Climate Change Comes before the Senate

The news was All Obama All Night last night, but the US Senate spent yesterday debating a bill to address climate change. The Lieberman-Warner Climate Security Act is meant to reduce US carbon emissions using the cap-and-trade strategy.

The bill calls for a cap on greenhouse-gas emissions starting in 2012, with electric utilities, refineries, and the industrial and transportation sectors required to cut their emissions 19 percent below 2005 levels by 2020 and a 71 percent by 2050. Other provisions of the bill are expected to reduce greenhouse gases from additional emitters 66 percent by 2050.

For the primary industries covered, emissions cuts would be achieved through a cap-and-trade system that would let polluting entities buy and sell the right to emit carbon. About 20 percent of emissions credits would be auctioned initially; the rest would be given out free to emitters and states. The percentage of credits auctioned instead of given away would increase gradually over time. (Hillary Clinton and Barack Obama have both advocated for auctioning 100% of credits from the beginning, a position widely supported by enviros.)

Some new provisions in the bill are intended to help consumers deal with any increases in energy prices. There's an $800 billion consumer tax relief package and a $911 billion allowance to local electricity and gas utilities to help them cushion consumers from price swings, invest in renewables, and promote efficiency. This would all be paid for by the revenue from auctioning emissions credits, expected to total $3.3 trillion over the life of the bill. Funds from the auction would also go to worker transition programs, block grants to local governments for energy-efficiency programs, international adaptation programs, and deficit reduction.

Negotiations between environmentalists and industry reps have been going on for a few years now, hammering out compromises on how carbon credits are to be measured, awarded, and traded. The revenue from auctioning carbon credits will be a new source of government revenue; theoretically this money will be used to fight the climate battle on other fronts, but in practice we always need to watch out for pork. It doesn't help that the program depends on another futures market at a time when the popular press is blaming such markets for high food and fuel prices.

Joseph Romm, the really smart energy and environment guy, is live blogging on the debate at Climate Progress. There's also a summary of the debate so far here.

As a casino dealer, not an energy analyst, I have concerns about any cap and trade bill that does not include a 100% auction system. When credits are "grand fathered in" it creates a system that rewards the behavior we were trying to eliminate. When the process is destined to take time and the signs point towards even a little bit of monetary value for pollution that an industry is already producing, the way to win the game is to artificially increase your emissions now so that you have more emission credits to sell later. I wonder if this sort of thinking isn't responsible for Michigan's mini boom of coal plant investing.

I don't get mad about people who "game the system". We're humans; that's what we're good at. We are also smart enough to design better systems, if we try.