Treasury Department projected as much as $200 billion a year in higher revenues from cap and trade, plus as much as several hundred billion more in added costs, means there is still a huge difference of opinion over what the expense of the final cap-and-trade legislation will be.

In addition, other estimates by Charles River Associates, the Heritage Foundation and the American Council on Capital Formation have found that the legislation would impose huge new costs on consumers and businesses.

The bottom line: households will suffer under a burden of between $2,000 and $4,000 per year, when all costs and scenarios are accounted for realistically.

Another falsity that supporters are promoting is that smaller firms, which are mostly exempt from emissions requirements, won't be adversely impacted.  However, as Competitive Enterprise Institute's Marlo Lewis points out, the extent to which emissions exemptions gives them cover is likely way overstated.

That's because the "findings" of the bill, which state that even exempted firms can be dangerous C02 emitters, creates an actionable presumption for lawsuits. Small companies that use a lot of transportation fuel may find themselves staring at court action rather than regulatory action.

If the Senate is sincere in its pursuit of a comprehensive energy policy, we recommend putting a cap on this legislation and trading it for an alternative that won't muzzle our economic growth. A better approach is through tax incentives and regulatory abatements that will work to economize fuel use. For example, H.R. 1799 would raise the weight limits on trucks to a level close to that found in Canada, adding a sixth axle to heavier trailers so as to mitigate pavement damage. The fuel savings to companies that haul consumer goods -- and hence the reduced emissions -- are really staggering (which is why the National Taxpayers Union, to give just one of dozens of examples, has endorsed the bill.)

It won't do as much as it should to jump-start the clean energy revolution we need for economic recovery.

It's really quite amazing. The main response at Tuesday's opening hearing of the Senate Environment Committee on the Clean Energy Act was that its 2020 goal -- a 20% reduction in US emissions of greenhouse pollution -- was over-the-top ambitious. Senators both Republican and Democratic expressed grave concern that it would somehow tank the economy. In fact, its somewhat alarmingly unagressive, and won't do as much as it should to jump-start the clean energy revolution we need for economic recovery.

It appears that those who complain that 20% is too ambitious haven't been tracking our progress for the past three years. Every year the Energy Information Agency does a forecast of how much carbon dioxide the US economy will emit over time. At the end of 2005 EIA projected that the US would be emitting 7,500 million metric tons of CO2 in 2020 -- up from about 6,000 mmt in 2005 -- so a big increase. Over the next three years 100 coal fired power plants were cancelled, 24 states adopted renewable energy standards which collectively added up to about 10% of national electrical generation, and Congress passed 35 mpg fuel efficiency standards. So at the end of 2008 EIA issued its new estimate, which was that America's CO2 emissions wouldn't grow at all between 2008 and 2020 -- and in 2020 we would only be emitting 6,000 million metric tons.

Then this year, as a result of the Obama Administration's stimulus package, its adoption of even more agressive vehicle fuel economy and emission standards for 2016, more coal fired power plants being cancelled, and the economic downturn, EIA projected that by 2020 emissions would actually decline to 5,900 mmt.

So in four years we reduced our 2020 emissions trajectory by 1,600 mmt.

So is it now so ambitious to take another 10 years to reduce those 2020 numbers by another 1,200 mmt, which is all that the Senate Clean Energy bill would require? Have we already taken all the easy, cheap steps we can to reduce carbon waste in our economy?

No way. Not even close. A few simple data checks show that there is more than 1200 mmt's in reductions we can get by 2020,depolying a few simple improvements we could make in our energy sector -- things that would create jobs, enhance our national security and clean-up pollution -- without breaking the bank and speeding the economic recovery.

Not only did I find 1,200 mmt's of potential "no regrets, good investment" savings we could make, I found a little more. . A few samples: just continuing to improve vehicle performance from 2016-2020 saves another 109 mmt; state energy efficiency standards could yield another 401 mmt. A modest national renewable energy standard would cut emissions. 350 mmt.  We could reduce CO2 by by almost 200 mmt if we just made heavier use of affordable natural gas units.  And cleaning up old power plants would save at least. 125 mmt. This package of steps -- which is only illustrative -- requires no increase in our energy bills -- the savings from the efficiency measures easily make up for the costs of things like switching from coal to natural gas and cleaning up old power plants. So this scenario is far short of what we can and should achieve -- yet all the Beltway can do is moan, "it's too hard."

Washington, join America.

What defines a 20% reduction as "too strict"?  Certainly not according to what will be required to stabilize global CO2 emissions.  Any objective analysis of the proposed legislation has made clear that a 20% reduction is in fact readily achievable with the technology options, both supply side and demand side, that we currently have on the table.

