Senators John Kerry (D-MA) and Joe Lieberman (I-CT) unveiled today the long-awaited draft of their American Power Act. The launch of their bill kicks off an intensive effort to pass comprehensive climate and energy legislation in the Senate this summer, reconcile it with the bill passed by the House, and put a final bill on the president’s desk to sign into law this year.
As the Deepwater Horizon disaster continues to unfold with tragic consequences, it has become painfully clear that America needs a safer, cleaner approach to energy development. Congress must enact a comprehensive clean energy and climate bill this year that puts America back in control of our energy situation. This draft bill gets us moving in the right direction.
Here is NRDC’s “first read” of the American Power Act discussion draft, compiled with the assistance of our staff experts in each of the areas that the legislation addresses. Our staff will be diving deeper into parts of the bill in posts to follow in the coming days. We’ll also update this overview as necessary.
The core carbon pollution limits in the bill, covering all major pollution sources, are a solid foundation for Senate legislation.
The bill does include troubling provisions to curtail some current Clean Air Act authorities and to preempt some state programs.
The bill also includes major ill-advised proposals to promote new nuclear power plants and new offshore oil drilling. These include excessive subsidies for constructing new nuclear power plants and weakening changes to nuclear plant licensing requirements and safety and environmental safeguards. The bill also contains new incentives for offshore drilling that have no place in an environmental bill and are especially hard to fathom in the wake of the disaster in the Gulf.
We need President Obama and Majority Leader Reid to guide a process that brings Senators of good will from both parties together around a comprehensive clean energy and climate bill – one that draws on the best elements of this bill as well as other proposals, so the Senate can pass effective climate and energy legislation this year. Encouragingly, President Obama pledged today to engage with Senators from both sides of the aisle pass comprehensive climate and energy legislation “this year.” Now more than ever, we need legislation that puts Americans back to work, reduces our dependence on oil, cuts carbon pollution, and creates a healthier future for our children.
strong>I. Reducing Global Warming Pollution
The core of the program to curb global warming pollution is found in Titles II through VI of the draft bill.
A. Pollution Limits, Accountability, and Enforcement
Pollution Limits: The bill requires global warming pollution reductions for the sectors that are covered by emission limits, commencing in 2013 (sec. 2001, creating new Clean Air Act sec. 703):
Year Reduction Targets for Covered Sources (below 2005 levels)
2013 4.5%
2020 17%
2030 42%
2050 83%
Covered greenhouse gases: The draft bill lists carbon dioxide and six other greenhouse gases (methane, nitrous oxide, and four kinds of fluorinated compounds) and authorizes the Environmental Protection Agency (EPA) to add other heat-trapping pollutants to the list (sec. 711). Each gas is given a “carbon-dioxide-equivalent” value, ranging from 1 to 22,800 (sec. 712). (In the rest of this post, references to tons of greenhouse gas emissions mean tons of CO2-equivalent.)
Covered sectors and phase-in schedule: The draft bill has a phase-in schedule for four major categories of pollution sources – electricity generation, industrial sources, natural gas, and petroleum-based fuels – that together account for approximately 85 percent of national emissions (sec. 722):
Demonstrating compliance: A fixed number of “emissions allowances” is created for each year from 2013 through 2050, reflecting the annual emission reduction targets listed above (sec. 721).
Monitoring and reporting, and penalties for compliance: EPA is directed to build on its recently-issued emissions monitoring and reporting rules by establishing a comprehensive and Internet-accessible greenhouse gas registry, to provide the data needed for determining sources’ compliance with the bill’s emission limits (sec. 713). A covered source that emits tons of greenhouse gases without allowances has to pay a penalty equal to twice their market price, in addition to making good on the missing allowances (sec. 723).
Allowances allocations and auctions. The bill begins by auctioning a significant fraction of the emissions allowances and moves progressively over time to a full auction system. As explained below, auction revenues are used, among other things, to protect low income and working families, and most allowances that are allocated without charge are tied to well-defined public purposes: such as benefiting consumers (through refunds and efficiency programs managed by regulated utilities or states), and growing American jobs (by addressing manufacturing competiveness) and promoting the clean energy economy (through research and investment in new technologies). Certain other critical funding needs will have to be addressed as the bill moves through the Senate.
