Senate climate bill lobbying places focus on ‘price collar’

When a Senate climate bill comes out one thing to pay attention to is how it structures a “price collar,” which is an effort to constrain the costs of carbon under a cap-and-trade regime.

The House bill sponsored by Reps. Henry Waxman (D-Calif.) and Edward Markey (D-Mass.) includes a floor for a carbon price to spur investment. If the costs of compliance were too low, utilities and other industries would have little incentive to invest in cleaner technologies.

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And the bill has a ceiling of sorts — a point that, when passed, the government would make more emissions allowances available from a strategic reserve. The bill would initially make available allowances from that particular pool at $28 per allowance in 2012, the year the program starts. Then the price goes to 60 percent above a three-year rolling-average price.

Utilities say the price is too high at the start, and they want a collar with more certain boundaries to make budget planning easier and market manipulation more difficult.

Peter Darbee, chairman and CEO of PG&E, a California-based utility that supports the House bill, says utilities want “more definition around a cost containment mechanism.”

Reducing the uncertainty of what the costs could be under the climate bill should make some Senate fence-sitters more comfortable with the legislation, Darbee told reporters at a luncheon in his company’s Washington office.

In a statement following the passage of the climate bill in the House, Edison Electric Institute President Tom Kuhn said the group strongly supported the inclusion of a price collar on the cost of emissions allowances, “which would further protect consumers, help reduce price volatility, and prevent market manipulation.”

But some environmental groups worry a collar could strangle emissions reductions.

Nat Keohane, director of economic policy and analysis at the Environmental Defense Fund, said a poorly structured collar would “undermine the environmental integrity” of the climate bill.

If the government simply sells more allowances, which are credits that allow utilities and other industries to release greenhouse gases, then emissions won’t be cut.

And, Keohane points out, there are other cost-control mechanisms in the bill, the biggest of which is that the allowances are given away instead of sold to companies in the initial phase of the program. Emitters can also purchase offsets to meet their reduction targets.

He doesn’t expect the Senate bill authored by Sens. Barbara Boxer (D-Calif.) and John Kerry (D-Mass.) to go down that path, but rather some modified version of the House bill that creates a reserve of allowances from the strategic reserve pool.