The Lieberman-Warner Climate Security Act has emerged as the leading legislative vehicle for the creation of a national cap-and-trade system for greenhouse gas (GHG) emissions. Recently described by the Wall Street Journal as “the most extensive government reorganization of the American economy since the 1930s,” the Climate Security Act would, among many other things, require U.S. importers of a wide range of manufactured goods to purchase and surrender emissions allowances representing the GHGs associated with manufacture of the imported goods.

This requirement, intended to ensure that U.S. emissions caps do not diminish the competitiveness of domestic manufacturing industries vis-à-vis their foreign rivals, would only be excused for goods produced in countries that have adopted GHG emissions requirements as stringent as those in effect in the United States. In this way, the Climate Security Act would use U.S. market access to compel foreign exporting nations to limit GHG emissions, and could significantly affect trade flows.

In anticipation of the floor debate scheduled to begin in the Senate next week, Senator Boxer issued a substitute bill (S. 3036) that significantly alters the regulation of imports. One of the principal trade-related changes in the substitute bill is that it would create an International Climate Change Commission (ICCC) that would determine which foreign countries have taken “comparable action” to the United States in curbing GHG emissions. A negative determination would trigger the requirement for importers to provide emissions allowances pursuant to an International Reserve Allowance Program. The ICCC’s duties would also extend to determining the scope of manufactured goods falling under the import provisions, as well as modifying the import emissions allowance requirements as warranted.

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The Environmental Protection Agency’s Environmental Appeals Board (EAB) heard oral arguments this morning in a precedent-setting case that will determine whether EPA is required to consider emissions limitations on CO2 as part of the permitting process for coal-fired power plants and other emitters of greenhouse gases. The case of In re Deseret Power Electric Cooperative, which challenges EPA’s refusal to use its permitting authority under the Clean Air Act (CAA) to impose on controls on CO2 emissions from a proposed Utah waste-coal fired power plant, will impact dozens of challenges to coal-fired power plant permits pending in state agencies and appeals boards throughout the country.

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A new synthesis report, published by the U.S. federal Climate Change Science Program, finds that “climate changes are already affecting” U.S. water resources, agriculture, land resources, and biodiversity, and that significant impacts are “very likely” to continue over the next few decades and beyond. The 200-page “The Effects of Climate Change on Agriculture, Land Resources, Water Resources, and Biodiversity” assessment summarizes scientific literature from more than 1,000 publications, including the reports of the Intergovernmental Panel on Climate Change (IPCC).

The assessment is notable not only for the U.S. Administration’s recognition of the “robust scientific consensus that human-induced climate change is occurring,” but also for its strong warning that the short term consequences of climate change are already irreversible and for its call for ecosystem monitoring systems specifically designed for detecting climate change effects.

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Yesterday’s panel on the voluntary carbon markets hosted by JPMorgan highlighted findings from the recent report by Ecosystem Marketplace and New Carbon Finance entitled “Forging a Frontier: State of the Voluntary Carbon Markets 2008,” including the size, players, prices and transaction volumes of the voluntary markets.

Collecting data from 150 organizations, including project developers, wholesalers, brokers, and retailers, the report confirmed that 65 million tonnes of carbon dioxide equivalents (MtCO2e) were traded on the voluntary markets in 2007 (a value of over $330 million), representing a tripling in value over 2006 levels. Of that number, 42.1 MtCO2e ($258.4 million) were traded on the over-the-counter (OTC) voluntary market and 22.9 MtCO2e ($72.4) on the Chicago Climate Exchange (CCX), the two components comprising the voluntary carbon markets.

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This afternoon, the House Energy and Commerce Committee released a white paper “Getting the Most Greenhouse Gas Reductions for our Money.” Premised on the Committee’s goal of achieving “the necessary greenhouse gas reductions (60 to 80 percent by 2050) for the least cost,” the paper discusses research on the future costs of inaction, summarizes the findings of the McKinsey Report on low cost measures to reduce emissions, and uses the U.S. sulfur dioxide trading program under the Clean Air Act to illustrate the efficiencies that could be realized through capping and trading emissions allowances.

The paper recognizes that the benefits of a cap-and-trade system are contingent on the success of the market at managing impacts to the economy and discusses six mechanisms that could be used to avoid unnecessarily high costs: (1) allowance banking; (2) offsets and international trading; (3) firm-level borrowing from the future; (4) multi-year compliance periods; (5) cost containment mechanisms that could release additional allowances into the market if needed (e.g., safety valve, circuit breaker, independent agency, and strategic reserve); and (6) a floor for allowance prices, to ensure a minimum price for technology developers. The paper concludes with brief descriptions of possible complementary measures (such as energy efficiency), the distribution of allowances among regulated entities, and the relative capacities of market players.

The white paper is one in a series of papers on Climate Change Legislation Design released by Rep. John D. Dingell (D-MI) and Rep. Rick Boucher (D-VA). Earlier papers include “Competitiveness Concerns/Engaging Developing Countries” and “Appropriate Roles for Different Levels of Government.”

