Kerry-Lieberman climate bill includes coastal states opt-out

The long-awaited compromise climate change legislation that US Sens. John F. Kerry (D-Mass.) and Joseph I. Lieberman (I-Conn.) announced on May 12 would let coastal states opt out of oil and gas drilling up to 75 miles off their shores.

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, May 13 -- The long-awaited compromise climate change legislation that US Sens. John F. Kerry (D-Mass.) and Joseph I. Lieberman (I-Conn.) announced on May 12 would let coastal states opt out of oil and gas drilling up to 75 miles off their shores. Adjacent states could veto drilling if they expected to suffer significant damages from a crude oil spill, a summary of the proposal said.

It said the provisions came in response to the Apr. 20 rig accident and subsequent oil spill into the Gulf of Mexico. The bill would impose a moratorium on new offshore oil and gas activity until the event’s cause is determined and the US Interior secretary certifies that it is safe to proceed.

It also would create “liability mechanisms to ensure adequate funds are available to mitigate the economic and environmental impacts of offshore drilling accidents,” impose additional safety measures for workers and marine eco-systems, require additional investments for preparedness and mitigation, and order new studies of spill mitigation procedures and tools.

“States that do pursue drilling will receive 37.5% of [federal] revenues to help protect their coastlines and coastal ecosystems,” the summary continued. But the bill also would require the Interior secretary, if a federal 5-year US Outer Continental Shelf program includes potential tracts off the coast of a state eligible for this revenue share, to assess the probability of a spill occurring within the area and determine its possible impacts.

The provisions are part of a section which aims to reduce US dependence on foreign oil. It also provides $7 billion/year for highway and mass transit improvements, tax incentives to convert trucks and other large vehicles to natural gas-burning engines, investments to develop batteries and advance vehicles, and support to reduce the US vehicle fleet’s greenhouse gas emissions.

Another section would encourage more domestic natural gas use by removing disincentives at merchant power plants, and by requiring public disclosure of chemicals used in its production, which would “help guide the state regulatory process,” the summary said.

Motor fuel provision
The proposal also takes a new approach which its sponsors said would be fairer to refiners and fuel providers. They said under previous bills which would have imposed a domestic carbon cap-and-trade system, refiners would have had to bid or trade for allowances which would have forced them to add hedge funds at the expense of investing in their core business.

“Since a robust domestic refining industry is critical to our national security, we needed to make a change,” the summary said. “We took fuel providers out of the market. Instead of every refinery participating in the market for allowances, we made sure the price of carbon was constant across the industry. That means all fuel providers see the same price of carbon in a given quarter.”

Under the Kerry-Lieberman proposal, the administrators at the US Energy Information Administration and Environmental Protection Agency would use historic product sales to estimate how many allowances would be necessary to cover emissions for a quarter, then set that number of allowances aside at the market price.

“Then refineries and fuel providers sell fuel, competing as they have always done to offer the best product at the best price,” the summary said. “Finally, at the end of the quarter, [they] purchase the allowances that have been set aside for them. If there are too many or too few allowances set aside, that difference is made up by adjusting the projection for the following quarter.” The allowances would be used only for compliance purposes and could not be banked and traded, it added.

Kerry and Lieberman said their proposal to address climate change and energy security also would create jobs and restore US global economic leadership. “We are proud to have support from a growing and unprecedented coalition of business, national security, faith, and environmental communities, who are energized to work hard to pass this bill this year,” Lieberman said. “America has a lot to gain from getting started now.”

Cautious reactions
Several initial responses to their proposal were cautious. American Petroleum Institute Pres. Jack N. Gerard said that its actual legislative language needs to be fully analyzed to determine its potential impacts, but that it was imperative to move away from the bill sponsored by Reps. Henry A. Waxman (D-Calif.) and Edward J. Markey which the US House passed in June 2009.

“A sound climate and energy bill must recognize the importance of domestic oil and natural gas development to the nation’s economy, the critical role US refineries play in delivering quality transportation fuels to consumers, the great potential natural gas has in reducing emissions, and the unsuitability of regulating greenhouse gas emissions under the Clean Air Act,” Gerard said.

R. Bruce Josten, the US Chamber of Commerce’s executive vice-president of government affairs, called the bill a work in progress. “Few in Congress or the business community have had a chance to review the entire bill,” he said. “Once all the details of the bill are known, EIA and the business community will need sufficient time to analyze the bill to ascertain its effects on the economy, jobs, the environment, and energy markets.”

