Bingaman-Specter Cap & Trade Bill Introduced

Jul 11: Senators Jeff Bingaman (D-NM) and Arlen Specter (R-PA) introduced bipartisan legislation designed to reduce U.S. greenhouse gas emissions while protecting the U.S. economy and interacting with key developing countries in their efforts to deal with the challenges of global warming. Original cosponsors include Senators Tom Harkin (D-IA), Ted Stevens (R-AK), Lisa Murkowski (R-AK) and Daniel Akaka (D-HI).

The Low Carbon Economy Act of 2007 creates an economy-wide mandatory tradable-permits system that is modeled after the successful U.S. Acid Rain Program. By setting an annual target and allowing firms to buy, sell and trade credits to achieve that target, the program is designed to achieve what the sponsors say is "the most cost-effective carbon reductions across the economy." The target and technology incentives are designed to avoid harm to the economy while promoting a gradual but decisive transition to new, lower-carbon technologies.

Bingaman, Chair of the Senate Energy & Natural Resources Committee said, “There is a great desire in our country to address the global warming crisis. I believe our legislation represents a strong and balanced approach. It will dramatically reduce U.S. greenhouse gas emissions while also spurring new energy technologies, protecting the American economy and engaging developing nations in their efforts to address climate change. It’s a bipartisan approach that strikes the right balance and would return the U.S. to a position of global leadership.” Senator Specter said, “This legislation provides a deliberative and measured response to climate change. It brings together many interest groups in the fight against global warming, and I believe this is a bill that can be passed.”

The Low Carbon Economy Act is the product of a lengthy and open process. It reflects revisions of the Bingaman-Specter discussion draft on climate change, first circulated in January. That draft was the basis for hearings, analyses and extensive input from a broad range of stakeholders.

The environmental targets of the Act are to reduce U.S. greenhouse gas emissions (GHG) to 2006 levels by 2020 and 1990 levels by 2030. To limit economic uncertainty and price volatility, the government would allow firms to make a payment at a fixed price in lieu of submitting allowances. This “Technology Accelerator Payment” (TAP) price starts at $12 per metric ton of CO2-equivalent in the first year of the program and rises steadily each year thereafter at 5 percent above the rate of inflation. If technology improves rapidly and if additional policies such as fuel efficiency standards and a renewable electricity standard are adopted, the TAP option will never be engaged. Conversely, if technology improves less rapidly than expected and program costs exceed predictions, companies could make a payment into the “Energy Technology Deployment Fund” at the TAP price, to cover a portion or their entire allowance submission requirement.

Under the Act, GHG emissions from petroleum and natural gas are regulated “upstream” -- that is, at or close to the point of fuel production. For these fuels, regulated entities are required to submit tradable allowances equal to the carbon content of fuels produced or processed at their facilities. GHG emissions from coal are regulated “downstream” at the point of fuel consumption. Regulated entities that must submit allowances include petroleum refineries, natural gas processing plants, fossil fuel importers, large coal-consuming facilities and producers/importers of non-CO2 GHGs.

The proposal sets out a detailed methodology for distributing tradable emission allowances. At the beginning of the program, a majority of allowances are given out for free to the private sector. This amount is gradually reduced each year after the first five years of the program. In addition, 8 percent of allowances will be set aside annually to create incentives for carbon capture and storage and jump-start these critical technologies. Twenty-four percent of total allowances will be auctioned by the government to generate much-needed revenue for research, development and deployment of low- and no-carbon technologies, to provide for climate change adaptation measures and to provide assistance to low income households. Five percent of allowances are reserved to promote agricultural sequestration, and 1 percent of the allowances will reward companies that have undertaken “early actions” to reduce emissions before program implementation. Another 9 percent of the allowances are to be distributed directly to States, which can use associated revenues at their discretion to address regional impacts, promote technology or energy efficiency and enhance energy security.

To effectively engage developing countries, the Low Carbon Economy Act would fund joint research and development partnerships and technology transfer programs similar to the Asia Pacific Partnership. The bill also calls for a Five-Year Review Process that requires a reassessment of domestic action in light of efforts by our major U.S. trade partners and relevant scientific and technological developments. If there is sufficient international progress in reducing greenhouse gas emissions, the President could recommend changes in the U.S. program designed to achieve further reductions that are at least 60 percent below current levels by 2050. If other countries are deemed to be making inadequate efforts, starting in 2020 the President could require importers from such countries to submit special emission allowances (from a separate reserve pool) to cover the carbon content of certain products.

Senator James Inhofe (R-OK), Ranking Member of the Senate Environment & Public Works Committee commented on the bill saying, Kyoto’s spectacular global failure should give any advocates of mandatory CO2 cap-and-trade schemes serious reasons to reconsider their support... Senator Bingaman’s bill would needlessly increase energy costs to already overburdened Americans without any measurable climate benefits. CO2 cap-and-trade schemes were exposed by a recent CBO study as creating massive wealth redistribution from the poor and working class to wealthier Americans..."

Environmental Defense commented on the bill saying, "The safety valve is a dangerous kill switch that could turn off the whole program. There are much better ways of managing costs than giving up on the environmental goal altogether. The safety valve in Senator Bingaman’s bill would put a price ceiling of $12 per ton of carbon dioxide under an emissions cap and trade system. If emissions allowances traded by companies reached the price ceiling, companies could buy unlimited cut-rate emissions allowances from the government – effectively jettisoning the bill's mandatory emissions limits."

Access a release from Senator Bingaman (click here). Access links to extensive documentation on the bill including full text, summary, FAQ, section-by-section, briefings, slide show, side-by-side comparison to other bills, etc (click here). Access a release from Senator Inhofe (click here). Access a release from Environmental Defense (click here). [*Climate]