Fast mitigation actions: The bill pays special attention to reducing potent heat-trapping compounds with shorter lifetimes than carbon dioxide. A more rapid schedule is established for phasing down hydrofluorocarbons (HFCs), reaching at least an 85 percent reduction by 2032 (sec. 2201). The bill also takes important first steps to reduce black carbon emissions, which have been linked to accelerating rates of glacial and ice melt in the Arctic and mountain regions of the world, calling for standards to cut black carbon emissions from U.S. sources (such as diesel vehicles) and encouraging international cooperation. It also encourages international efforts to reduce methane emissions (Secs. 2211-2221).
Scientific review: EPA and other agencies are tasked to make periodic reports to Congress on new scientific information, on whether the U.S. program is meeting its goals, and on whether domestic and international efforts are sufficient to avoid dangerous levels (e.g., greenhouse gas concentrations greater than 450 ppm CO2-equivalent, global average temperature increases greater than 3.6° F (2° C) over preindustrial levels) (Sec. 705).
B. Reducing Costs and Protecting Consumers
The bill includes effective tools to reduce the costs of meeting carbon pollution targets and to protect consumers.
Offsets: Covered sources can reduce their compliance costs by investing in “offsets” – emissions reduced or carbon sequestered by sources not covered by the bill’s pollution limits. Up to two billion tons of offsets may be used each year. The bill establishes criteria, administered by EPA (or, for domestic farm and forest offsets, by EPA and the Department of Agriculture), to assure that offset credit is earned only for real and permanent actions that would not happen anyway. Starting in 2018, a company using international offsets must have 1.25 tons of those offsets to cover a ton of its own emissions – the extra quarter ton increases the total carbon pollution reduction achieved (Secs. 731-740).
Price collar: The bill creates a large reserve of emissions allowances (drawn from future year allocations and offsets) that can flow into the marketplace if unexpected carbon price spikes take place. Covered sources can obtain up to an additional 15 percent of their emissions in any year at a fixed price (starting in 2013 at $25/ton and rising by 5 percent per year above the rate of inflation). EPA is directed to replenish the reserve (if it is used at all) using auction proceeds to purchase extra offsets. The reserve provides an extra layer of protection for consumers against unexpected cost increases and price volatility while preserving the integrity of the emission limits (Sec. 726).
Minimum auction price: In case allowance prices move in the other direction – much lower than expected – the bill includes a minimum price (starting at $12 per ton and rising three percent above inflation each year) below which allowances are withheld from auction and added to the market stabilization reserve (Sec. 790).
Consumer refunds: The bill protects consumers through refunds and other benefits.
C. Safeguards Against Market Manipulation
The draft bill gives the Commodity Futures and Trading Commission (CFTC) responsibilities to protect against manipulation and fraud in the carbon markets. Under the bill, only covered sources will be eligible to participate in quarterly auctions of allowances, and the number of allowances they can purchase in any one auction is limited. The draft bill would regulate carbon derivatives under the Commodity Exchange Act, which covers agricultural commodity markets, effectively banning over-the-counter trading and requiring all trading in carbon derivatives to take place on well-regulated exchanges. The CFTC would be responsible for establishing strict position limits, eligibility criteria, oversight procedures, and anti-fraud and market manipulation penalties for all carbon market participants (secs. 2401-16).
D. Improving Competitiveness and Promoting Efficiency and Innovation
The draft bill contains a suite of measures to benefit American manufacturing, enhance competitiveness, and promote innovation and job creation.
Commercial and industrial consumer refunds: As mentioned, electricity and natural gas utilities are required to provide refunds and energy efficiency programs to their commercial and industrial customers, just as to residential customers, in return for receiving emissions allowances without charge. A federal interagency report on manufacturing and competitiveness concludes that for more than 9 out of 10 American manufacturers, energy costs amount to less than 2 percent of shipment values, and that utility refunds and efficiency programs will keep any electricity cost increases due well below one-quarter of 1 percent.
