The Waxman-Markey Climate Change Bill
New York Law Journal
In our Feb. 22, 2008, column (“The Road Map From Bali“), Jean McCarroll and I reviewed the prospects for meaningful U.S. climate change legislation, and more generally a meaningful U.S. international role in combating climate change, following adoption of a
new international “road map” at the December 2007 Bali conference of parties to the 1992 U.N. Framework Convention on Climate Change (UNFCCC). That road map contemplated four kinds of action by UNFCCC parties: (1) mitigation (no longer prevention) of atmospheric warming as a result of human activity; (2) adaptation to the likely effects of that warming;
(3) transfers of technology to developing countries to help them carry out both prevention and adaptation measures; and (4) public and private financing for all of the above. The Bali road map provided that the parties would meet in Copenhagen in December 2009 to agree on specific actions to advance these goals.
During the final year of the Bush administration, congressional moderates, led by Senators Joseph Lieberman and John Warner, tried to fashion legislation that would be responsive to climate change, the U.S. business community and at least some environmentalists. However, the resulting Lieberman-Warner bill (S. 2191) proved so complex and so unlikely to achieve its goals that it died shortly before the 2008 Presidential election.
With strong encouragement from the Obama administration, Representatives Henry Waxman and Edward Markey recently introduced an entirely new bill, H.R. 2454, that seeks to place the United States in the forefront of global efforts to address climate change while reaching out to both environmental and business groups. This column briefly summarizes the 932-page Waxman-Markey bill and considers how effectively it responds to the Bali road map and the international community’s repeated calls for meaningful U.S. action before the planet reaches a “tipping point” that makes effective response impossible.
H.R. 2454 would, if enacted in its current form, represent a significant advance by the United States in beginning to confront climate change by limiting emissions from carbon dioxide (CO2), methane, hydrofluorocarbons (HFCs) and other greenhouse gases (collectively, GHGs). Nevertheless the bill falls far short of the concrete commitments necessary if the United States, and the world generally, are to have any chance for meaningful progress at Copenhagen. While the perfect must not become the enemy of the good in congressional legislation, Waxman-Markey must be only the first step in a sustained series of U.S. initiatives to spare the Earth’s atmosphere, as well as its oceans, forests and freshwater resources, from the accelerating effects of climate change and to help hundreds of millions of the world’s poorest people adapt to the consequences of past, present and future industrial development.
Scope of Waxman-Markey
H.R. 2454 seeks to reform U.S. energy use and GHG emissions across a broad range of industrial, commercial, residential and transportation activities. Title I of the bill encourages cleaner, more efficient and more renewable energy by funding research and demonstration projects for carbon capture and sequestration for coal-fired power plants (CCS), for electric vehicles, and for “smart grid” electrical appliances. Title II seeks to stimulate energy efficiency in residential and commercial construction, in transportation (through GHG emission standards for mobile sources), in public institutions and in low-income communities.
Title IV of H.R. 2454 seeks to address climate change through a series of development grants for a “green energy curriculum,” job training for workers adversely affected by GHG limitations and consumer credits for low-income persons. The bill also proposes to fund clean technology transfers to developing countries through issuance of emission allowances by the State Department for qualifying “clean technology activities” in developing countries that have substantial and verifiable GHG-reduction programs.
Cap and Trade Program
The portion of H.R. 2454 that has attracted the most attention adds a new Title VII to the Clean Air Act directing the Environmental Protection Agency (EPA) to implement a broad “cap and trade” program for GHGs. Under this program, virtually all fossil-fuel fired power sources (other than municipal solid waste incinerators and on-site cogeneration facilities), natural gas pipelines, refineries and industrial sources with annual emissions of 25,000 metric tons of CO2, or equivalent amounts of other GHGs, would be required to have “emission allowances” equal to their respective GHG emissions for calendar years beginning in 2012 (2014 for certain industrial sources and 2016 for local distributors of natural gas). The aggregate amount of such allowances is to decline annually, so that total U.S. GHG emissions from such capped sources (called “covered entities” in the bill) are reduced to 83 percent of 2005 levels by 2020 and, if all goes as planned, to 17 percent of 2005 levels by 2050. EPA is also directed to allocate emission allowances for use in reducing GHG emissions from deforestation in developing countries, so that by 2020 such reductions equal an additional 10 percent of U.S. GHGs in 2005.
