***UPDATE: The full Senate Environment and Public Works Committee will hold a hearing entitled “Moving America toward a Clean Energy Economy and Reducing Global Warming Pollution: Legislative Tools” on Tuesday, July 7, at 10:00 am. Scheduled witnesses include the heads of the US Department of Energy, the US Environmental Protection Agency, and the US Department of Agriculture, as well as the Governor of Mississippi, the Mayor of Braddock, Pennsylvania, and representatives from The Dow Chemical Company and the Natural Resources Defense Council.

On Friday evening, June 26, the House of Representatives voted to approve the American Clean Energy and Security Act (ACES) (H.R. 2454), a 1300-plus page bill that would impose the first federal restrictions on CO2 emissions, establish a market structure for trading CO2 and other greenhouse gas emissions permits and promote investment in, and transition to, cleaner-energy technologies.  Friday’s 219 to 212 House vote was an important step forward for comprehensive climate change legislation, providing a much-needed endorsement of the cap-and-trade-style regulatory approach.  But if the vote in the House wasn’t challenging enough, securing the 60 votes needed in the Senate likely will prove even more difficult.

H.R. 2454: Select Provisions of the Bill

Climate Intel will provide more detailed assessments of the final House bill in upcoming posts, but some of the most notable elements of the new bill include—

• The first-ever federal cap on US emissions of greenhouse gases, starting with a required 17 % reduction from 2005 levels by 2020 and an 80 % reduction by 2050
• A system for buying, selling and trading greenhouse gas emissions permits within the limits of the cap, including a robust market for domestic and international carbon offsets
• A renewable portfolio standard requiring utilities to meet 20 percent of their load needs using renewable sources or energy efficiency by 2020, with at least 15% coming from renewable electricity
• New funding for new clean energy technologies, including renewable-energy, energy-efficiency and clean-coal technologies
• Targeted allocations of tradable emissions permits to reduce the impact of the program on key stakeholders, including coal-reliant states, consumers and “energy-intensive, trade-exposed industries that make products like iron, steel, cement and paper.”

The Vote

The Friday floor vote capped off several frenzied weeks of negotiations with policymakers in the Energy and Commerce Committee, the Science and Technology Committee, the Ways and Means Committee, the Agriculture Committee and the Rules Committee, which had to gain support for the bill.  Ultimately, the House passed 219 to 212, with 8 Republicans supporting and 44 Democrats opposing. See the vote count here.

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The American Clean Energy and Security Act (H.R. 2454) began floor debate this afternoon. Also under consideration is the Republican alternative. While Democratic leaders are confident that they have the votes to pass the bill, ClimateIntel has heard from its Congressional sources that it is actually the progressive wing of the Democratic party that is proving the most recalcitrant.

Currently debate is focused around a 310-page amendment to the bill adopted by the Rules committee which deals with a wide range of issues, including the definition of biomass; the oversight of forestry and agricultural incentive programs; transmission line siting authority and changing how a renewable electricity standard operates. See an overview of the changes here.

We will update this post with any further developments in the debate.

For further information about this topic, please contact Akin Gump.

In an earlier post, we noted that stalled negotiations between sponsors of the American Climate and Security Act and farm-state Democrats were one of the major hurdles preventing that bill from being voted on by the full House before the end of the week. Late last night, as The Hill reports, those negotiations concluded successfully, with an amended bill and an agreement to bring it to the floor before Friday.

The text of the amended bill is here.  We will continue to update the blog with any new developments.

For further information about this topic, please contact Akin Gump.

Current Administration and congressional climate proposals depend heavily on geological sequestration to reduce CO2 emissions from coal-fired power plants and other major sources and tend to presume that sources in every state will have access to nearby underground storage capacity.  This is the second post in a three-part series reviewing obstacles to a 50-state sequestration strategy and suggesting the need for a national infrastructure to support medium to long-range transport of CO2. 

Even if additional research and site characterization could resolve geological uncertainties regarding widespread local CO2 storage, companies also will have to overcome the public and political opposition that locally undesirable land use (LULU) energy projects engender.  While CO2 sequestration provides important global benefits, local communities are likely to balk at hosting a sequestration project injecting millions of tons of liquid CO2 as a waste product under or near their communities.

