July 7, 2008
The US climate security act spluttered to a halt on 4 June after receiving only 48 of the 60 votes necessary to stay alive during a brief two-day debate in the Senate. What happened and what can we learn for future US climate policy? Though the planet continues to get warmer, US policymakers have also gotten a bit ‘warmer’ in their search for a viable federal climate policy.
Prior to the debate, most of those who follow the US carbon market anticipated that, while the Bill – introduced by Senators Joseph Lieberman and John Warner – was unlikely to pass, it would serve as a building block for eventual federal policy. Also, supporters stressed the need for immediate climate action: those opposed argued that climate legislation would cause unacceptable economic harm to the US.
The opposition also had other fodder. The bill was unwieldy at 492 pages. Furthermore, despite Senator Barbara Boxer’s admirable leadership, her ‘manager’s amendment’ contained too many changes that were released just days before the debate. This combination made it easier for the opposition to say nay.
The difficult road ahead was underscored by a letter signed by 10 moderate Democratic Senators, which stated they would not support the bill unless it does a better job to protect consumers and workers from “undue hardship.” All that said, this legislation represented the most interest and momentum to date for federal climate legislation in the US. All eyes will now be on the presidential election in November, given that both candidates, Senators John McCain and Barack Obama, favour legislation that includes ‘cap-and-trade.’
So let’s look ahead and acknowledge that, though Lieberman-Warner represented a step forward, there are several ways to improve it.
First, more focus will be needed on how to best distribute allowance auction proceeds. The challenge will be to avoid political handouts and to stay focused on achieving the environmental goals at least possible cost.
Second, a design flaw in Lieberman-Warner was the emphasis on upstream (at the source) emissions that did not provide adequate incentives for downstream (end-user) emissions reductions. For example, there was little incentive for end-use energy efficiency, aside from rising energy prices. A better approach would be to include an allowance set aside from underneath the cap, a pool of ‘green energy allowances’, that would be rewarded to downstream projects that achieve demonstrable reductions in emissions. Let these projects compete for allowances in order to spur innovation and hasten the race to reduce.
Third, incentives for the high volume mitigation ‘buckets’ are needed. For example, carbon capture and storage (CCS) has great potential to help reign in US GHG emissions. But these projects are costly. The bill went in the wrong direction in shifting the bonus allowance provision to two times from 4.5 times for CCS.
Finally, improvements and enhancements to the carbon offset provision are needed. Apart from providing cost-containment and price moderation, offset projects provide an essential bridge to a low-carbon economy. A robust offset provision should include a wide geographic scope and a large volume into the system. Also, providing clarity as early as possible on eligible start dates, a viable project crediting period, diverse project types, and reward for early action will go a long way in mobilising capital and brain power towards a transition to a low-carbon economy. Too many of these components were either vague or set unworkable timelines that would unnecessarily constrict the size and environmental benefit of the market. Roger Williams is chair of the US Carbon Offset Providers Coalition and a vice president at project developer Blue Source.