There’s is growing bipartisan support for a shrinking cap on carbon.

On Friday, Maria Cantwell (D-WA) and Susan Collins (R-ME) put forward a draft climate bill, the Carbon Limits and Energy for America’s Renewal (CLEAR) Act — full text and info here.  The bill embraces a market-based system to set a price on CO2 using a shrinking cap on carbon with post-2020 targets that are similar to the ones in the House bill that passed and the Senate bills under consideration.

While the bill is a political nonstarter that is unlikely to garner broad support (see below), the good news is that it’s exceedingly difficult to imagine that the two Senators could support this bill and not ultimately support the final version of the bipartisan climate and clean energy bill that Graham, Kerry, and Lieberman are working on with the White House with the support of Senate majority leader Harry Reid.

A key swing Republican, Sen. Lisa Murkowski (R-AK), released this remarkably positive statement about the CLEAR Act:

“I am encouraged by Sen. Cantwell’s bipartisan effort to advance a more sensible approach to greenhouse gas emission reductions. A great deal of work remains to find consensus on legislation, and ensure that both the economy and the environment are protected, but this bill is intellectually honest and moves the debate in the right direction,” Murkowski said. “We need to keep all of our climate policy options on the table, and the CLEAR Act should certainly be one of the approaches we spend time considering in the coming months.”

“As this debate proceeds, it’s essential that we not only discuss the merits of different proposals, but what may be missing from them as well,” Murkowski said. “None of the legislation introduced so far contains adequate preemption of harmful EPA regulations, and we must explore the implications of limiting market participation since doing so could subject regulated entities to significant price uncertainty.”

What’s remarkable about the Murkowski statement is that while she knows global warming is ravaging her state and continues to diss EPA action (like many of her colleagues), she has been very coy about precisely what congressional action she would support — though she clearly seems open to a shrinking cap and rising price for carbon (see Murkowski praises Kerry-Graham climate plan. The Washington Times writes, “Her remarks signal the potential for a major turn in the climate change debate in Congress” and Lisa Murkowski (R-AK): “We must reduce greenhouse gas emissions…. Congress … must take the lead”).

The CLEAR act, for all its political flaws, does ultimately require deep reductions of CO2 post-2020 and hence a steadily rising price.  On the plus side — from a climate perspective — it doesn’t allow any offsets and it auctions all of the allowances.  Politically that would be fatal, of course, since it means little or no support from the utility industry, from the states with significant coal use, and from the agricultural states.

Also, while I would prefer not allocating as many permits in the early years as required in the deal the utilities struck to get their crucial support for Waxman-Markey, that deal has one huge equity advantage over CLEAR or similar “cap-and-dividend” bills.  By giving permits to the regulated utilities proportional (in part) to their emissions, the House bill “targets the consumer benefits to those regions that experience the highest cost increases, such as the South East and Midwest, which is not only politically necessary but also equitable in our view” — as two leading progressive utility experts explained on CP earlier this year (see “Preventing windfalls for polluters but preserving prices — Waxman-Markey gets it right“).  Full auctioning is certainly preferable, but politically, you must address the regional equity issue.  The CLEAR Act’s FAQ says of the money distributed back to the public:

The amount per person is determined on a per capita basis. There are no differences based on region or income or family make-up.

The CLEAR Act does offer some token efforts to achieve regional equity, as the FAQ explains, but given the political uproar over even a small amount of (mis) perceived inequity in the Waxman-Markey allocation formula — see “EPA analysis for Feingold appears doubly flawed: Climate bill allocations are not unfair to the Midwest” — this is one more reason the CLEAR Act approach is a political nonstarter.  And again, the allowance formulation in the House bill is far more reasonable than is widely understood (see also Robert Stavins: “The appropriate characterization of the Waxman-Markey allocation is that more than 80% of the value of allowances go to consumers and public purposes, and less than 20% to private industry”).

The Union of Concerned Scientists also released this statement Friday about the other problematic part of the bill — its mandatory 2020 target — arguing “the bill is too weak to meet its purported goals”:

The CLEAR Act includes the aspirational goal of cutting heat-trapping emissions 20 percent below 2005 levels by 2020 and 83 percent below 2005 levels by 2050. The long-term target is in line with the minimum reductions scientists say are necessary to have a reasonable chance of avoiding the worst effects of climate change. However, the bill provisions would not achieve those goals. In reality, the CLEAR Act would only cap carbon dioxide emissions at 6 percent below 2005 levels by 2020.

Additionally, the bill says that it would provide funds to achieve more emissions reductions, but doesn’t say how funds would be spent or how they would achieve emissions reductions. Further, all funds would go through a typical appropriations process and important emissions-reduction programs might not get funded at all.

The UCS also argues the bill does not appear consistent with what is needed for a global deal:

The bill also lacks provisions that would help secure an international climate agreement, such as deep near-term and long-term emissions reductions as well as financial assistance to help protect tropical forests, support clean technology deployment in developing nations, and help vulnerable populations cope with the unavoidable effects of climate change.

Finally, the CLEAR Act has a price collar, which could be a good idea — see How the Senate can fix cost containment in the climate bill with ‘price collar plus’ — BUT

  1. There’s a hard ceiling aka a safety valve aka unlimited printing of allowances if auction prices hit the ceiling, which is not an environmentally preferable approach (see “Safety Valves Won’t Make Us Safer“ and “The history of the ’safety valve’ debate“).
  2. The safety valve is especially undesirable in the CLEAR Act because the ceiling price starts at $21 in 2012 and rises only 5.5% per year plus inflation.  That’s much lower than the Kerry-Boxer bill and inadequate from an environmental perspective.

Yes, one of the main points of this bill is to not allow a secondary market for allowances, thus supposedly stopping speculation and the much-decried “derivatives” market.  In fact, such fears are wildly overblown — see Nobelist Krugman: Fear of carbon markets and speculation is “99% wrong and bad for the planet.” The problem with the CLEAR approach is it tries to throw the baby out with the bathwater, tries to throw out the “good” derivatives — futures and options, which allow crucial price discovery and hedging for major carbon-generating companies — along with the bad ones (i.e. credit default swaps).  In any case, the effort is largely pointless because Wall Street financial companies don’t actually need to own the underlying asset to create an “index” for the carbon price, and they can build a futures market around the index price.

Finally, Senators typically spend little time trying to understand what the House does, so they aren’t even aware of the multiple measures in it that reduce if not eliminate the chance of serious market gaming (see “When Sen. Dorgan finds out what’s in the climate bill — hint, hint, White House — he might just support it“).  I am quite confident the Senate bill will containing even tougher measures aimed at speculators and market manipulators.

So there are some good things in the CLEAR Act that might be incorporated in into a final bipartisan climate and clean energy bill.  If it’s not politically possible to eliminate offsets entirely, then at the least, as I’ve argued many times, let’s sunset the offsets, particularly the international offsets post-2020.

UCS notes:

A climate bill introduced yesterday by Sen. Maria Cantwell (D-Wash.) is proof that there is bipartisan support in Congress for deep emissions reduction goals.

Exactly.  I’m very hopeful that the cosponsors of this bill will ultimately join in the larger bipartisan effort — see Graham, Kerry, Lieberman embrace market-based system to cut carbon pollution “in the range of 17%” by 2020 and 80%+ by 2050 — as they strongly suggest they will in their press release:

Cantwell and Collins said they look forward to working with other colleagues, especially Senators Boxer, Kerry, Lieberman, and McCain, as the Senate tackles the carbon emission problem.

Well, “and Graham,” anyway, if not “and McCain.”

The whole country and world look forward to that, too.


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