The saga of Used Nuclear Fuel Storage at Yucca Mountain in Nevada illustrates the challenge of siting even one nationally-important, but locally-opposed, facility.  First identified as the nation’s prospective high-level nuclear waste storage site in 1987 and approved by Congress in 1994, the Yucca Mountain high-level nuclear waste storage facility received over 9 billion dollars in funding through 2008 despite vociferous opposition from local stakeholders and, in some cases, key federal constituencies.  In early 2009, the Obama Administration proposed to defund the project.  While only Congress can cancel the project, Senate Majority Leader Harry Reid (D-NV) has committed to doing just that.  Irrespective of the merits of the decision to defund Yucca, it is a significant setback for the domestic nuclear energy industry, as the reversal leaves the nation twenty years behind in developing a long-term disposal strategy for high-level nuclear waste.

Even relatively innocuous renewable energy projects  face siting difficulties.  Indeed, the U.S. Chamber of Commerce recently initiated a campaign to document the wide variety of energy projects that have been stopped or delayed across the nation by local opposition.  The siting challenge illustrates an important reality check for policymakers and investors:  a prospective site may contain optimal subsurface geologic characteristics, but if developers cannot negotiate the local siting process, the technical feasibility of a location is irrelevant.

Siting CCS facilities on federal lands may be one way to reduce the ability of local opposition to stop a project.  The Department of Interior has estimated that 5.5 percent of the onshore U.S. CO2 storage capacity is beneath potentially leasable Federal lands.  But, federal lands bring limitations of their own.  First, federal lands are not uniformly distributed across regions and states, and many areas of the country (e.g., the northeast, southeast and midwest) lack large swaths of federal lands on which facilities could be sited.  The disconnect is even more significant when major emissions sources are considered.  According to a recent DOE Report, while 65% of emissions come from east of the Mississippi River, 83% to 86% of storage capacity on federal lands lies west of the Mississippi River.   In other words, a siting strategy that relies on federal lands for citing will require investment on CO2 transport to match source generation to sequestration capacity.

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Current Administration and congressional climate proposals depend heavily on geological sequestration to reduce CO2 emissions from coal-fired power plants and other major sources and tend to presume that sources in every state will have access to nearby underground storage capacity.  While some federal agencies and studies consider widespread localized sequestration to be viable, a nationwide rollout faces significant obstacles.  In areas where local sequestration is impractical, emissions sources will be forced to transport captured CO2, by pipeline, ship or other mode, to a viable sequestration site.  To date, however, federal climate proposals have given limited attention to developing the CO2 transport infrastructure. 

This series reviews three obstacles to a 50-state sequestration strategy and discusses the need for a national infrastructure to support medium to long-range transport of CO2.

Part 1: The Porosity Problem
Part 2: NUMBY
Part 3: 50-States, 50 Hurdles

Recognizing these obstacles and honestly confronting them is a critical step to making geological sequestration work.  And, without a successful geologic sequestration program, the United States’ ability to achieve emissions reduction targets is astronomically more difficult.

Part 1: The Porosity Problem

While there are many different factors that determine the suitability of a geological formation to store liquefied carbon, one important threshold consideration is porosity.  An effective sequestration site must contain deep layers of porous rock, capable of absorbing and retaining injected CO2 within its void spaces, much like a sponge that absorbs and holds water.  This porous rock must be covered by an upper layer of dense and highly impermeable cap rock that will prevent upward migration of CO2 toward drinking water aquifers or the surface.  

Citing private and public studies conducted to date, the Environmental Protection Agency (EPA) and the Department of Energy (DOE) have estimated that 95% of all coal-fired plants are within 50 miles of an “ideal” candidate sequestration site.  Other government analyses, however, suggest that not all regions and states are geologically equal when it comes to underground storage capacity.  Indeed, federal researchers have had mixed success in identifying viable sequestration sites with the proper geological characteristics based on theory and scientific testing alone. 

EPA and DOE are working to demonstrate the feasibility of geological sequestration at a wide range of host geological sites nationally, but to date, most successful CCS projects have been sited at current or former oil and gas fields.  For decades, the oil and gas industry has injected liquid CO2 underground to promote enhanced oil recovery.  If CCS storage potential is tied to oil and gas production potential, however, there are likely to be significant disparities in storage potential from one region to another.  DOE’s own website acknowledges that “there is a mismatch between largest [CO2 emission sources] and the largest oil and gas traps.”  A 50-state sequestration strategy will force the CCS industry to diversify its portfolio of storage sites.  Federal studies indicate that unmineable coal seams and deep saline formations offer promising storage potential, but the practicality of such formations remains untested in many parts of the country, despite considerable efforts at regional characterization.

