Late last night, the Senate passed the ‘‘Emergency Economic Stabilization Act of 2008,” a 450-page Bill designed to stabilize the highly-publicized crisis within domestic financial markets. Largely lost in the mass of financial stabilization provisions, the Bill also breathed new life into several clean energy provisions that had appeared moribund after public concern about a potential financial meltdown tabled movement on a comprehensive energy bill.

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A press release yesterday announced that Governor Schwarzenegger signed legislation (SB 375) to create more environmentally-friendly communities, sustainable developments and alternative transportation methods in California. The legislation builds upon the Global Warming Solutions Act of 2006 (AB 32), which was the first of its kind both in California and in the U.S., and addresses the reduction of greenhouse gas emissions.

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It was probably inevitable that the largest financial issue Congress has faced in the past sixty years would eventually swallow up renewable energy policy as it moves to resolution.  The Senate announced that it would vote on, and likely pass with overwhelming margins on Wednesday, a tweaked version of the $700 billion financial rescue plan.  While the plan includes some changes to the bill that failed in the House, it will also contain extensions of popular Renewable Tax Credit and Production Tax Credit.As we mentioned last week, these tax extensions faced an uncertain future with the House Democratic majority because they were not “paid for” (i.e., offset by increases in revenue or decreases in spending somewhere else in the federal budget).  But by pairing the extension of tax cuts/credits with the bailout package it is possible that it will provide House Republicans with a rationale to change their votes on the $700 billion bailout.  Unfortunately, those gains could be offset by Blue Dog Democrats who voted originally in favor of the $700 billion rescue plan, but now voting against it because unpaid-for tax cuts violate their sensibilities.

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The International Energy Agency (”IEA”) is set to publish a provocative new cost containment study that may find a receptive audience in the U.S. Congress.   The study, entitled “Halving the Costs of Halving Emissions,” concludes that price caps not only significantly reduce the costs of emissions abatement, but also allow for more ambitious emissions reductions targets. 

“Cost containment” means different things to different people.  Default assumptions are that cost containment means “price caps” and that cost containment prejudices environmental integrity.  The former assumption is too simple; cost caps are only one form of cost containment.  The latter assumption is the subject of the IEA study.  Moreover, there are many different types of cost containment, most of which are ones on which essentially all parties agree.  These cost containment mechanisms include international offsets, provisions for the banking and borrowing of credits and establishing multi-year compliance periods.

The cost containment mechanisms that provoke the most controversy are price caps.  In the European Union Emissions Trading System, for example, there are several cost containment mechanisms, but price caps are seemingly so far off the table that the issue is rarely, if ever, debated.  From the European perspective, a comprehensive climate system can guarantee emissions levels or carbon price levels, but not both.  The importance of the new IEA study is that it suggests that both may be attainable simultaneously.

As the study explains, price caps set at the appropriate levels allow regulators to achieve: i) the same environmental results as halving 2050 global energy related CO₂ emissions from 2005 levels for about half the expected costs; or ii) better environmental results than halving 2050 global energy related CO₂ emissions from 1990 levels for expected costs lower than with halving emissions from 2005 levels.  Author Cédric Philibert, Principal Administrator in IEA’s Energy Efficiency and Environment Division, used a model of greenhouse gas mitigations costs - the Abatement Costs Temperature Change (”ACTC”) model - to capture all energy-related CO₂ emission sources.

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The Regional Greenhouse Gas Initiative (RGGI) in a press release today labeled the first U.S. CO2 allowance auction on Thursday, September 25 a success, with all 12.6 million allowances selling at $3.07 per allowance.  

World Energy Solutions (TSX:XWE) administered the auction, which generated more than $38 million to benefit energy efficiency, renewable energy and programs for energy consumers in Connecticut, Maine, Maryland, Massachusetts, Maryland and Vermont.  The next RGGI auction is scheduled for Wednesday, December 17.

RGGI’s success serves as a blueprint for other initiatives, such as the Western Climate Initiative (WCI), and sets a precedent here in the U.S. for the reduction of CO2 at the state level.

