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Timing of enactment may be hazy, but at least a clearer picture of likely climate change legislation has emerged. By the end of 2007, members of the 110th Congress had introduced 165 bills, resolutions and amendments specifically addressing climate change and GHGs, according to a Paul, Hastings, Janofsky & Walker report. Through attrition, that number has been whittled down to one bill with broad support, the legislation by Sens. Joseph Lieberman (I-Conn.) and John Warner (R-Va.).

The Lieberman-Warner Climate Security Act (S.2191) was the first climate change bill to pass out of committee and it could reach a floor vote this year. The act calls for a cap on GHG emissions from most of the U.S. economy beginning in 2012, with a reduction of

America’s Climate Security Act of 2007

Highlights of the Lieberman-Warner Bill

■ Emission allowances will begin in 2012 with a declining cap on GHGs to 2050. A GHG registry and a GHG emission allowance transfer system will be established for “covered facilities.” Facilities in the electric power and industrial sectors are “covered” as are facilities that produce or import petroleum- or coal-based transportation fuel or chemicals.

■ Emission allowances will initially be given to load-serving entities that deliver electricity to retail consumers. An “Emission Allowance Account” will also be provided for covered facilities in the electric power and industrial sectors.

■ A “Climate Change Credit Corporation” will auction emission allowances. Auction proceeds will be used for several programs including one for zero- or low-carbon energy technologies and one for advanced coal and sequestration technologies.

■ Allowances can be traded. A board will oversee the national GHG emission market and can provide cost relief measures if it determines that “the market poses significant harm to the U.S. economy.” A domestic offset program will be set up to sequester GHGs in agriculture and forests.

■ The act also supports carbon capture and sequestration by amending the Safe Drinking Water Act to permit commercial-scale underground injection of CO2 and establishing a task force to study the cost implications of potential federal assumption of liability for closed geological storage sites. The Secretary of Energy will be required to study the feasibility of constructing geological CO2 sequestration facilities and pipelines for the transportation of CO2 for sequestration or enhanced oil recovery.

■ The SEC will be required to direct securities issuers to inform investors of material risks related to climate change. An interagency group will be set up to determine whether foreign countries have addressed GHGs.

approximately 63 percent in GHG emissions by 2050. Lieberman-Warner establishes a cap-and-trade system and proposes an initial auction of 26 percent of allowances in 2012, moving to an auction of almost 70 percent of the allowances by 2031. (See sidebar for more highlights.)

An offset provision in Lieberman-Warner allows an entity to meet up to 15 percent of its compliance obligations with specified domestic offsets. One U.S. utility is already giving offsets a try. According to the Pew Center for Global Climate Change, in December 2003, Entergy became the first U.S. utility to purchase carbon emissions credits from geological sequestration projects. Entergy also sequesters CO2 by planting thousands of trees on its landholdings and among other credits, leased 30,000 tons of CO2 offset credits from the Pacific Northwest Direct Seed Association.

The complexity of climate legislation is phenomenal, especially if a cap-and-trade system is chosen instead of a carbon fee. A carbon fee may be simpler but unluckily it’s been labeled with the onerous word “tax.” Podesta said there is no question that cap-and-trade will be the chosen system. “The debate is over who gets the permits,” he said. “Do they go through an auction or go to the incumbents?”

“Lieberman-Warner bastardized cap-and-trade,” said Duke Energy CEO and President, Jim Rogers, at the Clean Tech Summit. “Auctions are a polite way of saying carbon tax. Let’s do it the way we did with SO2 and NOx.” Climate change regulation will have a huge impact on Duke: it’s the third largest emitter of CO2 in the U.S. Rogers describes his company as being on a “burning platform.”

FPL Group CEO Lewis Hay III supports mandatory, economy-wide controls on greenhouse gases and strongly endorses a carbon fee as the best way to achieve meaningful reductions. In an interview with Electric Light & Power for the November/December 2007 issue, Hay detailed his carbon fee proposal.

“There are several reasons why we prefer a carbon fee. First, it is simple. We propose a modest initial fee imposed on every ton of CO2 ($10) that would escalate $2 per year in real terms. The fee would be imposed upstream when carbon enters the economy, at roughly 2,000 sources, making it very easy to administer.

“Unlike cap-and-trade, there is no need for a long and complex rulebook for trading, nor is there a need for numerous governmental agencies to administer it. One look at the proposed Lieberman-Warner bill will show you how complex cap-and-trade really is and the large number of agencies required to manage it. The simplicity of a fee also offers the benefit of rapid implementation. A fee could be implemented years ahead of cap-and-trade.

“The second benefit of a fee is its transparency. Everyone will know the costs and the impact on our economy and on each participant. Many of the proponents of cap-and-trade want to avoid discussing the costs and impacts. This is because the costs in their proposals are unacceptably high and U.S. consumers would not stand for it if they knew the costs, or because certain groups (usually large emitters) would obtain enormous quantities of free allowances worth billions of dollars. Similarly, a carbon fee provides cost certainty for the long-cycle, large capital investments our industry must make to provide clean, reliable energy.

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