Rebates for energy-intensive, trade-exposed manufacturers: About 3 percent of American manufacturing firms – producers of commodities such as steel, aluminum, cement, and some chemicals – use much more energy and account for about half of all industrial carbon emissions. These firms have limited ability to recoup their increased costs when competing with goods imported from countries that have not yet adopted comparable carbon limits. To level the playing field and keep production and jobs at home, the draft bill sets aside 15 percent of the allowances for a transitional period to provide qualifying industries with free allowance rebates. The distribution formula, based on the industry-average emission rate and each firm’s specific output, will reward firms that become more energy-efficient and lower-emitting. According to the federal interagency report, together with the refunds to all firms provided through electricity and natural gas utilities, these rebates “can eliminate almost all – and, in some cases, potentially more than all – of the cost impacts” of climate legislation through 2025 (sec. 4001, adding Clean Air Act secs. 771-74).
Border adjustments: As an additional safeguard, the bill creates a “border adjustment” – a requirement for importers to buy carbon allowances when bringing in commodities such as steel, aluminum, or cement from countries that fail to adopt their own carbon control programs. The border adjustment would take effect in 2025 to the extent carbon-related competitive gaps remain with other countries and are not covered by the allowance rebates (secs. 775-78).
Investing in R&D, retooling, and efficiency: A portion of the allowance auction revenues (see below) is devoted to funding energy R&D and to help manufacturers make energy efficiency and clean technology investments to make them cleaner and more competitive. (See more on energy efficiency, renewable, and transportation, below.) Energy-intensive industries can also compete for incentives to capture CO2 for carbon sequestration (sec. 1431, adding Clean Air Act sec. 794).
These competitiveness provisions will increase investment and production here in America, helping to grow more good-paying domestic manufacturing jobs.
E. Changes to the Clean Air Act and State Authority
The carbon pollution program under the bill will be added as a new title of the Clean Air Act. At the same time, the bill changes and repeals some existing Clean Air Act authorities and restricts certain state powers.
Vehicles. The bill supplements existing Clean Air Act authority to regulate motor vehicle carbon pollution.
Power plants and industrial sources. The bill includes both incentives and standards to reduce carbon pollution from electric power generation, but it also repeals Clean Air Act authorities that should be retained.
State authority. The bill preserves most state authority to control greenhouse gas pollution, with one notable exception.
F. Investing in a Energy Efficiency, Renewable Energy, and Cleaner Transportation
Energy efficiency and renewable energy. The draft bill includes these provisions to support energy efficiency and renewable energy investments:
Cleaner vehicles and fuels. The transportation sector accounts for a third of U.S. global warming emissions and most of our oil consumption. In addition to the federal and state standards discussed above, the bill provides incentives for clean vehicles, fuels, and other low-carbon transportation options.
Transportation efficiency and transit. The bill invests more than $6 billion per year in critical new transportation infrastructure across America to keep a 21st century economy moving while also cutting global warming pollution and oil consumption.
G. Adaptation to Climate Impacts
Domestic climate change impacts. The bill allocates a small amount of allowance revenue to address adaptation of our natural resources, wildlife, and fisheries to the impacts climate change and ocean acidification. The bill dedicates no resources to meet adaptation needs in the areas of fire protection and water resource management – especially serious concerns in the nation’s arid regions – as well as for public health concerns aggravated by climate change.
International climate change impacts. Many Americans are concerned about the impacts of climate change on the poorest nations for both humanitarian and national security reasons. Droughts, floods, and other damages driven by climate change can destabilize governments and societies, creating mass migrations and increasing the risks of radicalizing individuals deprived of livelihoods and hope. This bill devotes no resources to protecting rapidly dwindling tropical forests, and only a very small amount into helping the poorest nations adapt, beginning only in 2019.