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On September 25, 2008, EPA filed a Petition for Rehearing or Rehearing En Banc of the D.C. Circuit’s July 11, 2008 decision to vacate EPA’s Clean Air Interstate Rule (”CAIR”).  That decision eviscerated EPA’s primary tool for regulating interstate NOx and SOx emissions from 28 “upwind” states and DC that contribute to National Ambient Air Quality Standards violations in “downwind” states. 

While acknowledging a remand may still be necessary for portions of the decision the government is not contesting, the Petition asserts the panel erred in its unanimous ruling that: a) EPA’s regional trading scheme for SOx and NOx was inconsistent with the Clean Air Act’s requirement that EPA evaluate and address air pollution contributions on a state-by-state basis; b) EPA lacked authority to terminate or limit SOx and NOx allowances issued pursuant to EPA’s Acid Rain Program and c) vacating the entire rule was the necessary and proper remedy.

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The Regional Greenhouse Gas Initiative (RGGI), a cooperative effort designed to reduce carbon dioxide (CO2) emissions from electric power generators in 10 Northeastern states, appears poised to auction off its first batch of allowances today, but many participants - states, investors and regulated power generators - struggle with how to proceed.  RGGI applies to generators with a capacity of 25 megawatts or greater that rely on fossil fuels for at least 50% of their input power in Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont.

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Despite the 93-2 Senate vote for a $17 billion energy tax package, extending renewable energy tax credits, on Tuesday, September 23, skepticism exists as to the measure’s success when presented to the House, with its differing energy tax package, next week.

The energy incentives are part of H.R. 6049 and extend the Investment Tax Credit (ITC) and the energy Production Tax Credit (PTC), which would give businesses and individuals tax credits for the use of solar, wind, geothermal and ocean energy.  Both the ITC and PTC expire December 31, 2008 and while many are optimistic about the measure after yesterday’s vote, a lot of work remains to garner the support of the House.  Some House members have balked that the tax extenders bill violates that “pay as you go” or paygo principle.

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On Tuesday, September 23, the Western Climate Initiative (WCI) partners, including seven western states and four Canadian provinces, announced their proposed design of a regional market-based cap-and-trade program.  The WCI partners are recommending a multi-sector program to reduce greenhouse gas (GHG) emissions to 15% below 2005 levels by 2020.

Under the current proposal, the WCI would initially regulate emissions from electricity generation and large industrial and commercial facilities that emit more than 25,000 metric tons of GHGs.  The scope would expand in 2015 to include smaller facilities and transportation fuels.

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The Senate Environment and Public Works (EPW) Committee is scheduled to discuss the US Environmental Protection Agency’s (EPA) Advance Notice of Public Rulemaking and its approach to regulating greenhouse gases (GHG’s) at a hearing on Tuesday, September 23 at 10 a.m. in Room 406 of the Dirksen building. 

Hearing witnesses include: 

• Robert Meyers, principle deputy assistant administrator, U.S. EPA;
• Mary Nichols, chairman, California Air Resources Board;
• Jason Burnett, former associate deputy administrator, U.S. EPA;
• David Bookbinder, chief climate counsel, Sierra Club;
• Bill Kovacks, vice president for environment, Technology and Regulatory Affairs, U.S. Chamber of Commerce; and
• Marlo Lewis, senior fellow, Competitive Enterprise Institute.

Also on Tuesday, the Senate is scheduled to consider the Baucus-Grassley amendment to H.R. 6049.  The amendment set to expire on December 31, 2008, extends the Investment Tax Credit (ITC) and energy Production Tax Credit (PTC), which will continue expansion of the renewable energy industry, create new jobs and spur economic growth.

Additionally, the Senate Foreign Relations Committee on Tuesday is scheduled to mark up The U.S.-Brazil Energy Cooperation Pact, which has a focus on biofuels production, research and infrastructure, and is designed to strengthen U.S. energy relations with Brazil and the Western Hemisphere.  The markup is scheduled in S-116 of the Capitol building.

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