For example, there are large numbers of CO2 emitting sources in the Appalachian Basin, making it an important test area for the viability of DOE’s localized sequestration strategy.  In a recent report on progress at a small-scale sequestration field test in the Appalachian Basin of Ohio, researchers found that “porosity, void space and permeability of the target formations were lower than expected.”  DOE’s difficulty in pinpointing a viable sequestration site location for a small regional pilot project illustrates the uncertainties that remain when it comes to siting at the local level.  

DOE is addressing this nationwide site characterization challenge aggressively, investing department resources and grant funding into projects to improve understanding of sequestration capacity in different geological settings.  Earlier this month, DOE announced its intent to offer an additional $50 million in grants to support site characterization work. 

Missing from both Congress and DOE is a serious Plan B in the event that localized geologic sequestration is not feasible in major portions of the country.  Federal policymakers will need a plan to transport captured CO2 from “pore-locked” emissions sources to areas where high-volume sequestration is practicable. 

The prevailing hope of widespread access to local sequestration capacity could become reality within the timeframes policymakers will need to support U.S. climate mitigation plans.  The U.S. experience with project siting on the basis of geology alone suggests strongly that this hope is a dim one.  Geologic sequestration is critical to U.S. climate policy and Congress and the Administration need to address the available alternatives should the local sequestration strategy prove untenable. 

To view Part II in this three-part series, please click here.

For further information about this topic, please contact Akin Gump.

The Waxman-Markey American Clean Energy and Security Act (ACESA) has been voted out of the Energy and Commerce Committee; next it heads to the House floor and possibly for debate before July 4^th.  Now questions surrounding the bill turn to the magic number—218, the “yes” votes needed to gain the bill’s passage.  Ultimately, despite near unanimous Republican opposition to date, geography may be more important than political party in determining where the “yes” votes come from.  A recent paper co-authored by researcher from the Brattle Group and UCLA, “Carbon Geography: The Political Economy of Congressional Support for Legislation Intended to Mitigate Greenhouse Gas Production” (pdf), attempts to shed light on the relationship between geography, per-capita emissions and a pro- or anti-carbon regulation stance.

The study found wide variations in the per-capita emissions of carbon.  For example, coastal, urbanized states with access to hydro or natural gas have considerably lower per-capita emissions than did midwestern and southern states, which depend on coal generation for much more of their baseload power generation.  In fact, extent of coal mining was one of the highest correlating factors for per-capita emissions; sectors like residential and commercial had much less affect on the overall distribution of emissions.

Emissions, Income, Ideology

The researchers investigated not only the geographic distribution of these emissions, but also the correlations between per-capita carbon emissions, per-capita income and ideology (the ideology measure goes beyond environmental votes to encompass all contested votes). Higher emissions correlated strongly with a decrease in per-capita income and an increase in across-the-board political conservatism.

This dichotomy—richer, more liberal and relatively decarbonized areas vs. poorer, conservative, carbon-intensive ones—informs the battle over the ACESA bill. Simply put, those areas that both face greater burdens in reducing emissions (due to more carbon-intensive economies) and less economic wherewithal in adapting to those changes (due to lower per-capita incomes) are far less likely to support making those emissions reductions in the first place. This holds for both Houses of Congress.

What this means for Waxman-Markey

Examining the various data, the authors suggest that three outcomes are most likely in the crafting of emissions control legislation:

1. Deadlock and watered down legislation.
2. Price offsets for carbon intensive regions or sectors, such as free allocation of pollution allowances.
3. Anti-regressive policies to protect sensitive consumers.

Congressmen Waxman and Markey seem to have used the second and third strategies to craft a bill that could be passed by the Committee on Energy and Commerce. While the study authors list some downsides to these policies (including wealth transfer without changing behaviors), others have disputed this, saying that “freely allocating allowances does not influence firms’ production and emission reduction decisions.”

