By Jim Snyder - 03/31/10 10:00 AM EDT
Sen. John Kerry (D-Mass.) has reached out to businesses in hopes of broadening support for climate legislation he expects to introduce shortly after Congress returns from its two-week recess.
As Kerry and his colleagues in the effort, Sens. Lindsey Graham (R-S.C.) and Joe Lieberman (I-Conn.), make concessions to industries, they run the risk of losing support on the left, including from environmental groups that have been the longest and strongest backers of climate action.
KGL appears to have created new momentum for a carbon cap, but the following is a list of hurdles the bill will have to clear to pass.
Maybe no issue is more heavily lobbied than how the legislation distributes allowances, or pollution permits, to industry.
KGL has ditched the economy-wide cap-and-trade system. But the legislation would still require utilities and at some point major industrial emitters to hold pollution permits they could then trade on the market as needed. The number of allowances would gradually fall, forcing companies to cut back their emissions to keep pace or face stiff penalties.
The House climate legislation gave equal weight to past emissions and sales to distribute the permits. That gave an advantage to utilities with big nuclear resources, because nuclear power doesn’t release carbon dioxide when operating. (The House bill also prevented companies from holding more allowances than they required, negating a potential windfall.)
Coal-dependent Midwestern utilities want the allowances distributed based on emissions only, which would help lower their costs to comply.
“The House bill was seen as a transfer of wealth from the Midwest to the coastal states,” said Zack Hill, who manages the Midwest Climate Coalition, a group of a dozen utilities. “Whatever bill Congress comes up with, that shouldn’t be the case.”
The other side argues it deserves some benefit for investing in technologies like nuclear power that have a lower carbon footprint.
Businesses that support climate legislation say they want “certainty” on emissions regulations. For them, a key is that federal greenhouse gas law “pre-empts” action at the Environmental Protection Agency (EPA) to regulate carbon through the Clean Air Act as well as state efforts to rein in CO2 emissions.
It is a particularly sensitive topic in California, which has pushed regulations to lower tailpipe emissions. Sen. Dianne Feinstein (D-Calif.) has warned against pre-empting states from acting on climate regulations. Environmental groups also want EPA to retain its authority as a backstop and because they believe the agency could force older coal plants to close earlier than the legislation will require.
But industries say they require federal pre-emption to block a patchwork of state regulations.
Sierra Club chief Michael Brune told The Hill’s E2 Wire: “We will go to the mat for defending Clean Air Act authority.”
Brune also pointed to another potential stumbling block: offshore drilling. “We will not be able to accept the dramatic giveaway that offshore oil drilling represents,” he said.
But expanding offshore drilling opportunities to lower dependence on foreign oil is one of the main reasons Sen. Graham is helping to craft a bill. The legislation is expected to have an opt-in, opt-out mechanism. State legislatures closer to shores will have to affirm they want drilling off their coasts.
Environmental groups are worried, though, that Democratic leaders are risking too much. Ten coastal-state Democrats wrote KGL last week warning against “unfettered” access to offshore areas.
Another potential hurdle is whether states should get a share of the royalties for oil and gas operations in federal waters off their coastlines. Sen. Jeff Bingaman (D-N.M.), the chairman of the Senate Energy and Natural Resources Committee, has said the royalties should go to federal coffers. But legislative fence-sitters, such as Sen. Mary Landrieu (D-La.), have pushed for states to take a greater share.
Natural gas v. coal
Because natural gas has a lower carbon footprint than coal, the fuel could stand to gain under climate legislation. The natural gas industry worries that subsidies for coal and renewable energy sources like wind and solar power will block the industry from growing. The industry is lobbying for new incentives to encourage utilities to switch from coal to natural gas.
New findings have raised natural-gas supply estimates, which the industry says should assuage concerns about cost and price volatility. Coal lobbyists argue coal is still the cheaper option and that climate legislation needs to support development of carbon capture and sequestration technologies.
Other industries like agriculture and manufacturing will lobby on this issue. Chemical companies and farmers are sensitive to natural-gas price swings.
Under House legislation, oil companies would have to hold pollution allowances to cover the emissions of their product, gasoline, from tailpipes, as well as emissions from their refining facilities.
In KGL, oil companies would face a fee on their products set to the carbon price in the market. The change is the main reason why American Petroleum Institute President and CEO Jack Gerard described himself as “encouraged” by the direction KGL seemed to be taking.
At least three oil companies are pushing the fee, but as is the case with all things climate, the devil is in the details. Some oil lobbyists said they were worried KGL will force the companies to purchase allowances if the fee fails to drive down tailpipe emissions sufficiently.
Joshua Freed, director of the Clean Energy Initiative at The Third Way, a Democratic think tank, said the biggest issues will be those that are important to the 57th, 58th, 59th and 60th votes in the Senate needed to clear a filibuster.
Kerry, Graham and Lieberman have reached out to businesses and other groups, but everyone is waiting on the actual bill.
“We don’t have a breathing body yet, let alone a corpse to send over to CSI,” Freed said.