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The American Clean Energy and Security Act of 2009 (ACESA), HR 2454, is currently under consideration in the House. There is little disagreement that immediate measures to address global warming must be taken; how to achieve that goal is open to debate. It is the position of PDA that the bill is flawed and that other mechanisms to reduce carbon emissions should also be considered. Today, PDA sent the following letter to the co-chairs of the Congressional Progressive Caucus Reps. Lynn Woolsey and Raul Grijalva, and to Congressional Black Caucus Chair Rep. Barbara Lee:
Dear Rep. Grijalva, Rep. Woolsey, and Rep. Lee,
Because you have provided leadership on issues of extreme importance in the past, we write to alert you to serious flaws in the "American Clean Energy and Security Act of 2009" (H.R. 2454, "ACESA"). The environmental benefits of this bill have been too diminished for it to qualify as a positive step toward avoiding catastrophic climate disruption [1], and we understand that the Agriculture Committee is insisting on further weakening. Furthermore, ACESA's trading provisions would create vested interests that would resist future reforms even if (as we expect) this measure fails to meet its inadequate goals. We urge the Congressional [Progressive and Black] Caucus to mobilize to strengthen this bill so that it merits your support. Alternatively, if the bill cannot be substantially improved, we urge you vote "no" on the floor.
We understand the urgency of enacting climate legislation, especially in view of the upcoming Copenhagen treaty negotiations. If the U.S. is willing to commit to specific emissions reductions and to funding for international efforts, we believe the U.S. can enter into meaningful negotiations with both a mandate and the flexibility needed to reach an international accord whether or not ACESA is enacted.
We call your attention to the following areas of ACESA, which need significant improvement:
Renewable Energy Standard Must be Restored
The coal-fired electricity sector is the largest emitter of greenhouse gases in the United States. ACESA's Renewable Energy Standard (RES) appropriately focuses on electric utilities, mandating a shift to renewable energy sources. The ACESA discussion draft released in March would have mandated that by 2025, 25% of U.S. electricity be generated from renewable sources. This level is consistent with some of the more aggressive State and regionally-mandated standards and was one of the most important and effective provisions of the draft. When ACESA emerged from the Energy and Commerce Committee, that requirement had been replaced with a combined 20% renewable electricity (RE) and energy efficiency (EE) requirement by 2020 that effectively would reduce the nominal renewable electricity requirement to just 15% by 2020. The Energy Information Administration has concluded that loopholes and waivers in this proposed standard would require few if any additional renewable energy sources over the expected trajectory of renewable energy implementation that would occur without the legislation. We urge restoration of the more stringent RES from the ACESA discussion draft.
In addition, ACESA defines "renewable energy" to include waste incineration, which releases toxic chemicals into surrounding communities and because of the high water content of municipal waste, provides little or no energy and no net greenhouse gas emissions reductions. Also, the bill would create a Clean Energy Deployment Administration authorized to fund dirty energy like nuclear power and coal. We urge elimination of provisions that include dirty energy as renewable.
Strengthen Emissions Reductions
ACESA's greenhouse gas pollutant standard is far too weak to avoid catastrophic effects on human welfare and the environment. The proposed emissions targets represent reductions of 1 to 4 percent below 1990 levels by 2020 and 68 to 71 percent below 1990 levels by 2050 [2]. The Intergovernmental Panel on Climate Change has concluded that much more aggressive reductions are needed from industrialized nations to maintain atmospheric CO2 levels at or below 450 parts per million to avoid severe climate impacts including droughts, deadly storms, floods and sea level rise that would inundate entire cities, triggering refugee crises.
The weak greenhouse gas reduction goals in ACESA are further undermined by the two billion tons of carbon "offsets" available annually. ACESA would authorize one billion tons of "offsets," intended as mechanisms to capture CO2, from domestic sources and another billion from international sources. If domestic offsets do not satisfy demand, ACESA would increase the share of international offsets to 1.5 billion of the total two billion tons. If fully utilized, these offsets mean the U.S. emissions could continue to increase until at least 2040 [3]. Carbon offsets are difficult to monitor and enforce, raising serious doubt about their value [4].
The Agriculture Committee is insisting on substantial further weakening of ACESA. The Committee urges excluding indirect emissions from the impacts of biofuels, replacing EPA oversight of offsets with Department of Agriculture oversight and seeks more free allowances for rural electric cooperatives. We urge elimination of all offsets or much more limited offsets at levels that do not compromise the integrity of the cap and that are verified by qualified independent third parties.
Protecting Low- and Middle-Income Families
A primary goal of ACESA is to price carbon emissions. This bill chooses a cap-and-trade mechanism [5]. Without mitigation strategies, carbon pricing systems are regressive, disproportionately burdening low- and middle-income families. ACESA utilizes the tax code and existing social programs to distribute about 15% of allowance value to low-income families, which we support. But the bill also distributes roughly 35% of allowances to local distribution companies (LDCs) with mandates to pass through this value to energy users, an ineffective system to address the regressive effects of carbon pricing. Since roughly 2/3 of electricity is used by commercial and industrial facilities, they and not households will be the primary beneficiaries of this policy [6]. We urge a much simpler, transparent approach: auction 100 percent of permits and provide a broad-based tax reduction or "dividend" directly to households.
