The New Carbon Cycle

Senators Reportedly Preparing to Release Climate and Energy Bill

According to press reports, Senators Kerry, Graham, and Lieberman are preparing to release their joint, compromise climate and energy bill next week, or, if they do not make that deadline, after the congressional Easter break.  This may mean the first full week of April.

The Senators met with various industry and business associations and the reported response by those associations appeared reasonably positive.

The bill would reportedly apply a cap and trade system to utilities and a carbon tax on transportation fuels.  So far this makes sense.  The utilities have favored cap and trade since the sulfur dioxide cap and trade system worked to achieve reductions in acid rain and at a lower cost than anticipated.  The system gives industry a great deal of flexibility in a market-based system.

With transportation fuels, the use of allowances for the fuels sold by by petroleum refineries and natural gas suppliers was a form of tax or a hybrid of sorts, so going to a tax makes sense.  The refineries and natural gas companies appears to a large extent to favor this approach for the fuels they sell as they can recover 100 percent from their customers, but an allowance system may have caused them to only be able to pass on the costs to customers at about an 85 percent level.  Thus, petroleum refineries and natural gas suppliers would have to pay these costs, and the downstream users would in essence receive a discount, so they would not be a likely to reduce their use of fuels and be more energy efficient, thereby, reducing their greenhouse gas emissions.

The open questions are what to do with non-utility emitters.  Manufacturers are reportedly asking for a 10-year delay before coming under a cap and trade system.

How this will play out remains to be seen, but all eyes will be on this bill when it is finally released.

Council on Environmental Quality Proposes Guidance on Climate Considerations During NEPA Evaluations

On February 18, 2010, in another step to include potential climate change considerations into major federal actions, the Council on the Environment issued a draft guidance document to require climate change impacts in environmental assessments conducted under the National Environmental Policy Act.  NEPA as it is called requires where there is a significant environmental impact the performing of a project sponsor an Environmental Impact Study (EIS).  If the guidance becomes final, climate change impact may have to be considered in these EISs.

The guidance advises project sponsors to consider climate change impacts where the emissions from the project exceed 25,000 metric tons of carbon dioxide equivalent (meaning an amount of one of the greenhouse gases, such as carbon dioxide, methane, or nitrous oxide) per year.  Other aspects of the guidance include:

- Analysis of direct effects such as  1) quantification of cumulative emissions over the life of the project; 2) potential GHG emissions reduction measures, including reasonable alternatives to the proposed action; and 3) qualitative discussion of the relationship between projected GHG emissions and climate change.

- Consideration of mitigation measures and reasonable alternatives to reduce action-related GHG emissions, such as enhanced energy efficiency, lower GHG-emitting technology, renewable energy, planning for carbon capture and sequestration, and capturing or beneficially using fugitive methane emissions. This analysis should also include discussion of mitigation activities such as permanence, verifiability, enforceability, and additionality.

- Analysis of emissions sources, to include all phases and elements of the proposed action over its expected life, subject to reasonable limits based on feasibility and practicality.

- In the event the reviewing agency determines that cumulative effects of GHG emissions from a project is warranted in order to inform decision-making, an assessment of annual and cumulative emissions of the proposed action and the difference in emissions associated with alternative actions must be provided.

The extent to which these analysis will change in any way proposed federal actions and federally-funded projects remains to be seen.  It could serve to permit litigation by opponents of projects who may claim climate change impacts were not adequately considered under NEPA.

Bills Introduced to Promote Offshore Wind

Two Senate bills have been introduced that would extend an existing tax credit and create a new credit for offshore wind energy projects.

A bill to provide credits for the production of energy from deep water offshore wind (S. 3062), sponsored by Sen. Tom Carper (D-Del.) and co-sponsored by Sens. Olympia Snowe (R-Maine), Sherrod Brown (D-Ohio), and Susan Collins (R-Maine), would extend existing tax credits for offshore projects until Jan. 1, 2020.

The Deepwater Offshore Wind Incentive Act (S. 3064), sponsored by Snowe and co-sponsored by Carper and Collins, would offer a tax credit to “deepwater offshore wind” projects. Such projects, with turbines located in water more than 60 feet deep, can avoid some of the concerns linked to wind turbines sited closer to shore.

The tax extension bill would apply to offshore wind projects that are currently eligible for a similar tax credit. Without the extension, the credit of 1.9 cents per kilowatt-hour would expire in 2012. Eligible projects include any facility located in the inland navigable waters of the United States, including the Great Lakes, or in U.S. coastal waters, including the territorial seas and the outer Continental Shelf.

“This legislation is essential to encourage the continued growth of this fledgling industry” Carper said in a news release. “Guaranteeing these tax incentives through 2020 will provide companies with the certainty they need to plan for the long term and encourage further development even in these challenging economic times.”

Snowe said, “If we are to be serious about reducing greenhouse gas emissions and developing clean energy jobs we must provide dependability and consistency to tax policies that have a history of working.  Deepwater wind is a Maine resource that provides a tremendous potential for our county and provides a more consistent resource than onshore and near-shore wind. This legislation provides a clear and consistent tax credit that will put our nation on the path to achieving our goal of operating 20 percent wind energy by 2030 and develop an incentive for wind companies to invest in this breakthrough technology.”

The bill would offer a tax credit of 3.04 cents per kilowatt-hour for deepwater offshore wind energy production for the first 6,000 megawatts produced.