Beginning in 2012 and each year thereafter, EPA is directed to issue, without charge, GHG emission allowances to certain classes of covered entities based on their historic operations, ostensibly to permit rebates to consumers of electricity, heating oil and natural gas. EPA is also required to issue “compensatory allowances” to many covered entities. An entity holding emission allowances may use them for its own operations, sell them to other covered entities or sell them on the open market that is already forming for such allowances. EPA may also, in consultation with the State Department, authorize covered entities to use international emission allowances from other nations that meet specified conditions with respect to mandatory emission caps, tracking of credits, enforcement and overall stringency comparable to the EPA program.
Emission allowances are also to be issued to, among other recipients, “energy-intensive, trade-exposed” industries to protect them from perceived competitive disadvantages from increased energy costs. An additional “emission allowance rebate program” is provided for certain energy-intensive industries where the new Title VII requirements could, allegedly, cause CO2 “leakage” by transferring investments abroad. Although petroleum refineries are not eligible for such benefits, a separate refinery rebate program directs EPA to issue emission allowances to certain new and existing refineries based on both direct and indirect “carbon factors” that characterize such refineries.
In addition to issuing domestic allowances and recognizing international ones, EPA is required to establish an “offset” program to permit covered entities to earn emission credits for “verifiable and additional” GHG reduction or avoidance projects, including permanent CCS, methane conversion and, under specified conditions, forest preservation. The offsets program is exceptionally complex and subject to EPA findings (and administrative appeals) with respect to the genuineness and reliability of the claimed GHG reductions, and includes offset credits claimed under existing state programs such as the Regional Greenhouse Gas Initiative launched in 2008 by New York and nine other states.
International offsets may also be authorized by EPA, in consultation with the State Department, for developing countries with which the United States has entered into bilateral or multilateral arrangements, provided that EPA makes specified findings with respect to the commercial sector involved, the feasibility of verifying the credits and other relevant factors. Similar rules apply to offset credits issued by recognized international bodies (such as the European Union) under the UNFCCC. After making detailed findings, EPA may also issue international offset credits for so-called “REDD” projects that reduce deforestation.
EPA is directed to establish an auction procedure (itself complex) for all GHG emission allowances not allocated to covered entities and, if requested, to auction excess allowances being sold by such entities. The great bulk of allowances, however, will likely escape the auction process because they are either issued directly to covered entities or sold on the private market.
Title IV of H.R. 2454 seeks to address the need for adaptation to climate change at both domestic and international levels. Domestically, the bill calls for a “national adaptation program” (funded largely by emission allowances distributed ratably among the states) and a separate “natural resources adaptation” program. Finally, Title IV sets forth the outlines of an international climate change adaptation program intended to respond to the Bali road map’s urgent call for such an effort.
This program too is to be largely financed by emission allowances allocated by the State Department and distributed by the U.S. Agency for International Development (USAID) to multilateral institutions and individual countries with adaptation plans that meet specified criteria, including community consultation and comprehensive adaptation plans. Almost as an afterthought, USAID is also required to report annually on the extent to which global climate change is causing or exacerbating instability in developing countries and adversely affecting U.S. interests through, among other things, environmentally driven migration and the destruction of the natural resources on which so much of human life depends.
The Waxman-Markey bill is certain to undergo revisions as it makes its way through the House of Representatives and Senate (indeed, it may already have changed by the time this column appears). As even this too-brief summary indicates, H.R. 2454 is an ambitious effort to help 21st century America overcome the energy and GHG profligacy of 20th century America. But measured against the Bali road map and the need for both developed and developing countries to act decisively now to reduce global GHGs, Waxman-Markey’s goal of reducing U.S. GHG emissions by 20 percent by 2020, even if realized, falls considerably short of what industrialized countries (which have created most of the problem) must do if the developing world is to have any chance of either lifting itself out of poverty or avoiding the most severe impacts of continuing climate change.
