Senate Holds Hearing on Tax Implications of Addressing Climate Change
On April 25, the Senate Finance Committee held a hearing on the tax implications of combating climate change. In his opening statement, Chairman Max Baucus (D-MT) indicated that the Committee was interested in several aspects of the pending cap-and-trade proposals, including how the tax code should treat the allowances, how much revenue would be generated from the auctioning of allowances, how to design an effective program, and what the effects of such a program would be on the economy. Witnesses at the hearing generally argued that a tax on carbon dioxide (CO2) emissions may be more efficient than a cap-and-trade system, which is the centerpiece of S. 2191, the Lieberman-Warner bill, that is expected to be debated in the Senate in June.
The non-partisan Congressional Budget Office (CBO) has estimated that enacting S. 2191 would increase revenues by about $1.9 trillion over the 2009-2018 period. Direct spending from distributing those proceeds would total about $1.21 trillion.
CBO Director Peter Orszag testified that emission permits under S. 2191 would be worth approximately $30 per ton of CO2 in 2015 and would probably cause the cost of gasoline to increase by about $0.25 per gallon. Orszag argued that a tax on emissions is more efficient than a cap-and-trade system because a tax provides more flexibility over time. This allows firms to achieve emissions reductions when they are least expensive, giving them the opportunity to make greater investment in reductions when the cost of doing so is low.
Henry Derwent, President and CEO of the International Emissions Trading Association, testified on the United Kingdom's tax on business' use of energy. He noted that although the tax has not been in place long enough to determine its efficiency, it is clear that it has not negatively impacted investment behavior and is not viewed as having harmed business. Derwent added that a tax is predictable, which is a benefit to all who will be taxed for their carbon emissions.
Robert Greenstein, Executive Director of the Center on Budget and Policy Priorities, testified that higher prices for energy would result in a movement to conserve energy and make investments in clean-energy technologies. He said that any tax incentives being considered should be carefully examined to ensure that resources are used effectively. Greenstein noted that a cap-and-trade system will unduly burden low-income households when they are forced to pay higher energy costs, which could result from this type of system.
NARUC Sends Letter on Lieberman-Warner
On April 21, the National Association of Regulatory Utility Commissioners (NARUC) sent a letter to Senators Joe Lieberman (I-CT), John Warner (R-VA), Barbara Boxer (D-CA) and James Inhofe (R-OK) commenting on the Lieberman-Warner climate change bill. In the letter, the group stated support for a federal bill that is economy-wide, but advocated certain modifications. For example, they suggested that free allowances to be given to all load-serving entities (LSEs) as opposed to 19% to generators and 9% to LSEs. The letter also expressed concern about the way the bills structured as it will favor generators in restructured markets over traditionally regulated markets. Additionally, the NARUC letter said if allowances are allocated to generators who sell at market prices, state commissions will be unable to prevent the value of those allowances from being charged to the end-use customer in the form of higher prices and will provide windfall profits for generation-owners. Finally, the letter states that allocations should be based on historic emissions.
For a copy of the letter, please contact Morgan Meguire at lpickford@morganmeguire.com
Partisan Gridlock Could Halt House Cap-and-Trade Bill
On April 24, Chairman of the House Energy and Air Quality Subcommittee Rick Boucher (D-VA) said that the Republican leadership is not allowing the rank-and-file Republicans to enter negotiations on a mandatory cap-and-trade bill. Boucher said that without the support of Republicans, he doubts that legislation is possible.
Boucher noted that it would be bad policy and politically unsuccessful to try to pass a purely partisan bill. Boucher has said several times that he wants to draft a climate change bill that can win the support of some Congressional Republicans and ultimately win the support of President Bush. Boucher added that he does not know what the next step will be unless the Republicans are prepared to cooperate in the House.
Dorgan Meets with APPA and Others to Discuss Climate Change
Recently, Sen. Byron Dorgan (D-ND) met with Mark Crisson, the President & CEO of the American Public Power Association (APPA), along with other heads of associations and companies to discuss issues related to climate change. As a follow-up to the meeting, Crisson sent a letter to Sen. Dorgan in which he expanded on their conversation and laid out some suggestions that APPA would like to see enacted as part of a cap-and-trade bill.
Crisson noted that legislation must provide enough time for utilities to transition to full implementation of the regulations. He added that it is "unrealistic to expect immediate reductions of greenhouse gases without significant impacts on consumers and system reliability." Based on this, APPA recommends maintaining current emission levels for five years with moderate reductions thereafter until 2025, when clean coal technologies are expected to be commercially available.
Crisson also noted that the Environmental Protection Agency (EPA) recently released an analysis of S. 2191, the Lieberman-Warner bill, and predicted that the bill will increase electricity prices by 44 percent in 2030 and by 26 percent in 2050. He said that consumers must be protected from drastic increases, especially if the legislation will not achieve its carbon dioxide emission reduction goals. Therefore, the bill must contain a "safety valve", which would set a maximum allowance price, to mitigate price volatility.
For a copy of the letter, please contact Morgan Meguire at lpickford@morganmeguire.com
Political Interference Problem for EPA Staff
According to a report that was released on April 23 by the Union of Concerned Scientists (UCS), political appointees have interfered with the work of hundreds of U.S. EPA scientists over the past five years.
Approximately two-thirds of the 1,600 staff scientists who were surveyed said that they experienced political interference with their work. A UCS spokesman said that this study has revealed an "agency in crisis." An EPA spokesman said that disputes are not uncommon in issues that EPA must address, but said that "sometimes maybe that disagreement can be categorized in our minds as interference, when, in fact, that's not the case." He added that "there's a clear role for science and that role is to inform policy decisions, but policy makers have to weigh a number of issues-the law, for one, and scientific information... and make the best policy decision they can."
Last month, EPA released air pollution standards for ground-level ozone. About 100 of the scientists involved said that the White House Office of Management and Budget was the chief meddler in their work.
The Chairman of the House Oversight and Government Reform Henry Waxman (D-CA) told the EPA administrator, Stephen Johnson, to be prepared to answer questions about the survey next month when he testifies before the committee.
In the Senate, Sen. Sheldon Whitehouse (D-RI) said that the report was "a scathing indictment of the Bush administration's repeated efforts to twist misuse and ignore scientific facts in favor of special interests."