The most important thing is to establish a set of market rules - a cap - that will provide industry with the clear guidance necessary to inform investment decisions moving forward.  Establish the cap and then turn American capitalism loose to demonstrate the multitude of ways that are available to meet such a target. 

The Clean Air Act demonstrated the effectiveness of market mechanisms such as cap and trade in achieving least cost solutions.  That earlier legislative battle demonstrated something else that we see prominently today - the extent to which the opponents will go in exaggerating the costs of compliance.  Shall we trot out some examples of those earlier "end of civilization" claims just to compare with today's rhetoric and wildly inaccurate consultant studies?

If cutting manufacturing is the path to achieving climate goals, Senator Boxer has introduced the perfect bill to do the job.

Senator Boxer’s bill is headed in the wrong direction, and definitely is a step backward from the Waxman-Markey bill.   At the EPW hearings, Senator Boxer announced "we have already made 8-9% emissions reductions, so the real goal (20%) is easy to meet," without acknowledging this as being the result of the greatest economic collapse since the Great Depression.  This is not the kind of logic you want to use to bolster your defense of a climate provision.  In my sector, for example, steel production has been down 40 to 60% since October 2008.   If cutting manufacturing is the path to achieving climate goals, Senator Boxer has introduced the perfect bill to do the job.   Unfortunately, sending American manufacturing jobs to places like China and India, will not only harm the economy but it will also increase global emissions, the opposite of what Senator Boxer and her EPW colleagues hope to achieve.

The House climate bill has many shortcomings that would cause severe job losses here and a shift of emissions to less regulated countries:  the allowances for energy intensive manufacturers are too few; there are no provisions to counter an almost-certain sharp rise in energy cost (a huge competitiveness risk for domestic energy intensive, trade-exposed industries); and, it contains a weak border provision.  In the Boxer-Kerry bill, the allowance provisions are not only less (it provides 2 billion fewer allowances for energy-intensive trade exposed industries than the House bill) because the 2020 cap is 20% vs. 17% in the House, there is a 16% across-the-board reduction in the allowance pool.  This means that not only has an insufficient allowance pool for energy intensive, trade-exposed industries gotten worse, but allowances to energy providers such as utilities will also take a 16% cut, making energy prices subject to an even sharper rise.  There remains no provision to counter energy cost increases, the need for which is more acute under Boxer-Kerry...and there is no border provision.

It is clear that the current structure of cap and trade legislation is incompatible with a growing and healthy manufacturing sector in the US.

It is important to keep in mind that the quality put into an economic analysis is crucial to the quality of the product put out. With that in mind, there are some serious problems with current EPA analysis of Kerry-Boxer:

• First, it should be noted that the Kerry-Boxer analysis is based on their June 2009 analysis of the Waxman-Markey bill from the House of Representatives.

• Second, its important to note   the assumption used in most scenarios   in  the new EPA report on Kerry Boxer  about new nuclear plants for electricity generation. The EPA report says that the new Kerry-Boxer report is based on their Waxman-Markey analysis which assumes  a 150% increase in the number nuclear plants by 2050. It seems likely that that is also the number assumed for the Kerry-Boxer report. The U.S. currently has approximately 100 nuclear plants, so to increase that number by 150% would mean that we would have to build 150 new plant by 2050, or about 4 per year for the next 4 decades. Since we haven’t built a nuclear plant in the last 30 years in the U.S., this assumption seems highly unlikely. See slide 17 for the details of the EPA nuclear assumptions.  See http://www.epa.gov/climatechange/economics/pdfs/HR2454_Analysis.pdf.  The significance of this is of course that when you assume a large number of carbon free sources of electricity will be put in place, the cost of reducing GHG emissions is substantially reduced. Thus the allowance prices and economic impacts shown in Table 4 on page 17 of the new Kerry-Boxer report are likely to be seriously underestimated.

• The EPA’s Kerry-Boxer analysis also assumes that the institutions are put in place to process the domestic and international offsets need to realize reductions on the magnitude shown in the analysis. assumption, if it came true, would allow U.S. companies to purchase less-costly offsets from developing countries, which have emission reduction targets in place.  In reality, the assumption is not likely to be realized since China and India have made it quite clear they will not undertake programs that would set limits on Chinese GHGs.
   
• EPA assumes that CCS for coal and natural gas fired utilities will be available in 2020, but most experts think CCS is 15 years away.

It is troubling assumptions like these that could lead astray legislators just trying to enact good policy. The lesson:  erroneous assumptions  lead to bad policy.
 

