The Policy Buffet (Part 3): As Kerry-Lieberman Fades, a Fresh Start for Cap-and-Trade?

by | 7.12.2010 at 9:55am
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This is the third post in a series that covers the Senates current energy and climate proposals. The introductory post can be found here.

The American Power Act (APA), co-sponsored by Sens. John Kerry (D-Mass) and Joe Lieberman (I-Conn), has been seen by many as a paradigm for comprehensive energy and climate legislation. The bill addresses both policy areas simultaneously, creating broad measures and mechanisms to reform the energy industry and combat global climate change. Through programs specifically tailored to various economic sectors, it provides structure and stability.

Yet in spite of its strengths, the Kerry-Lieberman is far from being likely to pass. In fact, it is almost certain that the original bill is dead.

Entrenched partisanship and political flip-flopping have plagued the APA since it was first introduced. Although Kerry and Lieberman both knew that the path to 60 votes would be an uphill battle, recent politics have complicated matters more than they had anticipated. Senate Republicans have stood nearly united against any proposal that includes cap-and-trade. This opposition stems partly from frustration with the White House’s use of the Gulf oil spill as an impetus for climate legislation. Even those Republicans who advocate for energy reform reject what they perceive to be hasty and premature curbs on carbon emissions.

Kerry and Lieberman had spent months working with Sen. Lindsey Graham (R-SC) in an effort to produce the Senates first bill to address both climate change and energy. The bipartisan partnership created hope that action on both issues could satisfy both parties.

That hope faded, however, when Graham withdrew his support weeks before the bills release. He initially attributed his wavering to Senate Majority Leader Harry Reid’s (D-Nev) push for immigration reform, insisting that it was imprudent for Democrats to prioritize energy and immigration at the same time.

Graham’s withdrawal was the first sign of political dithering that has characterized his role in climate legislation (see here and here). He quickly began to critique climate science and to question whether the Senate should address carbon dioxide emissions. In June, Graham removed his sponsorship and promised to vote against the bill. In response to public concern over the oil spill in the Gulf of Mexico, he reasoned that the bill would not be able to adequately promote offshore drilling.

In the weeks that followed, Reid held a series of closed-door meetings with Senate Democrats to determine how they would move forward. However, the meetings failed to produce any signs of consensus.

Until President Barack Obama sat down with Senate leaders from both parties, it was unclear whether or not climate and energy legislation stood any chance of passage before the August recess (and November elections). In the bipartisan meeting, Obama pressed for a price on carbon, making it clear that plans to curb emissions were not entirely defunct. Both Kerry and Lieberman have since expressed willingness to compromise by toning down the APA package. However, if such concessions lead to the removal of economy-wide caps on carbon, it will be extremely complicated for the Senate to merge its bill with the House version.

The White House meeting added momentum to a growing effort to create a cap-and-trade system solely focused on utilities. Although many are wary of proposals that do not create economy-wide caps, a utility-only cap-and-trade system may be the Senate’s last chance of limiting emissions in current political climate.

This shift towards a utility-only bill (and away from the APA) has focused the Senates attention on Sen. Jeff Bingaman (D-NM), chairman of the Energy and Natural Resources Committee. Although Bingaman has remained relatively quiet in the climate debate (and grown increasingly unconvinced that the Senate will cap emissions this summer), he is now working with Sen. Olympia Snowe (R-Maine) to produce a bill that would cap emissions from utilities.

The Bingaman-Snowe partnership could revive the Senates stalled climate debate. In recent weeks, senators from both parties have become tired of the religious fervor with which Kerry has approached them. And, Bingaman may have the best shot of authoring a bill that would satisfy senators on both sides of the aisle. In June 2010, he introduced an energy-only bill that passed his committee by a bipartisan vote of 15 to 8.

A system that caps emissions from power plants may also attract fence-sitters particularly in light of Snowe’s involvement. Policymakers from both parties worry that if the EPA addresses greenhouse gases rather than Congress, regulations would be messy and harmful to industry.

The approach of only limiting emissions from power plants has gained traction in recent weeks. Since nearly one-third of domestic emissions come from utilities, enormous opportunities exist for market-based reductions in the electricity sector.

As Michael Levi at the Council on Foreign Relations notes, a utility-only cap-and-trade system would provide room for complementary (and requisite) policies to reduce emissions. He explains that when a program only targets power plants, Policies that target oil consumption which is outside the cap are now a bonus from an emissions-reduction perspective.

This “bonus”, however, is more complicated than it may seem. Levi explains that a utility-only approach would require a particularly aggressive utility cap to effectively address climate change. Emissions reductions from the power sector would have to be substantially greater than they would be in an economy-wide approach. As Levi comments, a 17 percent cut in emissions on an economy-wide scale may have merit, but a 17 percent cut just from utilities would be worthless.

Thus, caps on power plant emissions would need to be more aggressive and, at the same time, would need to be accompanied by equally effective programs in uncapped areas. Significant improvements in energy efficiency and RD&D of renewables would be critical to the success of a utility-only approach, according to Grist’s David Roberts.

However, since a utility-only bill would generate less revenue, less funding would be available to finance such projects. And fewer revenues would also make it more difficult to help consumers. As a result, funds to offset industrial and residential electricity rate increases would need to be found elsewhere. These and other shortcomings have caused many Democrats to worry that even a scaled-back climate bill will fail to garner enough support.

In the coming weeks, Congress may determine the fate of climate policy. The likelihood of putting a price on carbon this summer could depend on whether policymakers can create a utility-only cap-and-trade system. If a bill addressing power plants reaches the Senate floor, its magnitude will be influenced by the provisions and programs set up alongside a cap. The upcoming posts in this series will examine alternative options in the Senate in order to better understand what a near-future energy (and possibly climate) bill might look like.

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