Interestingly, this study seems to indicate that ACESA has already cleared the most difficult hurdle (at least in the House). According to the study’s examination of the 111^th Congress, districts represented by members of the Energy and Commerce Committee—both Democrats and Republicans—have higher per-capita emissions than the average emissions district by district in the Congress as a whole. Districts represented by members of the Energy and Environment Subcommittee have even higher per-capita emissions. Districts represented by House members likely to have critical roles in passage of a bill, such as Collin Peterson Chairman of the Committee on Agriculture, have “carbon geography” scores suggesting that support may be difficult to achieve.

Regional Agreements

Another interesting corollary to the concept of carbon geography is the prevalence of regional greenhouse gas reduction agreements, such as the Western Climate Initiative (WCI), or the northeast’s Regional Greenhouse Gas Initiative (RGGI). As the maps developed by the researchers show, not only do per-capita emissions vary wildly across the country, those emissions also vary considerably across sectors. This wide variation in sectoral and geographical emissions means that regional agreements can bring areas of the country with common interests—or sectors with common interests—together to achieve emissions control results that might not be possible under a national standard, where addressing regional disparities takes more primacy.

The Brattle/UCLA research paper suggests that carbon geography may produce political tensions that could prove difficult to resolve.  Unless key swing Congressmen decide that ACESA adequately addresses these regional disparities, the bill will have a difficult time passing through Congress.  The make-up of the Committee on Energy and Commerce provides at least some hope that the bill will be more palatable for the House as a whole.

For further information about this topic, please contact Akin Gump.

This is the second post in a two-part series reviewing recent congressional efforts to encourage development of the carbon capture and sequestration (CCS) industry in the US.  The first post addressed the House Climate Bill, H.R. 2545, that recently cleared the House Energy and Commerce Committee.  This post focuses on two recently introduced Senate bills, the Department of Energy (DOE) Carbon Capture and Sequestration Program Amendments Act of 2009, S.1013, and the Responsible Use of Coal Act, S. 1134.  Both offer additional perspectives on policy approaches to promote CCS.   

In the Senate

While all eyes have been on the House Energy and Commerce Committee in the recent push to send The American Clean Energy and Security Act of 2009 (ACES), H.R. 2545, to the House floor, the Senate also has introduced several alternative (or complementary) bills to promote the development of the US CCS industry.  Two recently introduced Senate bills offer interesting counterpoints to the CCS provisions contained in the ACES.  These bills, combined with a recent Senate Hearing on CCS, suggest that Congress is developing an awareness of the range of legal and policy issues that could influence the future of CCS and the US coal industry.

                S. 1013

On May 7, Senator Jeff Bingaman (D-NM), Chairman of the Energy and Natural Resources Committee, introduced S. 1013, the Department of Energy (DOE) Carbon Capture and Sequestration Program Amendments Act of 2009.  The 14-page bill would build on the existing federal carbon capture and storage research development program by providing technical and financial assistance for up to 10 different CCS projects, with a goal of demonstrating the capability for sites to capture and store at least 1 million tons of carbon dioxide each year from industrial sources.  DOE would provide the funding through competitively-awarded, cooperative agreements.  The agreements would be subject to all applicable regulatory requirements, as well as additional financial assurance and post-injection closure and monitoring requirements.  Most notably, and unlike other measures under consideration, the bill would authorize DOE to enter into long-term liability indemnification agreements for selected projects, assume title to CCS sites for long-term stewardship efforts and charge fees to cover the cost of the long-term liability protection.  The challenge of managing risk and long-term liability at CCS projects with a thousand-year storage life was avoided previously, so the Bingaman bill provides an important starting point for addressing this issue.

                S. 1134

On May 21, Senator Robert Casey (D-PA) introduced the Responsible Use of Coal Act, S. 1134, which would authorize $3.8 billion for additional CCS and related clean coal research and development cost-share projects, including-

• $1.45 billion for a CCS demonstration program

• $420 million to support research into improved carbon capture technology

• $820 million for research into geological storage for enhanced oil and natural gas recovery and carbon sequestration
• $1.12 billion for advanced clean coal power technologies.

Technically and economically feasible CCS is essential given the extent to which electricity generation in the U.S. comes from coal, especially in the face of future climate legislation (or EPA-driven climate regulations).  Senator Casey’s bill would provide additional research and development to expedite CCS development.