American Gas Association Pres. David N. Parker, meanwhile, said, “While we are encouraged that natural gas utilities, which deliver gas to 170 million Americans, are treated more equitably than in previous climate bills, we remain hopeful that the Senate will more fully recognize that natural gas customers represent the only sector of the population that has reduced carbon emissions by 40% over the last 40 years. As such, any climate legislation should continue to promote what works best.”

But the National Petrochemical & Refiners Association said the Kerry-Lieberman bill should be rejected. “The draconian carbon reduction targets and timetables in it would trigger destructive change in America’s economic climate,” said Gregory M. Scott, NPRA’s executive vice-president and general counsel. “This would add billions of dollars in energy costs for American families and businesses, destroy the jobs of millions of American workers, and make our nation more dependent on foreign energy sources.”

Increased imports
Scott noted that while NPRA requires more time to study the bill’s specific provisions, it’s apparent that it mandates severe and rapid carbon dioxide emission reductions which would apply only to US vehicles, refineries, power plants, and other manufacturing facilities. “The Senate bill would inevitably result in more gasoline, diesel fuel, and petrochemicals being imported into the United States instead of being made here,” he said.

Congressional reactions also varied. US Sen. Lindsey O. Graham (R-SC), who was part of Kerry and Lieberman’s effort to develop compromise energy and climate change legislation until he withdrew on Apr. 30, said on May 12 that he believed the broad concepts they were developing were good.

"Abandoning drilling and fossil fuels is not a realistic option,” Graham continued. “However, it is imperative that we pause to find out what led to the historic oil spill in the gulf and ensure that it never happens again. The reality still remains that fossil fuels will be required in America for decades to come.” Graham originally called for expanded oil and gas access on the OCS.

US Senate Energy and Natural Resources Committee Chairman Jeff Bingaman (D-NM) said that he appreciated Kerry and Lieberman efforts, and would offer suggestions to them and Majority Leader Harry M. Reid (D-Nev.) once he had studied the bill fully. Other congressional responses generally ran along partisan lines. Democrats said that the bill provides a fresh opportunity for Congress to address global climate change, while Republicans said that it would impose a costly and unnecessary energy tax.

“I believe California will be the hub of the new clean energy economy, and I appreciate the measures in the Kerry-Lieberman bill that ensure that states like California can continue to lead the way in addressing carbon pollution,” said Senate Environment and Public Works Committee Barbara Boxer (D-Calif.), whose committee approved a bill last fall similar to the one passed by the House despite a boycott by its Republican members. “The need for action is urgent, and I look forward to working with all my colleagues to perfect this legislation and move it forward."

Resembles Waxman-Markey
James M. Inhofe (R-Okla.), the committee’s ranking minority member, called the bill “the same old cap-and-trade scheme that the Senate has defeated three times since 2003.” Inhofe said, “In fact, it has a strong resemblance to the disastrous Waxman-Markey bill. Only now, along with paying skyrocketing electricity prices, consumers will pay a gas tax.”

Markey said that while there are differences, Kerry and Lieberman’s bill shares the same goals as the House-passed measure. “Both bills will create millions of new clean energy jobs, reduce our dangerous dependence on foreign oil, and dramatically cut the pollution that is causing climate change,” he explained. “The pollution reduction targets in the Senate and House bills are identical, highlighting the universal commitment to slash dangerous pollution before it is too late.”

Waxman said, “Over-reliance on oil fouls our beaches, pollutes our atmosphere, and threatens our national security. The senators have a different approach than the bill the House passed last year, but we are in agreement that comprehensive energy and climate legislation is critical to move America to a safe and secure clean energy future.”

US House Speaker Nancy Pelosi (D-Calif.) also said that the Kerry-Lieberman proposal embraces the Waxman-Markey bill’s goal of reducing greenhouse gas emissions 17% by 2020 and 80% by 2050. “I hope that this bipartisan group of senators will resume their discussions, which have yielded significant progress,” she said.

Kerry said that while the path to the 60 votes required for Senate passage of climate change legislation has been long, the goal is within reach despite conventional Washington wisdom. “This is the time. We have a House bill already passed. We have a never-before-seen coalition from across America, including key stakeholders embracing energy and climate legislation for the first time ever. They aren’t giving up, they’re doubling down. They understand this isn’t a choice, it’s a necessity, and we’re going to get it done this year,” he maintained.

Contact Nick Snow at nicks@pennwell.com.

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