Industry groups condemn climate bill passed by House

Oil and gas associations generally condemned the climate-change bill narrowly passed by the US House of Representatives on June 26.

Jun 30th, 2009

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, June 30 -- Oil and gas associations generally condemned the climate-change bill narrowly passed by the US House of Representatives on June 26.

“In approving the Waxman-Markey climate bill, the House has chosen to ignore the legislation’s harmful effects on American consumers, businesses, and the economy,” said American Petroleum Institute Pres. Jack N. Gerard. “At a time when America is trying to recover from a serious recession, the House has approved legislation that would cost energy uses billions of dollars and add new stress to the economy.”

House Energy and Commerce Committee Chairman Henry Waxman (D-Calif.) and Ed Markey (D-Mass), chairman of the Select Committee on Energy Independence and Global Warming, sponsored HR 2454, which caps emissions of greenhouse gases and provides for trading of emissions credits.

The bill also requires electric utilities to meet 20% of their demand with renewable energy by 2020, calls for federal spending of $190 billion on clean-energy technology, and mandates energy-saving standards for buildings, appliances, and industry.

It targets cuts in greenhouse gas emissions against 2005 levels of 17% by 2020 and 80% by 2050.

Industry objections
Like API, other groups representing producers and refiners objected to the bill.

“Independent natural gas and oil and producers are targeted twice in the bill,” said Independent Petroleum Association of America Pres. Barry Russell. “First, it skews energy policy away from clean-burning natural gas. Second, it imposes new limits on gas and oil trading that will cripple independent producers’ access to commodity markets.”

While removal of the bill’s low-carbon fuel standard was a victory for consumers, said National Petrochemical and Refiners Association Pres. Charles T. Drevna, HR 2454 still is “a tremendous tax hike for American consumers that will threaten domestic energy supplies and could actually increase the nation’s reliance on foreign refined products.”

Drevna decried “the unfair burden placed on American refiners by the mandated responsibility for emissions resulting from the use of their products, including home heating oil, gasoline, diesel, jet fuel, and industrial fuels. He said the burden “creates a significant cost advantage for foreign refiners who are already preparing to target US retail markets for fuel and other refined products.”

The NPRA president said, “Despite the many modifications made to the bill since the Energy and Commerce Committee passed it, the American Clean Energy and Security Act still fails domestic refiners and consumers alike. It dismisses the real concerns Americans have over rising energy costs and the adverse effect those costs will have on our nation’s economic recovery.”

Rep. Gene Green (D-Tex.), who voted for the bill, conceded during floor debate that domestic refiners would be at a competitive disadvantage despite HR 2454’s giving them 2% of available allowances of emissions credits from 2014 to 2016, plus another 0.25% for smaller refiners. “To level the playing field, importers of foreign refined oil [products] must also pay for the carbon content,” he said.

“While I believe the refining industry could use additional assistance, and I hope any final agreement does so, this is a reasonable first step to protecting our energy infrastructure and keeping good-paying jobs here at home,” said Green, whose Houston area district includes several refineries and petrochemical plants. “These proposals, however, cannot substitute the need for a strong international agreement with binding carbon reductions among the world’s largest emitters, including developing countries.”

American Gas Association Pres. David N. Parker cited the bill’s benefits to residential and commercial gas customers, who would not be covered under a carbon cap until 2016. Gas utilities would receive 9% of emissions allowances until 2025, when they would begin to reduce their allowances to zero by 2030, he said.

Narrow margin
The close, 219-212 vote on the bill showed that several Democrats, as well as most Republicans, had problems with the measure’s provisions.

Passage nevertheless met the deadline House Speaker Nancy Pelosi (D-Calif.) established months earlier and won praise from President Barack Obama, who called the legislation “balanced and sensible.”

Obama said, “We cannot be afraid of the future, and we must not be prisoners of the past. Don’t believe the misinformation out there that suggests there is somehow a contradiction between investing in clean energy and economic growth. It’s just not true.”