                May 14 Hearings

Beyond the pending bills themselves, a recent hearing on CCS in the Senate Energy and Natural Resources Committee offered constructive dialogue on the challenges and requirements to support widespread commercialization of CCS technologies.  The hearing brought together a mix of federal, state, industry and public interest witnesses.  Some notable points raised during the hearing included the below.

• Lowering Cost of CCS Operation:  Current estimates indicate that CCS increases the cost of electricity generated in new pulverized facilities by 80% and in advanced gasification facilities by 35%.  DOE’s Office of Fossil Energy hopes to reduce these costs to 30 percent and 10 percent, respectively.  Along with the capital costs of installing CCS equipment, the cost of CCS system operation is a major economic barrier to widespread adoption of CCS on both new and existing electric facilities.
• CO2 Transportation Infrastructure Needs:  DOE’s Office of Fossil Energy is sponsoring a study by the Southeast Regional Carbon Sequestration Partnership (SECARB) and the Interstate Oil and Gas Compact Commission (IOGCC) to evaluate the legal and regulatory feasibility of developing a pipeline infrastructure in the U.S. dedicated to the transport and storage of CO2.  As ClimateIntel noted in its earlier post, developing a network of CO2 transport pipelines is necessary to implement CCS technology in areas with limited access to nearby geological storage capacity.  The original Waxman-Markey Discussion Draft provided for such a pipeline study.  The revised Waxman Markey Bill, H.2454, removed that provision, perhaps as a result of DOE’s commitment to support the study. 
• Clarifying Subsurface Property Rights:  Federal, state and private witnesses addressed the need for state or federal officials to develop a workable scheme for allocating property rights for pore space, the tiny spaces in and between subsurface rocks that can store oil, water or injected CO2.  Currently, subsurface property rights are handled on a state-by-state basis.  States with significant oil, gas or mineral extraction tend to have more established rules governing allocation of subsurface rights.  Even there, however, existing property rights are not always suited to address injection rights rather than extraction rights.  This patchwork property right structure could impede the development of future geological sequestration storage sites on a national scale.
• Long-Term Liability and Moral Hazard.  Hearing witnesses agreed that managing long-term liability at CCS sites was a key policy issue in any CCS regulatory framework.  In the short-term, the government may need to take a larger role in helping the CCS industry estimate and hedge against uncertain long-term risks and risk management costs.  Parties generally agreed that what may make sense for early movers may not make sense once the CCS industry (and the supporting private-sector risks management tools) have evolved. 

Notably, the draft bills and the related hearing discussions in the Senate address many of the specific issues ClimateIntel identified as deficiencies in the final Climate Bill awaiting action on the House floor.  If the Senate and House can find a way to merge some of the ideas that currently reside in the various bills and testimony between the two chambers, Congress could be on its way to developing a fairly comprehensive package of CCS legislation that advances the interests of both coal and climate advocates.

For further information about this topic, please contact Akin Gump.

The World Bank and the International Emissions Trading Association convened their annual Carbon Expo with upwards of 1500 delegates all focused on the continued development of the global carbon market.  Questions and comments throughout the conference relate to the “change in tone” from the United States since the election of President Obama and what the US’s cap and trade system will look like.The political reality that has yet to penetrate global carbon market participants is whether the US will have a cap and trade system at all.  Carbon Expo keynote speaker, Ricardo Lagos Escobar, Special Envoy on Climate Change for the United Nations and former President of Chile, spoke optimistically of an agreement being reached at Copenhagen in December 2009 with the US as a full participant.  Even those speakers aware of the political challenges in the US focused not on the fundamental questions that remain before any cap and trade system can be enacted, but on such details as how Clean Development Mechanism offset credits will be accepted in the US.

Experienced carbon market participants, particularly those actively involved in the European Union Emissions Trading System, appear convinced that a cap and trade system can both achieve environmental objectives and do so in an economically efficient manner.  That case has not been made yet in the US and—at least for the moment—is not being made.  Cap and trade supporters in the US seem to assume that these concepts are entrenched and understood not only by the public at large, but also by policymakers in Congress and the Executive.

In the meantime, opponents are busily rebranding cap and trade as “cap and tax,” an effective ploy at a time of great financial uncertainty and an audience with little apparent appetite to raise taxes.  Cap and trade proponents need to join the debate at the most fundamental level if they hope to see such a system enacted in the US.

For further information about this topic, please contact Akin Gump.

