Senate Energy panel weighing alternatives to cap-and-trade system

US Senate Energy and Natural Resources Committee members appeared ready to consider cap-and-trade alternatives as they began their 2009 climate-change hearings on Sept. 15.

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, Sept. 16 -- US Senate Energy and Natural Resources Committee members appeared ready to consider cap-and-trade alternatives as they began their 2009 climate-change hearings on Sept. 15.

“The search for effective legislative proposals for avoiding climate change involves avoiding the costs of global warming without imposing other unintended costs that would have few benefits and could even have negative impacts on society,” committee chairman Jeff Bingaman (D-NM) said in his opening statement. “We need to provide assurances that the costs of a cap-and-trade system will not go out of control, either through excessive prices or excessive volatility.”

Republicans criticized a climate-change bill, which included a cap-and-trade program, that the US House passed on June 26. “Having done something on climate change is not the same thing as having done it right,” said Lisa Murkowski (R-Alas.), the ranking minority member. She said, “The Senate debate should not be about more than who will receive free emissions allowances, but about how we can truly address climate change in a transparent and economically sound manner.”

Other GOP members said the committee should be wary of the House bill cosponsored by Reps. Henry G. Waxman (D-Calif.) and Edward J. Markey (D-Mass.). John Barrasso (Wyo.) said after the hearing that it could result in a “green collar” crime wave. “This is Enron, Part II; another Wall Street Ponzi scheme dreamed up by bankers and brokers,” Barrasso said.

Democrats expressed their own concerns. “I have great problems with the ‘trade’ side of cap-and-trade,” said Byron L. Dorgan (D-ND). “The discussion today of a price collar demonstrates a lack of confidence in the market. We’re heading toward creating a $1 trillion securities market with a diminishing product.”

Range of alternatives
Five witnesses discussed cap-and-trade and alternatives including a carbon tax and price floors and ceilings, or collars, for carbon emissions commodities. They generally suggested that federal lawmakers will need to consider both environmental and economic aspects as they develop final legislation.

“A critical policy decision that one is faced with in determining any appropriate cost containment mechanism is whether maintenance of the program’s overall [emissions] cap is paramount, or whether there are conditions under which economic or energy policy concerns may mandate a change in the reduction system, at least temporarily,” said Brent Yacobucci, an energy and environmental policy specialist at the Congressional Research Service.

Referring to the Waxman-Markey bill, Joseph R. Mason, a finance professor at Louisiana State University, said, “Inappropriate auditor behavior is all too familiar. There are considerable holes in any 1,400-page document. I believe there’s a risk in climbing into any cap-and-trade system without closing those holes.”

Other committee members and witnesses suggested that it will be equally important to establish a price floor as well as a ceiling in any new carbon market. “If you set the [carbon emissions market] price too low, you lose the climate benefits. If you set it too high, you face economic risks,” said Eileen Claussen, president of the Pew Center on Climate Change.

‘Additional uncertainties’
“We need both,” said Sen. Debbie Stabanow (D-Mich.). “From my perspective, it makes sense to have offsets. If we were to look at completely eliminating them in favor of only a price collar, there would be additional uncertainties.”

“Part of setting up a cap-and-trade system is establishing a market, which is the best mechanism for setting prices,” said Jeanne Shaheen (D-NH). “The question then becomes how to avoid volatility and interference.”

“A price collar is the kind of intervention we want because it would be beneficial,” said Jason Grumet, president of the Bipartisan Policy Center. But another witness, Michael Wara, an assistant professor at Stanford University’s law school, said that a price floor also matters. “The key to having a price floor is to have something for innovative firms to take to potential investors. Without one, financial markets set the [carbon] price at zero,” he said.

Witnesses also discussed international offsets in cap-and-trade programs, which apparently primarily involve restraining deforestation. “Where I come from in Louisiana, we’re grinding up new-growth cypress wood into pellets for shipment overseas so factories in the European Union can meet their carbon emissions reduction goals,” he said. “Where is the sense in that?”

The hearing was the first of two on global climate change issues that the committee scheduled during the week. The second will be held on Sept. 17.

Contact Nick Snow at nicks@pennwell.com.

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