H. Carbon Program Problems That Must Be Fixed
Preserving Clean Air Act and state authority. As noted above, the bill retains existing Clean Air Act authority to set performance-based pollution standards for motor vehicles and power plants. The bill would be more effective if its overall pollution limits were backed up by similar performance standards for the other large industrial polluters, as well as the full arsenal of state powers. New source review also should be retained for very large sources. We will work as the bill develops to preserve more of the Clean Air Act's proven approach to cutting air pollution.
Closing the biofuels loophole. The draft bill creates a large loophole for the carbon emissions from producing and burning biomass, significantly eroding the bill’s carbon pollution reductions. Covered firms are allowed to ignore carbon emissions from burning “renewable biomass” on the assumption that they are completely counterbalanced by carbon uptake when biomass is grown (Sec. 722). In fact, carbon uptake falls short of combustion emissions for many fuel sources defined as renewable biomass, resulting in net carbon pollution. Not requiring allowances for this carbon pollution gives covered sources an economic incentive to switch to biomass, thus seriously degrading the bill’s stated carbon pollution reductions. Closing the biomass loophole is necessary to ensure the integrity of the bill's emissions targets. The bill’s definition of “renewable biomass” also lacks critical environmental sourcing guidelines to protect forests and other sensitive ecosystems (Sec. 700). The definition provides absolutely no protection for private lands, inviting clearing or converting of sensitive wildlife habitat, old growth forests, and our last remaining native prairies. Partial protections are included for some federal lands, including roadless areas, and wilderness study areas. But many of the nation’s public forests remain exposed. A proper definition would protect areas that are high in biodiversity and that serve as large carbon storehouses, such as mature and old growth forests. It would also provide strong sustainability guidelines to ensure that bioenergy incentives do not drive increased carbon emissions, deforestation, forest degradation, or loss of wildlife habitat.
Enabling international cooperation. The bill does not provide any allowances to fund crucial components of U.S. engagement with other countries. The president needs tools to assist other countries to reduce deforestation, help the most vulnerable countries adapt to climate change impacts, and promote clean technology exports. The bill contains broad authorizing language addressing the first two of these goals, but provides for only a small and belated effort to help the most vulnerable developing countries, not beginning until 2019. Failure to provide the president with the needed tools to promote international cooperation will prove penny-wise but pound-foolish.
II. Measures to Promote Nuclear Power
The bill would give excessive subsidies and compromise important safety and environmental safeguards in order to build new commercial nuclear power plants that cannot compete in the energy marketplace on their own. Most analyses show that nuclear low-carbon kilowatts will be costly kilowatts, more costly than needed to meet the near- and medium-term emissions reduction targets in the bill.
Several provisions instruct the Nuclear Regulatory Commission (NRC) and the Department of Energy’s national laboratories to search for ways to further “expedite” a nuclear licensing process that has already been rewritten to the nuclear industry’s specifications over the last two decades, and that has not yet even been tried (sec. 1101). Mixing or merging the functions and activities of the Department of Energy (with a mission to promote nuclear energy) and the NRC (with a mission to assure its safety) is bad public policy. NRC Chairman Gregory Jaczko recently cautioned against including measures to further expedite licensing in climate legislation: “Right now, we're in a pretty good place. We have very strong statutory provisions. We have a very good ... implementation of those statutory provisions through our regulations. ... There’s not a lot right now that I think the commission would be asking for specifically.” In an April 6, 2010, letter to Chairman Jaczko, two prominent nuclear power supporters, former Republican Senator Pete Domenici and former NRC Chairman Richard Meserve, wrote that their recent review of the NRC licensing process for new reactors “did not find any evidence that either the NRC or industry had needlessly delayed or extended the licensing process.”
Another section of the bill expands the Department of Energy’s existing loan guarantee program, tracking the President’s budget request for an additional $36 billion in loan guarantee authority for new nuclear power and providing a total of $54 billion in loan guarantees for ostensibly “innovative” nuclear plants (sec. 1102). NRDC views this proposed amount as excessive. The current crop of loan guarantees is all about funding the same old uneconomic nuclear power technology that private capital markets have long refused to fund because of excessive project execution and market risks. Existing federal policy already provides subsidies for developing a few “standardized” nuclear units of new design in order to confirm their advertised potential for safe, cost-effective, environmentally benign nuclear power generation. Any follow-on units should have to compete on a level playing field with other low-carbon energy sources to meet the bill’s emission limits.