This is the first of a two-part series reviewing recent Congressional efforts to encourage development of the carbon capture and sequestration (CCS) industry in the United States.  The first post focuses on the CCS provisions in the recently-released House Climate Bill, H.R. 2545, the American Clean Energy and Security Act of 2009.  The second post will focus on the recently introduced Department of Energy (DOE) Carbon Capture and Sequestration Program Amendments Act of 2009, S.1013, and the recent hearing on the bill conducted by the Senate Energy and Natural Resources Committee.

In the recent surge of activity on comprehensive climate change legislation, carbon capture and sequestration (CCS) policy is taking a prominent position in both the House and Senate.  Both Houses have put the spotlight on fundamental legal, economic and policy issues that will drive the success or failure of geological sequestration as a carbon-mitigation strategy and shape the development of the CCS industry.  While the stimulus funding for CCS authorized under the American Recovery and Reinvestment Act (ARRA) and 2009 Omnibus Bill will provide a much-needed capital investment boost to the CCS industry, more than a one-time economic stimulus will be necessary to move CCS from a model technology to a national standard.

In the House

On Friday, May 15, 2009, Congressmen Henry Waxman (D-CA) and Ed Markey (D-MA) released an expanded revision to their earlier comprehensive climate change bill.  No longer a mere “discussion draft,” the 932-page “American Clean Energy and Security Act of 2009,” H.R. 2454, includes a prominently-placed 48-page subtitle on Carbon Capture and Sequestration.  The CCS provisions of the bill would-

• Revise the Clean Air Act and Safe Drinking Water Act to expand EPA’s authority to regulate siting, construction, operation and closure of CCS facilities and to require operators to demonstrate the financial resources needed to operate the facility safely from construction through closure (Section 112)
• Create a ten-year, billion-dollar annual funding stream generated by a per kilowatt hour assessment on carbon-intensive power generation, to support early investment in CCS construction at major fossil-fuel-fired power plants and industrial facilities (Section 114)
• Subsidize the day-to-day operation of CCS equipment at early-mover facilities by rewarding high-efficiency CCS operations with tradable emissions allowances created under the bill’s cap-and-trade framework (Section 115)
• Impose performance standards on newly-permitted fossil-fuel power plants, requiring 50 to 65 percent reductions in CO₂ emissions as the industry matures (Section 116). 

The CCS portions of the bill track closely with the approach from the original “Discussion Draft” with a few notable exceptions.  First, the revised bill also provides more detail on how EPA would finance its incentive program for day-to-day operation of CCS equipment at CCS-equipped facilities.  The operational incentive in Section 115 is critical because not only are CCS facilities capital intensive, they also present significant operational challenges.  DOE estimates that operation of currently-available carbon capture technologies can increase the cost of power production by 30 to 80 percent and reduce the power generated by 20 to 30 percent.  This “parasitic loss” of power remains a disincentive to day-to-day operation of CCS equipment well after capital expenditures are recovered.  The initial Waxman/Markey discussion draft proposed a per-ton operational incentive for successful, large-scale sequestration.  The revised bill adds important details, authorizing EPA to allocate emission allowances to eligible operators using a formula that ensures between $50 to $100 dollars in allowance market value for each ton of carbon sequestered.  See Table 1.

Similar to the initial “Discussion Draft,” the revised bill establishes CO₂ performance standards for newly-permitted coal-fueled power plants.  The revised bill also switches from a numerical emissions limitation (800 to 1,100 pounds of CO₂ per megawatt-hour) to a percentage reduction requirement (50 to 65 percent reductions from the facility’s uncontrolled baseline).  This change in methodology could influence the design of future coal-fired facilities, reducing one inherent advantage that Integrated Gasification Combined Cycle (IGCC) facilities and other advanced coal technologies have had over conventional pulverized coal technology.  Newly constructed IGCC facilities tend to have lower uncontrolled emissions than their pulverized coal counterparts, making adherence to a single, numerical emissions standard easier to reach for an IGGC plant than a pulverized coal plant.  Under a percentage-reduction-from-baseline standard, however, the IGCC facility would start with a lower emissions baseline and end with a more stringent post-control reduction requirement.  It is unclear how this single variable would change the net competitiveness of new pulverized coal facility construction relative to an IGCC facility, but it is likely to be an issue of study for advocates for both technologies going forward. 