 It seems much of the discussion around this bill, and even the analysis of its impact, ignores the issue of where we will get our energy today and tomorrow.  If we are actually going to pass a climate change bill, shouldn’t we also be working to actively expand our near and long-term energy solutions?

Our hope is that the analysis and discussions on this issue will press further to provide transparency into all aspects of the bill. This bill, if passed, could have a significant impact on the US economy and the process should be accessible to consumers so they understand its full implications – including the legislation’s impact on US business competitiveness vis a vis the rest of the world. This means a global solution, not just a US solution to a real global problem.

The emission reduction mandate of 20% below 2005 levels by 2020 lacks any connection to economic, energy, or technology realities.

Over 40 years ago, a group called the Lovin Spoonful made the song Do You Believe in Magic popular. That should be the theme song for the Kerry-Boxer cap and trade legislation and this week’s hearings.

The emission reduction mandate of 20% below 2005 levels by 2020 lacks any connection to economic, energy, or technology realities. According to analysis by the Energy Information Administration, achieving a reduction of that magnitude would require a reduction of about 1 gigaton. To provide a frame of reference, 1 gigaton of CO2 is the equivalent of doubling the miles per gallon of every car on the road, building over 100 nuclear power plants, or over 300 clean coal electric generation facilities. Only someone who believes in magic would assume that is realistic.

If the reduction goal can’t be achieved directly, the sponsors must have in the back of their minds that “offsets”—the equivalent of indulgences to keep sinning-- would be used to claim success. But, once companies and the government get involved in the offset market, there will be incentives to create the type of risky financial instruments and schemes that contributed to the collapse of financial markets. The EU experience with offsets has demonstrated that they lead to rampant fraud and abuse.

During this week’s hearings, the sponsors and their supporters will claim that the economic impact of the legislation will cost less than 30¢ a day or as was asserted with Waxman-Markey, less than the cost of a postage stamp. Analyses that come to this conclusion represent of triumph of gimmickry and a rebirth of the “rosy scenario”. The over whelming conclusion of serious analyses—for example those conducted by Rob Shapiro, Bill Nordhaus at Yale, and Richard Cooper at Harvard—is that the cost of cap and trade could be in the hundreds of billions of dollars. And that cost will be borne by consumers and those who represent lost jobs.

What Senators Kerry and Boxer should be asked to produce is a road map for achieving the 2020 target and an explanation of how it can be achieved while also achieving the robust economic growth that Americans expect. Of course, they will not do that because they cannot.

Kerry-Boxer would give a competitive advantage to non-U.S. refiners.

The Kerry-Boxer bill is similar to the Waxman-Markey bill, but its impact would be even worse.

Consumers, farmers, truckers, airline passengers, and all businesses relying on petroleum fuels would pay the lion's share of the costs. According to numerous studies about the Waxman-Markey bill, it appears that the more costly Kerry-Boxer bill could raise the cost of gasoline and diesel fuel to more than $5.00 a gallon, destroy more than 2 million U.S. jobs--even allowing for the creation of new green jobs--and would send jobs and refining capacity overseas, doubling imports of refined products. Since the bill does not provide "energy-intensive, trade-exposed" status to the U.S. petroleum industry, despite being the second most energy-intensive industry according to the federal government, it would give a competitive advantage to non-U.S. refiners.

The Kerry-Boxer bill also could increase costs by reducing the availability of less costly international offsets. Further, it proposes to reduce the allowance allocations to all regulated entities below Waxman-Markey levels by putting more than 20 percent of the total allowances in "reserve" to be used for deficit reduction and other purposes.

Although the Environmental Protection Agency (EPA) was directed to assess the Kerry-Boxer bill, it did not conduct a formal analysis. Instead, it chose to rely on its earlier assessment of the Waxman-Markey bill, which was fraught with overly optimistic assumptions that greatly downplayed energy costs. The government's own Energy Information Administration (EIA) has projected that the Waxman-Markey bill would drive up total costs by as much as $1,870 per household in 2030, which is much higher than the often-quoted "price of a postage stamp a day."

The Kerry-Boxer bill, like its predecessor in the House, is too costly for too little positive impact on the climate. The Senate should reject it and start over.

The best thing that can be said about the new Kerry-Boxer mark is that it retains the Clean Air Act as a catalyst and backstop for reducing greenhouse pollutants that cause climate change.  The Act is the only legal mechanism, a proven one at that, which can get U.S. emissions down to the requiste levels (e.g., 350 ppm of CO2) as demanded by science.  It is no surprise that the oil, gas and coal industries are taking aim at the Act.  But the public interest clearly mandates retention of the Clean Air Act.  Any backsliding in this area will immediately erode support for Senate legislation (and significantly reduce the potential to actually get the job done against global warming). 