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The Renewable Electricity Production Tax Credit (PTC), originally enacted under the Energy Policy Act of 1992, is one of the most important federal incentives for the installation of renewable energy projects in the US. The PTC, in its current form, provides a $0.02/kilowatt-hour tax credit for renewable generation from wind, closed-loop biomass, and geothermal and a $0.01/ kilowatt-hour tax credit for other technologies such as open-loop biomass, landfill gas, and hydropower. The PTC effectively expires on December 31, 2008.

In response to the increasing importance of renewable generation as part of the US energy mix, the House approved H.R. 6049, the Energy and Jobs Creation Act, earlier this week. The Act “extends for one year the tax credit for renewable energy production from various qualifying facilities, including wind, biomass, geothermal, and hydropower facilities, and adds facilities that generate electricity from renewable marine sources, such as tides and waves, to the list of those eligible for the production credit,” according to the Congressional Budget Office.

Although the bill contains billions in extended tax credits and incentives for popular alternative energy programs, such as the Production Tax Credit, the President has vowed a veto. The veto threat comes down to basic ideological schisms between the White House and the Democratic Congress. First, the Democrats pay-go rules mandate that for every tax cut the revenue must be made up elsewhere. The White House rejects this reasoning, arguing that tax cuts grow the economy in any case so “pay fors” are not necessary. Second, the bill contains a deferred tax on foreign interest income that the White House also objects to. Finally, the White House is opposed to the inclusion of Davis-Bacon work rules in the bill. These are a bête noire for the GOP and mandate prevailing wage rates for construction. The White House’s veto threat can be read online.

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Across the U.S., 77 cities have adopted some type of green building initiative. These iniatives rely on the U.S. Green Building Council’s Leadership in Energy and Environmental Design (LEED) program - which promotes a whole-building approach to sustainability - or a similar system.

On average, green buildings reduce energy use by approximately 30 percent, carbon emissions by 35 percent, water use by 30 to 50 percent, and results in waste cost savings of 50 to 90 percent. These environmental and energy savings translate into significant economic benefits, including reduced operating costs, enhanced asset value and higher rents, improved employee productivity and satisfaction, and optimized life-cycle economic performance.

Los Angeles, for example, passed a groundbreaking private sector green building law in April 2008 that would cut the City’s carbon emissions by more than 80,000 tons by 2012 - the equivalent of taking 15,000 cars off the road. This Los Angeles Green Building Ordinance requires all new commercial buildings 50,000 square feet or larger, as well as residential buildings with 50,000 square feet or more of floor space and over 6 stories high, or having 50 or more units, to comply with the LEED “certified” standard. In exchange, the City will work with developers “to speed up approvals and to remove obstacles in the municipal code for elements of sustainable building design, such as green rooftops, cisterns and permeable pavement.”

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This afternoon, Senator Barbara Boxer released her long awaited, 157 page substitute amendment to the Lieberman‐Warner Climate Security Act of 2008.

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The EPA announced on May 16 that it will take public comment on Texas’ request that the agency use its authority under the 2007 Energy Independence and Security Act (the “Act”) to cut in half new volume requirements for the production of renewable fuels derived from grain. The Act - which increased substantially the volume requirements for renewable fuels beginning this year - provides EPA with the authority to waive the renewable fuel standard (RFS) requirements upon finding that implementation of the RFS would harm the economy or the environment.

On April 25, 2008, Texas Governor Rick Perry formally requested that EPA use its authority under the Clean Air Act to waive a portion of the RFS for ethanol on grounds that implementation of the mandate “is unnecessarily having a negative impact on Texas’ otherwise strong economy while driving up global food prices.”

EPA, in consultation with the Departments of Agriculture and Energy, must make the determination whether to waive the RFS within 90 days of receiving the petition.

Update: The comment period on Texas’ proposal will close on June 23, 2008.

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The Environmental Law Institute convened a panel discussion last week covering international competitiveness concerns raised by cap-and-trade programs for greenhouse gas (GHG) emissions. Much of the program focused on a proposal by the utility company American Electric Power and labor unions such as the IBEW and the AFL-CIO that addresses concerns over the potential loss of jobs in the United States due to higher energy costs.

The proposal adds provisions to the Lieberman-Warner bill that would authorize an independent commission to determine if other countries are adequately regulating carbon. If a country is not regulating GHG emissions, energy-intensive goods manufactured there would be significantly less expensive than similar goods made in countries with emissions limits. Once it is determined that a country is not taking “comparable action” it will be subject to certain requirements. In order to import specific goods, the foreign manufacturers will have to purchase a special type of international emissions allowance - which is separate from the allowances issued to domestic facilities - and surrender it at the border with the goods being imported. This ensures that imported energy-intensive goods will not be able to unfairly undercut the prices of domestic-produced goods that are required to incorporate a price for GHG emissions.

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