Senate panel to review carbon permit impact on energy prices

The Senate Energy and Natural Resources Committee next week will review how the distribution of permits to cover carbon emissions could affect energy prices under a controversial climate bill that remains on a slow-walk in the Senate.

The issue of allowances is particularly important to the ultimate success of climate legislation, since lawmakers want to do all they can to keep energy costs from rising, particularly in their neck of the woods, even as they try to move away from fossil fuels that release carbon dioxide but are often cheaper than renewable and nuclear alternatives.

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The likely bill produced by Congress would force companies to hold permits, or allowances, to cover their emissions. Initially the bulk of these credits would be distributed for free to help moderate costs. Companies can buy and sell the allowances on an open market as needed to cover their emissions. Each year, the government would give away fewer and fewer allowances, requiring companies to buy them instead in an auction.

A bill that would actually reduce carbon dioxide and other greenhouse gas emissions is the purview of the Senate Environment and Public Works Committee. The Senate Finance Committee also has jurisdiction over the allocation of permits.

Although it lacks jurisdiction, the Senate energy panel includes a number of key players in the debate, including several Democrats who have raised concerns to varying degrees about the effect a climate change bill will have on energy prices and by extension jobs. These include Sens. Byron Dorgan of North Dakota, Evan Bayh of Indiana, Blanche Lincoln of Arkansas and Mary Landrieu of Louisiana.

The committee will review the allocation of allowances at a hearing on Wednesday.

“One of the critical components will be to understand the economic impacts of policies on consumers and the sector in general,” committee spokesman David Marks said in an email. “Because of the relationship between energy and climate policy, many members have expressed a great deal of interest in getting educated on these issues.”

At a hearing this week on the costs of the climate change bill, Landrieu worried that it would force refiners in her state out of business. She doesn’t believe they receive enough free emissions allowances in the House bill to offset the higher compliance costs. Foreign companies that sell gas in the United States will have to account for the emissions of their products just like domestic refiners would. But critics of the House climate bill say it gives importers an advantage because they won’t have to account for emissions at their manufacturing facilities too, unlike U.S. refiners.

Some Midwestern utilities, meanwhile, want the formula for distributing allowances to the utility sector changed because they say it disadvantages power producers that rely heavily on coal.

The Senate Energy and Natural Resources Committee examining the allocation issue on Wednesday has already released an energy bill that includes a new renewable energy mandate, more support for energy efficiency programs and expands offshore drilling.

Although a committee has yet to review the details of a climate bill in the Senate, Barbara Boxer, the chairwoman of the Senate EPW committee, reported behind-the-scenes progress this week in a build-up for a series of hearings her committee will hold the week after next. A mark-up, where committee members approve or disapprove a bill, will be held in early November, Boxer has said.


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