Beltway Bulletin – American Power Act Analysis

by Phil Carver

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Senate Climate Bill Introduced

The Senate is now considering the Kerry-Lieberman climate bill, titled the American Power Act (APA).  It has several improvements over H.R. 2454, the Waxman-Markey bill that passed the House in June 2009 (for a discussion of H.R. 2454 see http://peaceworker.org/2009/07/the-beltway-bulletin/ and http://peaceworker.org/2009/09/beltway-bulletin-4/ ).

For a side by side comparison of H.R. 2454 and the APA see:  http://www.grist.org/article/2010-05-12-a-first-look-at-the-details-of-the-kerry-lieberman-american-powe .  Also see:  http://www.grist.org/article/kerry-lieberman-climate-bill-the-details/ .

The key question for environmentalists is whether the APA is better than leaving the Environmental Protection Agency with broad but unwieldy powers under the 1990 Clean Air Act.  EPA is drafting greenhouse gas (GHG) regulations under authority granted by a Supreme Court decision in 2007 (see Massachusetts v. U.S. Environmental Protection Agency, 549 U.S. 497 2007).  The Congressional Research Service summary of the decision is available at http://assets.opencrs.com/rpts/RS22665_20070518.pdf .

Most environmental groups support the APA.  The bill will add large and growing costs to CO2 emissions from coal-fired power plants.  The range carbon allowance price under the bill starting in 2013 is $12 to $25 per metric ton in 2009.  The minimum additions would raise the typical cost of operating a coal plant by 50 percent.  The minimum value would rise 3 percent faster than inflation, the maximum at 5 percent faster.  CO2 reductions from APA carbon adders will likely exceed what EPA could do through GHG regulations.

Due to increased production of natural gas from discoveries in shale formations, natural gas prices are stabilizing.  The carbon adder in the APA plus additional costs from EPA regulations on toxic air pollutants will make it cheaper to build new natural gas plants than to install scrubbers on most old coal-fired power plants.

Many coal plants have not had to install air pollution scrubbers until now.  The Clean Air Act amendments of 1990 require that all coal plants install scrubbers to reduce emissions of mercury and other toxics.  The law mandates the cleanup of toxics by 2015 but legal squabbling may push this date back two or three years.

Installing scrubbers on a large coal plant will cost more than building a new natural gas turbine of comparable size.  About 30 percent of the capacity of U.S. coal plants is older than 40 years.  These plants already have high maintenance and repair costs.  Bernstein Research estimated in March 2010 that the additional cost of scrubbers will force 24 percent of coal-fired capacity to close around 2015.  The increase in carbon costs from the APA would force the closure of much of the additional 29 percent of capacity that would have to install scrubbers.  Reducing CO2 from coal-fired plants by 50 percent would reduce total U.S. CO2 emissions by 17 percent.  That is the total reduction in the GHG cap for 2020 in the APA.

This is the situation that Portland General Electric faces with Oregon’s only coal plant at Boardman.  PGE has proposed a deal where it would not install $500 million in required pollution control equipment.  In exchange, PGE would permanently shut down the plant in 2020.  This deal avoids the risk of investing in Boardman only to shut it down shortly thereafter due to federal regulation of CO2.

Price Collars

The APA does not have a firm cap on emissions.  Instead it has a firm cap and floor on carbon allowance prices.  The floor and ceilings on these carbon adders provide a reasonable compromise between predictability of compliance costs and reductions in emissions, especially in the early years.

Given the impacts of carbon adders and EPA toxic regulations on coal plants, reductions in total U.S. emissions will likely exceed the CO2 reductions required by the APA.  If so, the market trading price for GHG allowances will be lower than the floor price.  This will mean that some allowances offered by EPA at the floor prices will go unsold and emissions will be less than the cap.

Non-CO2 GHG gases are calibrated to their CO2 equivalence.   These industrial and utility emissions are not covered until 2016.

Total CO2 emissions are already declining due to higher oil prices and in anticipation of GHG regulations.  The federal government reported in May that U.S. CO2 emissions in 2009 were down about 10 percent from 2005.  About two thirds of the reduction was not from the recession (see http://www.eia.doe.gov/oiaf/environment/emissions/carbon/index.html ).