Heavy lobbying before the final vote suggested that even the bill’s most ardent supporters recognized it would barely pass. House Republicans objected to the measure’s proposed creation of a new federal bureaucracy, taxes, and omission of programs to encourage domestic production of oil, gas, and other traditional energy sources. Of the 51 Democrats in the politically moderate Blue Dog Coalition, 28 voted against it.

Their reasons varied, as several of their statements showed following the vote.

“God’s beautiful earth must be protected and preserved, but this bill is not the answer,” said Mike McIntyre (D-NC). “It will cost jobs, increase electricity rates, pass on financial burdens to the next generation, and hurt ourselves in this global economy. It would potentially allow more jobs to go overseas to countries who do not comply with the same standards.”

Several of the dissenting Democrats expressed concern over the way HR 2454’s distribution of emissions allowances and its renewable portfolio standard could affect their constituents. “We all agree that we need to take measures to make our nation more energy-independent, but this bill does that the wrong way and would end up raising rates and imposing unacceptable new taxes on the companies that power the Tennessee Valley,” said Parker Griffith (D-Ala.). “During these economically challenging times, we simply cannot let this happen.”

Jim Matheson (D-Utah) said the bill’s 50-50 emissions allowance distribution formula would give extra, unneeded allowances to utilities with lower fossil fuel resources and less to utilities which rely more heavily on fossil fuels. Regions which received excessive allowance would sell them to other US regions which received less, he suggested.

HR 2454 also overreaches with respect to carbon markets and would effectively destroy derivatives trading, he continued. “This is a very complicated financial system, and while it is clear that we are not appropriately regulating this market today, we should also avoid gutting the market altogether,” Matheson said. “I think there is a reasonable way to structure the new carbon market and to address deficiencies in the commodity markets. The provisions in the bill are not the right approach, and these provisions were never really debated in a House committee hearing.”

Harry Mitchell (D-Ariz.) also voted no. “This bill literally recommits the United States to coal, a step backwards at a time when it is vitally important for us to move forward. Clean, renewable energy should be our chief priority, not fossil fuels. In Arizona, this bill asks us to pay more for our energy but fails to deliver what is necessary to help us grow our emerging solar industry,” he said.

Dennis C. Kucinich (D-Ohio), who is not a Blue Dog Democrat, also voted against HR 2454 because he believed its offsets favor coal-fired power plants.

Republicans object
House Republicans continued to condemn the measure because it would impose new taxes and costs without taking direct steps to increase domestic production of energy from traditional sources.

“Instead of the Democrats’ high-priced gourmet plan that cherry-picks what types of energy Americans are allowed to use, our nation needs a plan that includes all types of energy,” said Doc Hastings (R-Wash.), the Natural Resources Committee’s ranking minority member. “The American Energy Act, a Republican alternative, does this by encouraging the development of renewable energy sources like nuclear, wind, solar, hydropower, and biomass while increasing production of American-made oil and natural gas.”

Tim Murphy (R-Pa.) said, “Democrats and Republicans alike want to make sure that we reduce pollution in our country and clean up our land and water. But we need to find a way of doing this without shutting down coal, increasing family electric bills, or losing manufacturing jobs.” He said HR 2227, which he cosponsored with Neil Abercrombie (D-Ha.), not only would encourage more domestic oil and gas exploration and production but also would dedicate much of the revenue to environmental cleanups and alternative and renewable energy research and development. Abercrombie voted for HR 2454 on June 26, however.

As the vote on HR 2454 approached, the Congressional Budget Office and Joint Committee on Taxation released a new estimate of the amended bill’s budgetary impacts. Enacting the legislation would increase federal revenues by $873 billion and raise direct spending by $864 billion during 2010-19, CBO Director Douglas W. Elmendorf said in a June 26 letter to Waxman.

Contact Nick Snow at nicks@pennwell.com.

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