The bill's energy efficiency provisions could be even stronger.

The Chairman's Mark distributed on Friday provides an excellent starting point for Senate Environment Committee consideration.

As expected, it specifies the distribution of allowance value, and I am pleased to see that the vast majority of the allowances go to well defined public purposes, such as helping consumers, providing a level playing field for energy intensive industries, deploying low-carbon technologies, and preventing deforestation.

The bill includes several key elements. It has dedicated investments in energy efficiency, clean transportation, and renewable energy deployment. It also has an effective mechanism to stabilize allowance prices, with a bigger allowance reserve and a greater clarity about when this reserve will be tapped than in the House bill. And the bill's consensus approach to promoting the deployment of carbon capture and storage technology should bring additional political support.

Perhaps most important of all is the fact that the EPA has concluded the bill is affordable. Its analysis shows that the legislation brings an average cost of less than $120 per year per household.

The agency also found that it will be more effective than the House bill at avoiding excessive allowance price volatility, and it will result in an increase in net farm income--a key finding for the prospects of the bill in the Senate.

Still, I see two areas for further work. First, the bioenergy loophole must be closed. Right now, the bill doesn't properly account for emissions from bioenergy, and without that information, we can't guarantee bioenergy is fighting global warming rather than actually costing us forests.

Second, the bill's energy efficiency provisions could be even stronger. A new study by University of California economists shows that the legislation could produce up to 1.9 million jobs with strengthened energy efficiency provisions, compared with 900,000 jobs with provisions similar to those that passed the House.

I hope that the hearings this week will bring out these key points and cut through the overheated rhetoric of opponents who are making ridiculous claims about the cost of this legislation in order to score political points.

Cap-And-Trade Still Achilles' Heel

The benefits, if any, are greatly outweighed by the cost to the economy and by unintended consequences.

At close to midnight on Friday, Senators Kerry and Boxer released a 923-page version of global warming legislation with an overview of emission allocations that closely resembles the widely unpopular House cap and trade bill. Even with further modifications and compromises, it’s difficult to imagine a scenario in which the Senate legislation can secure the 60 votes necessary to pass.

Climate legislation driven by wishful thinking rather than hard facts simply will not work. The Senate’s current efforts to repackage Waxman-Markey into a politically viable, environmentally effective policy amounts to rearranging deck chairs in an effort to keep the Titanic from sinking; it looks like considerable work but ultimately will have little effect.

Since the Kyoto Protocol, there have been an overwhelming number of studies analyzing cap and trade. The vast majority of this research has arrived at the same conclusion—the benefits, if any, are greatly outweighed by the cost to the economy and by unintended consequences. Just recently, the CBO issued an analysis that came to the same conclusion. What we can be fairly certain of is that cap and trade system will cost the U.S. economy $100 billion or more annually, become a regulatory nightmare, enrich Wall Street and special interests, spawn fraud and abuse, and put an unnecessary burden on American consumers.

The European Union has, in effect, already conducted a real world experiment with cap and trade. And the results are clear. It hasn’t worked, and households -- not to mention the Planet – have paid a high price.

The fundamental problems with cap and trade should be obvious. No member of Congress, nor anyone else, is smart enough to be able to set a cap that is just tight enough to spur innovation but not so tight as to constrain economic growth. And, none of the advocates for this emissions trading scheme know how to bring forward commercially competitive alternatives to the fossil fuels that would be forced out of our energy system. Bottom line: the notion that this nation could reduce emissions 20% below the 2005 level by 2020 without causing serious economic damage is a flight from reality.

Unfortunately, the scheduled hearings will not be organized to illuminate as much as they will be designed to provide a cloak of legitimacy for this bad legislation. Cap and trade advocates will stack the witness lists. Yet if Senators Kerry and Boxer were genuinely interested in obtaining helpful information, they would ask one question: “How can we reduce emissions by 1 gigaton in a decade while still achieving our economic objectives?” For the foreseeable future, the honest answer is “we cannot.”

But, in a world where image trumps reality, that question and answer will likely remain buried.

EPA’s analysis -- which will be used to justify the Kerry-Boxer approach -- is a triumph of the power of assumptions. It simply demonstrates that if you control the assumptions, you can get any answer that you want. But, in the real world, reality and facts prevail and the reality is that EPA has low-balled the cost and consequences of this legislation.

Anyone who doubts that only needs to look to the E.U. experience and compare its success to America’s impressive achievements through existing policies and measures. In part, this may explain why past efforts to cobble together 60 votes for cap and trade have fallen short. And if the nation is fortunate, this one will too.