Transportation Emissions

Carbon adders will have a small impact on CO2 emissions from transportation under any plausible political scenario.  Transport CO2 emissions were 30 percent of the U.S. total in 2008.  The price per gallon of gasoline will rise between 11 and 22 cents per gallon starting in 2013 under APA.  Under the price cap it will rise no more than $1.35 per gallon in 2050, adjusted for inflation since 2009.  This effect alone on transport emissions is inconsistent with APA’s overall reduction in the GHGs of 83 percent in 2050.

Republicans will attack this modest level of a carbon tax vigorously.  They will be correct that this is equivalent to a carbon tax.  Even the 2050 level of tax would not pay for the health damage from smog from vehicle emissions, let alone the damage from climate change.  Nor would it pay the ongoing military costs to protect U.S. access to oil from the Middle East.

Still, having a small carbon adder for transport fuels is better than the situation without the APA.  The EPA has no authority under the existing Clean Air Act to impose a carbon adder.  The APA would give further impetus to the EPA to tighten efficiency standards for all types of vehicles.  It will also help fund the transformation to a transportation system that is primarily electric vehicles and trains fueled from renewable generation.

Other CO2 and GHG Emissions

The APA addresses all CO2 and GHG emissions.  About 85 percent of U.S. GHG emissions fall under the cap.  Other areas will be addressed through EPA regulations and offsets.

Offsets Raise Concerns

The most troublesome aspect of the APA is it allows the same high level of reductions from offsets as H.R. 2454.  Offsets let polluters covered under the cap buy reductions in uncapped sectors or uncapped countries instead of reducing their own CO2 emissions, for example to sequester carbon in soils or trees.

Many offsets have been phony.  Polluters have paid farmers and loggers for actions that would have happened anyway.  The APA has stronger provisions than H.R. 2454 to reduce phony offsets.  Offset provisions in the APA merit more examination.  Still, they are unlikely to seriously undermine actual GHG reductions because actual reductions will cost polluters less than buying APA offsets in most cases.

The Politics

The BP oil spill in the Gulf of Mexico makes clear the dangers of a “drill-baby-drill” policy.  Military personnel, both active and retired, are pointing out the destabilizing effects of sending more petro-dollars to the unstable Middle East (see http://www.operationfree.net/2010/05/12/statement-vets-military-experts-applaud-climate-bill/ ).  Energy businesses are seeking more certainty on the future costs of GHG reductions.

Without the APA it is difficult to predict the GHG regulations that EPA will draft.  Many electric utilities and several oil companies support the bill to remove this huge business uncertainty.  These political forces may overcome efforts by the coal companies and other business to prolong business as usual for a few years.

Bottom Line

It is important that the Senate pass a bill this year that is reasonably close to the APA bill.  The most important impact of passing the APA is it would be to fulfill the promises Pres. Obama made in December in Copenhagen.

Passage will spur negotiations with Russia, China and India.  All three countries also face ominous risks from climate change.  The APA creates provisions for carbon import fees on countries that won’t adopt comparable GHG controls.  These provisions are consistent with the principles of the World Trade Organization.

If the bill is weakened substantially, it will be better to wait.  Without a bill the EPA will continue to press its authority to regulate GHG pollution.  As EPA implements regulations it will put pressure on Congress to pass comprehensive GHG legislation in the next few years.

For more on why the APA deserves the support of all Americans see: http://climateprogress.org/2010/05/11/american-power-act-to-create-millions-of-clean-energy-jobs-slash-pollution-and-oil-use-while-boosting-u-s-farmers-and-manufacturers/.

More Information

For up-to-date reports on many progressive issues, see the Center for American Progress at www.americanprogressaction.org/ and the Grist at http://www.grist.org/news/ .
For justice issues, see the American Civil Liberties Union (ACLU) at www.aclu.org/ .
For the issues of peace, national defense and the Iraq and Afghanistan wars, see the Friends Committee on National Legislation (FCNL) at www.fcnl.org/ .
For the issues of energy and global warming, see the Union of Concerned Scientists (UCS) at http://www.ucsusa.org/, the Natural Resource Defense Council (NRDC) at www.nrdc.org and Climate Progress at http://climateprogress.org/ . Φ

Phil Carver has worked on energy and climate change issues for Oregon state government since 1980.  He currently works on electric vehicle issues for the Oregon Public Utility Commission.  These are his personal views, not necessarily those of the OPUC.  He earned a Ph.D. in natural resource and utility economics from Johns Hopkins University in 1978.  He is a former OPW Board Co-Chair who writes this column exclusively for The PeaceWorker.