Beyond its complexity - apparently designed to keep lawyers, lobbyists and commodity traders occupied for decades - the Waxman-Markey bill is likely to be coolly received in the international community for a number of reasons:
GHG Reduction Goals: H.R. 2454 sets near and medium-term GHG reduction targets that, if emulated by other developed countries, are unlikely to achieve the level of global GHG reductions needed if CO2 concentrations (currently at about 385 parts per million (PPM)) are to be prevented from exceeding 450 PPM, as recommended by the Intergovernmental Panel on Climate Change. The bill does not even attempt to reduce existing atmospheric CO2 concentrations to 350 PPM, which an increasing number of scientists (including Dr. James Hansen of the NASA Goddard Institute for Space Studies) are now urging.
Reliance on Emissions Trading: H.R. 2454 relies almost entirely on the efficacy of, and revenues from, an emission-trading scheme that is complex, manipulable and unproven at anything like its proposed scale. Indeed, the European Commission’s Joint Research Centre reported last month that, of the largest GHG emitting countries in the EU, only two (Germany and the U.K.) had reduced their 2005 emissions below 1990 levels under the EU’s Emissions Trading Scheme, the principal prototype for the Waxman-Markey plan.
Moreover, if the generous emission allowances, offsets and rebates contemplated by H.R. 2454 are issued without charge to existing GHG emitters and are also easily available in the marketplace, even those GHG reductions contemplated by Waxman-Markey may not be realized. In the absence of any further economic penalties for GHG emissions (such as a carbon tax or even a significantly increased gasoline tax), it is possible that most Americans will feel little direct effect from Waxman-Markey’s emissions trading system, and thus will feel little incentive to change their energy-intensive ways.
Ethanol Subsidies: Neither H.R. 2454 nor any other Obama administration proposal addresses the need for the United States to eliminate its domestic subsidies for corn-based ethanol, which is energy-inefficient and contributes to the world’s growing food shortage by using cropland to fuel transportation. If Brazil and other countries with tropical forests can be asked to take far more aggressive action to preserve those forests (as Waxman-Markey rightly contemplates), the United States should in return eliminate both its subsidies for corn-based ethanol and its current high import duties on Brazil’s sugar-based ethanol, which has far less impact on food supplies.
International Adaptation: H.R. 2454 can also, and should, be criticized for its failure to make any serious commitment to helping developing countries and their citizens adapt to the now foreseeable (and severe) effects of climate change. In April 2009, the World Bank released a detailed report (“Sea-Level Rise and Storm Surges - A Comparative Analysis of Impacts in Developing Countries,” available at http://go.worldbank.org/69B0EDSO40), identifying, by region, those countries (e.g., Mozambique, Nigeria, Liberia, Cote d’Ivoire, Sudan, Vietnam, Thailand, Philippines, Indonesia, both Koreas, Jamaica, Nicaragua, El Salvador and most Pacific island states) most vulnerable to coastal and urban flooding, agricultural loss, wetlands destruction, population relocation, and economic loss as a result of climate change, resulting sea-level rise and increased storm intensity.
What these most-vulnerable countries have in common is that they have done little to create the climate change conditions from which their citizens will be the first to suffer through the loss of their homes, their food, their drinking water and their lives. While many developing countries (in particular, China, India, Brazil, Mexico, South Africa and Indonesia) can be asked to make concerted efforts to minimize future GHG emissions, the huge sums required to help the poorest nations adapt to climate change must come principally from those nations, including the United States, that have created the conditions requiring that adaptation. On this score especially, the current draft of the Waxman-Markey bill falls far short.
is a partner at Carter Ledyard & Milburn and directs the firm’s environmental practice group. He is an adjunct professor of International Environmental Law at Brooklyn Law School.
Reprinted with permission from the June 15, 2009 edition of The New York Law Journal
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Stephen L. Kass