Carbon Markets
ACESA would create the world's largest commodity and derivatives market, within five years trading assets valued in the range of $2 trillion, rivaling in size the crude oil and natural gas markets combined [7]. ACESA relies on regulatory structures that last year's financial crisis proved are woefully inadequate. Derivatives remain essentially unregulated. Carbon markets will add to the volatility of energy markets [8]. "Junk carbon"--two billion tons of environmentally-dubious carbon offsets--creates a potential for an economy-threatening asset bubble in much the same way overvalued mortgages spurred the current financial crisis [9]. We urge elimination of carbon markets and substituting a direct pricing mechanism.
Funding "Clean Coal" With Free Allowances and Hidden Taxes
As noted above, we recommend that under any carbon pricing system, all or nearly all revenue should be recycled to households and not given away in the form of free allowances [10].
ACESA would give a significant amount of free allowances to the coal and oil industry. The coal industry could receive approximately $150 billion over the lifetime of the bill for the deployment of carbon capture and sequestration (CCS) technology–funds that should instead be invested in renewable energy technologies. CCS technology is speculative, and even if feasible and economical would require far more coal to be mined, transported and burned to produce the same amount of electricity. Coal mining is destroying communities in coal mining regions of the United States such as Appalachia. In addition, the bill allows utilities to tax ratepayers to fund CCS deployment. The revenue from this tax would be managed by a non-governmental entity made up of utilities. ACESA would also give approximately $24 billion to oil refiners under the pretext that the world's most profitable industry needs more financial assistance.
In addition, the ACESA allocates 15% of allowances to energy-intensive trade-exposed industries. While we understand that some industries need protection from competitors in unregulated markets, a number of studies indicate that these industries can improve energy efficiency within a few years. We recommend that this assistance be reduced by roughly half and be much more quickly phased out, not continued for decades [11]. We urge elimination of the funding for CCS and much more limited short-term transition assistance to trade-exposed industries.
Overhaul or Scrap ACESA
Congress must act to address the environmental, economic, public health and international security threats of catastrophic climate change. Putting a clear, predictable price on carbon is the most important first step and ACESA fails to accomplish this.
Overall, ACESA represents a step backward, offering inadequate responses to our urgent needs while also pre-empting EPA's authority to regulate greenhouse gas emissions under the Clean Air Act; additionally, it pre-empts stronger laws at the state and regional levels. We encourage you to consider alternatives such as a revenue-neutral carbon tax and the cap and dividend approaches before committing the U.S. to a long-term course of action which will be difficult to alter should it fail.
Footnotes:
1. Beyond its shortfalls as a domestic policy, ACESA's complex trading-based pricing structure would create "additional challenges" to an international carbon pricing system which could be avoided by a more direct pricing structure. (Congressional Budget Office, "Policy Options for Reduction of CO2 Emissions," at pp 19-22. )
2. World Resources Institute, "Emission Reductions under the American Clean Energy and Security Act of 2009." We do not believe that U.S. investments in international deforestation should count toward our domestic reduction goals.
3. Prof. Michael Wara (Stanford) "The American Clean Energy and Security Act of 2009: Areas for Improvement" (House briefing, June 19, 2009.)
4. Analysis by International Rivers and Rainforest Action Network. See also, Prof. Michael Wara (Stanford) Green Inc., New York Times, May 8, 2009
5. Cap-and-trade is complex, opaque and leads to rent seeking. (Testimony of Gary Hufbuaer, Peterson Institute, to Senate Finance Committee, June 16, 2009.) But it is not the only system for pricing carbon. Members of the House Ways & Means Committee have introduced five alternative bills that would more directly price emissions, avoiding the volatility, speculation and secondary markets endemic to cap-and-trade.
6. Richard Sweeney, (Resources for the Future) "The American Clean Energy and Security Act of 2009: Areas for Improvement" (House briefing, June 19, 2009).
7. Bart Chilton of the Commodity Futures Trading Commission. See Friends of the Earth Report "Subprime Carbon" March, 2009.)
8. Robert Shapiro, "Is Cap and Trade a Dead Policy Walking?" 4/1/09
9. "Subprime Carbon" Friends of the Earth, March 2009.
10. The bills in the Ways & Means Committee propose various options to "recycle" revenue to households through a direct "dividend" or through reduction in other taxes including payroll taxes.
11. Dallas Burtraw of Resources for the Future has concluded that the allowances allotted to energy-intensive trade-exposed industries are roughly double the amounts needed to fairly compensate them for additional costs imposed by ACESA.
12. In his keynote speech in Copenhagen, Yale economist William Nordhaus explained, "Economic participants--thousands of governments, millions of firms, billions of people, all making trillions of decisions each year--need to face realistic prices for the use of carbon if their decisions about consumption, investment, and innovation are to be appropriate... without a strong price signal, there is simply no hope for making the vast number of decisions in a remotely efficient manner... Raising the price of carbon is [thus] a necessary condition for implementing carbon policies in a way that will reach the multitude of decisions and decision makers over space, time, nations, and sectors." [Emphasis added.]
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