The revised bill also eliminates the requirement that DOE and related agencies prepare a report to Congress on the technical, legal and regulatory challenges associated with constructing the network of pipelines to transport captured CO₂ from sources to sequestration sites.  While the USGS and Department of Energy have ongoing programs to study aspects of the facility siting and transportation issue, questions remain regarding whether the infrastructure needed to transport CCS from cradle to grave will develop organically in the timeframe needed to support widespread adoption of CCS.  A congressional mandate to address these issues early on would help to ensure that policymakers and investors recognize that how carbon is transported may be just as important as how it is captured or ultimately stored.

An Important Start

On balance, the revised bill would improve the climate for long-term CCS investment.  The additional regulatory authority given to EPA should provide greater regulatory certainty to industry and help all stakeholders assess and manage the risks of CCS facility siting, design, construction, operation, and closure.  The capital and operational funding incentives in the revised bill would build on the funding already in the pipeline, reducing the economic risks and uncertainty with investing in CCS technology.  The stringent performance standards for new coal facilities suggest that even the most advanced pre-combustion, clean-coal technologies would have to adopt CCS.  Perhaps most importantly, the establishment of a cap-and-trade regime would create a market incentive for companies to mitigate their carbon emissions.

While the revised bill would be a step forward, it does not address all of the potential obstacles to commercial scale CCS implementation.  The revised bill does nothing to address issues such as long-term liability; allocation of subsurface property rights; or the regulatory, legal and technical challenges of linking major sources of carbon across the US to viable geologic sequestration sites.  While addressing so many complicated issues at once may be a tall order, policymakers need to consider these issues now if they are going to rely on CCS to play a critical role in US carbon-mitigation strategy. 

In the Senate

The second article in this series will look at recent legislative activity in the Senate and how it could potentially address some of these remaining CCS implementation issues.

For further information about this topic, please contact Akin Gump.

Part 1 of this two-part series discussed provisions of the American Clean Energy and Security Act of 2009 (ACESA) introduced by Representatives Waxman and Markey that would require U.S. importers of fossil fuels to hold emissions allowances for downstream greenhouse gas emissions resulting from combustion of the imported fuels. This post addresses Title IV of ACESA, which would potentially impose a second layer of compliance obligations and costs on U.S. importers. Title IV is intended to safeguard the competitiveness of U.S. manufacturing industries vulnerable to “carbon leakage;” i.e., the potential shift of emissions-intensive manufacturing from the U.S. to foreign jurisdictions with no or less onerous emissions restrictions.

Title IV would establish two mechanisms to safeguard the competitiveness of greenhouse gas emissions-intensive U.S. manufacturing industries in light of carbon leakage. First, Title IV would allocate some emissions allowances to greenhouse gas emissions-intensive and trade-exposed domestic manufacturing industries at no cost. In this way, qualifying U.S. manufacturers would, in principle, maintain their competitive balance vis-à-vis foreign manufacturers even as they are subjected to declining emissions caps. This first mechanism would not impose specific obligations on U.S. importers.

Title IV also provides, however, for a fall-back mechanism, laid out in Sections 411-16, that could restrict imports in the event the free allowance mechanism is found not to adequately safeguard domestic manufacturing industries from carbon leakage. These provisions call for the establishment, after 2017, of an “International Reserve Allowance Program” pursuant to which importers of “covered goods” would be required to surrender, upon importation, “international reserve allowances” in an amount covering the greenhouse gas emissions associated with the manufacture of the imported goods. International reserve allowances would be drawn from an independent allowance pool and could not be used by domestic entities to comply with their domestic cap-and-trade obligations arising under Title III.

As set forth in Section 411, covered goods would include “primary products” such as iron, steel, aluminum, cement, glass, pulp, paper, chemicals, and industrial ceramics, as well as products that generate “a substantial quantity of direct greenhouse gas emissions or indirect greenhouse gas emissions” in the course of their manufacture. Thus, a potentially vast range of imports could be covered by the International Reserve Allowance Program. Under Section 416(a)(1), however, imports originating in least developed countries or in countries accounting for less than 0.5 percent of total greenhouse gas emissions would be exempted from international reserve allowance requirements. Section 415 would prohibit imports unless accompanied by the required number of international reserve allowances. While not specified, U.S. Customs and Border Protection (CBP) would likely have a significant role in the administration of these provisions.

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