Cap-and-trade: US unveils radical shift in energy policy

US lawmakers on Tuesday unveiled their first legislative proposal for a radical shift in US energy policy.
The bill, sponsored by two powerful Democrats in the House of Representatives, has more aggressive climate targets than those of President Barak Obama but also includes protectionist measures that could prompt retaliatory action by Europe, China and Brazil. Those protectionist measures will likely be popular among US politicians, but could be challenged under World Trade Organisation, analysts and academics agree.
Under the proposed legislation, which includes a green house gas emissions cap and trade programme, companies would be eligible for rebates to compensate for cost they incur. Additionally a “border adjustment” programme would levy import taxes on foreign manufacturers to cover carbon contained
in US-bound products. Robert Stavins, environmental economics professor at Harvard University,
nevertheless calls the legislation “a very important step along the road.” (Source: Financial Times)

The legislation, introduced by Henry Waxman, California Democrat and
chairman of the Energy and Commerce Committee and Edward Markey, Democrat
from Massachusetts and Chairman of the Energy and Environment Subcommittee,
will form the basis of energy policy discussion in the House of
Representatives and generally falls within the borders of the broad, but
still vague policy promoted by the White House.

It aims to cut green house gas emissions by 20 per cent by 2020 and by more
than 80 per cent by 2050, from 2005 levels. The cap and trade system would
include tradable emissions allowances, but leaves the task of deciding how
to distribute these to committee discussions. Industry would be allowed
offsets of as much as 2bn tonnes a year to help them meet the new
requirements.

The draft proposal would require electricity suppliers to get 25 per cent of
their power from renewable sources, such as wind and solar, by 2025. It
would establish a national renewable energy standard and an energy
efficiency standard aimed at cutting power demand by 15 per cent by 2020 and
natural gas demand by 10 per cent. It would also establish a research fund
financed by electricity suppliers to support carbon capture and
sequestration.

A vote could come as early as June, with the Senate expected to make its
proposal in the autumn.

The ideas are likely to face some opposition by the more conservative
Senate, especially lawmakers from coal producing states, including Ohio,
Illinois and Indiana. One major criticism is likely to be any cost
associated with the measures at a time most Americans are focused on
improving the economy.

Robin West, chairman of PFC Energy, the Washington-based consultancy, and an
official in the Reagan administration, said Washington was moving away from
conventional sources of energy, such as coal, oil and natural gas.

But he warned: “The weakness is the practicability and the scalability of
the alternatives they are talking about.”

Copyright The Financial Times Limited 2009