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Tons of hot air but still no clear path for cap-and-trade


It's clear that the world needs to address climate and energy initiatives, but the best way to accomplish that mission remains in a fog at best.

Advocates for a comprehensive energy/emissions bill caution that the failure to implement such a plan could result in worldwide catastrophic damage, and environmental groups like the Sierra Club stress that the United States must take the lead in reducing carbon emissions.

But critics of proposed U.S. cap-and-trade emission legislation say that such a program would amount to little more than a tax that would unfairly disadvantage high-energy-intensive industries such as steel.

While the President might wish for a comprehensive climate and energy bill by the end of the year, there are many on both sides of the issue who believe that timetable is unrealistic at best. The Obama administration, pushing for a bill to cut greenhouse gas emissions, favors a cap-and-trade program that would let companies trade pollution allowances on an open market.

The first climate change draft bill in the 111th Congress was written by Rep. Henry Waxman (D., Calif.), chairman of the House Energy and Commerce Committee, Rep. Ed Markey (D., Mass.), chairman of the Energy and Environment subcommittee. It is an ambitious plan to reduce carbon emissions by 80 percent below 2005 levels by 2050 while giving certain rebates to energy-intensive industries such as steel. In addition to a cap-and-trade plan, the American Clean Energy and Security Act also promotes renewable energy.

Energy Secretary Steven Chu said that slicing carbon emissions by 80 percent by mid-century is possible, but he acknowledges that it is an ambitious goal. He said at an energy conference in Washington that he believes new technology will be a key component for implementing the reduction of carbon emissions (AMM, April 9).

The 648-page Waxman-Markey climate bill says that high-energy-intensive industries, including steel, must have tradeable federal permits, called allowances, for each ton of pollution emitted into the atmosphere, according to a summary of the bill. Yet two of the most important elements for manufacturers remain unanswered How will the tradeable emission allowances be allocated? And although the bill states there would be a certain amount of free allowances—"rebates" available to energy-intensive industries—it doesn't state how much.

At an Energy Information Administration (EIA) energy conference in April, key House and Senate aides discussed what's ahead for climate legislation. A Waxman aide said the congressman intends to keep to a tight deadline and pass it through committee by Memorial Day. While many expect the Waxman-Markey bill to win House approval, it is expected to face an uphill battle in the Senate. At the EIA conference, an aide to Sen. Barbara Boxer (D., Calif.) said it was likely that there wouldn't be a climate bill on the Senate side until the House made progress on its own legislation.

Many senators have expressed the need for fiscal stability first and stressed that a cap-and-trade program could injure an already damaged manufacturing base—a view that is shared by many industry executives.

There is a provision for coal in the Waxman-Markey draft bill promoting carbon capture and sequestration (CCS) technologies and includes incentives for the commercial deployment of CCS, a plan that Hal Quinn, president of the National Mining Association, and Chu endorse, stressing the need for the technology because 50 percent of U.S. electricity is generated from coal. Yet Chu believes the CCS technology is at best eight years away from low-cost commercial availability.

What does steel want? While the Waxman-Markey bill has received some support from manufacturing groups, particularly for the coal provision and possibility of free allocations, trade groups stress that more work needs to be done.

Scott Paul, executive director of Washington trade group Alliance for American Manufacturing, cautions that as the legislative process moves forward, it should retain rebates and border adjustment features strong enough to hold other countries accountable for their greenhouse gas emissions.

Eric Stuart, director of environment and energy for the Steel Manufacturers Association (SMA), stressed the need for discussion on any cap-and-trade bill. And as talks move forward, he said, any climate bill should include global participation with no exemptions for any nation, which would address the issue of carbon leakage and international competitiveness. He added that there should be adjustments for globally competitive energy-intensive industries for indirect emission costs passed downstream to energy consumers through utility rates, such as electric-arc furnaces. "It provides protection against having to pay for more than direct emissions under a cap-and-trade program," he said.

SMA president Thomas Danjczek said he is very concerned with any unintended consequences of a climate bill. "We have to be careful, for example, of driving up the cost of natural gas by switching to natural gas for power generation, which is a relatively inefficient use of the resource," he said. "Whatever the legislation, reasonable economic evaluation needs to be done."

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