The bill’s tax provisions pile on tens of billions in further subsidies at taxpayer expense through tax credits that accrue before plants are even built, and continue while they are operating.
Another harmful and potentially costly provision would amend existing law to extend “regulatory risk insurance” of up to $500 million per unit to a rolling roster of up to 12 new nuclear reactor projects, should these projects be delayed by the NRC or state regulators (sec. 1103). The last thing anyone should want is a nuclear regulator that is hesitant to raise genuine issues for fear of triggering a requirement for massive taxpayer payouts by the Secretary of Energy. It could actually encourage licensees to resist or evade requirements knowing that their financial risk in doing so would be “covered” by the DOE.
The bill would amend the Atomic Energy Act to drop the NRC’s final quality assurance and quality control review before allowing a new reactor to commence operations (sec. 1108). , with no public hearing or consideration by the committees of jurisdiction, to make a small but substantial change to the NRC’s responsibilities just prior to allowing a new nuclear reactor to operate). Another Atomic Energy Act amendment would shortcut requirements of the National Environmental Policy Act (NEPA) (sec. 1109). It would allow the NRC to get by with an environmental “supplement” in lieu of a full environmental impact statement (EIS) for the construction and operating license application when a reactor has already obtained an “Early Site Permit,” thereby avoiding a serious, searching review of alternative means for obtaining the electricity services to be supplied by the proposed reactor project – two items at the heart of NEPA reviews for any electric generating facility.
III. Measures to Promote Offshore Oil Drilling
Regrettably, the bill encourages more offshore drilling at a time when we should be thinking about how we can better protect our coasts and ocean resources. In the wake of the disaster in the Gulf of Mexico, there should be a moratorium on all new offshore drilling activities, including the drilling now scheduled to begin in Alaska this summer, until an independent investigation determines the causes and ramifications of the Gulf spill.
The bill mentions the need to address the Gulf spill but only in a section that has no actual effect (sec. 1201). The bill’s offshore oil and gas provisions lack any requirements for review, assessment or corrective action in response to the disaster in the Gulf, nor are there any delays on new offshore activity while the accident is being investigated. It is full steam ahead, even in highly vulnerable areas such as Arctic Alaska, where oil drilling is scheduled to begin this summer – areas that could be devastated by a spill a fraction of the size of the Gulf disaster.
The bill actively encourages offshore drilling in previously protected areas by offering states a whopping 37.5% share of revenues generated by offshore oil and gas activity, with no strings attached. This provides a strong fiscal incentive for states to allow oil-related industrial development in coastal and marine areas already under stress from pollution, overfishing, ocean acidification and warming.
The bill would allow a state to veto offshore drilling within 75 miles of its coast, but only if the state passes a law and the governor then chooses to petition the federal government (sec. 1204). This is a time-consuming process, made even more unlikely by the lure of new state revenues. A second veto provision would allow a more distant state that might be affected by an oil spill to veto drilling off another state’s coast (sec. 1205). But this would be a cumbersome and uncertain system. The bill leaves it to the Department of Interior to determine the risks of a spill and which states would be likely to suffer “significant” impacts – a term not defined in the bill. So states would be at the mercy of the Interior Department to determine whether they have an actual veto. Given the Department’s poor record of handling concerns about oil drilling and its mission to exploit resources and maximize revenues, this is a recipe for disaster.
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So now we need President Obama and Majority Leader Reid to take the reins to bring Senators of good will from both parties together around a comprehensive clean energy and climate bill – one that draws on the best elements of this bill as well as other proposals. President Obama pledged today to engage with Senators from both sides of the aisle to accomplish this goal this year. The time is now.
This post originally appeared on NRDC's Switchboard blog.
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