The California-Massachusetts Axis

(Originally posted by my husband on NRO-The Corner here.)

At 11:30 a.m. today, senators from California and Massachusetts emulated their state colleagues in the House, Representatives Waxman and Markey, by introducing the Boxer-Kerry cap-and-trade bill. This may be it, although it is ever-changing. It contains the same basic content as the House bill, but aims to be "stricter" (read: more expensive) by asking for 20 percent reductions in emissions by 2020, rather than the 17 percent demanded by the House. (As an aside: Look for forthcoming economic analyses from EPA, etc., that will somehow conclude this will be cheaper than the House bill).

Here's a quick summary from Greenwire of the main points and differences from the the House Bill. My comments are in italics.

Overall, the early draft of the Boxer-Kerry legislation includes four titles that take aim at greenhouse gas emissions across multiple economic sectors, as well as a "transition and adaptation" section aimed at helping the nation cope with the costs of a climate bill and the expected repercussions of global warming.

Note that the Bill explicitly recognizes that it has costs. The fact that they attempt to mitigate these costs through wealth redistribution doesn't alter that fact. The money has to come from somewhere, as this bill certainly isn't creating new wealth.

Both the early draft and the Boxer-Kerry bill due for release tomorrow will leave blank key information about how the senators intend to distribute hundreds of billions of dollars in emission allowances. Following the path of Democratic leaders of the House Energy and Commerce Committee, those figures will come next month when Boxer releases a chairman's mark of the bill before an EPW Committee markup.

While this section is key to getting industries on board by buying them off, it isn't key to the overall costs (except in so far as it increases them by adding inefficiencies). As Peter Orszag has said, the overall costs are the overall costs regardless of whether permits are auctioned or given away.

To deal with economic uncertainties, the draft Boxer-Kerry plan would establish a strategic allowance reserve that allows U.S. EPA to sell credits into the carbon market via an auction in the event credit prices rise faster than expected.

This is a "safety valve" that admits that the entire cap-and-trade concept could be catastrophic for the economy.

The draft also mirrors the House on offset projects that allow industry an alternative compliance option to pay farmers and other landowners for environmentally friendly projects. Both the House-passed bill and this early Senate draft allow capped sources to collectively use emissions offsets to meet 2 billion tons of their obligations annually — divided evenly between domestic and international credits, with the amount of international credits allowed to increase if insufficient domestic offsets are available.

As the Breakthrough Institute has shown, even modest use of this provision could mean that domestic emissions don't decrease at all.

The early draft of the Boxer-Kerry bill heeds environmentalists' requests by removing a section of the House bill that would have restricted EPA's ability to enact climate change regulations.

Which means that we could have a double whammy of cap-and-trade plus the admitted disaster of EPA regulation. So much for the argument that we need cap-and-trade to save us from the zeal of the EPA.

Like the House bill, the Boxer-Kerry draft would provide emissions allowances to fund commercial deployment of carbon capture and sequestration, although it does not provide specifics. It also establishes performance standards for emissions of greenhouse gases from new coal-fired power plants.

As the environmentalists like to remind us, "clean coal" does not yet exist and there is no guarantee that it will be able to meet the requirements of the bill in practical fashion, despite the funding.

...There are also significant differences between the Senate draft and the House bill.

For example, Boxer and Kerry propose a different approach for oversight of the carbon market, which in the House bill is shared between FERC and the Commodity Futures Trading Commission, with FERC regulating the cash market for allowances and offsets and CFTC handling the derivatives market. The draft Senate plan, in contrast, would place the carbon markets under a single regulator — the brief carbon market section would have CFTC regulate both markets. It also broadly empowers the regulator to prevent manipulation of these markets and eliminate "excessive speculation" that adds to price volatility. Lawmakers are likely to seek more detailed provisions that place controls on these markets.

At least they appear to have recognized that they're setting up a subprime carbon market. The only problem is that strict regulation removes the incentives that trading is supposed to bring in the first place.

Elsewhere, the draft Boxer-Kerry bill does not include House-passed language that would bar EPA — for six years — from considering greenhouse gas emissions from so-called international indirect land-use changes when implementing the national biofuels mandate.

I haven't examined this directly, but this seems to imply that clearing away rainforest for biodiesel is fine by Boxer and Kerry.

The Senate draft also has a modest nuclear title, although pro-nuclear senators are likely to push for significant incentives in the final measure. The bill's nuclear title would steer money to the Energy Department for implementing programs to expand expertise in the nuclear field. Advocates of expanding U.S. nuclear power say there are not enough nuclear engineers and other experts to work on the hoped-for buildout of new reactors.

The nuclear title also has a section titled "Nuclear Waste Research and Development," but it is left blank, stating "to be supplied."

This title is so modest that it is clearly an afterthought.

The bill of course raises several questions. Here are a few, courtesy of Senator Inhofe.

There will be many more, of course.

- Sen. Boxer, in the bill’s findings, you laud the merits of nuclear power, and seem to suggest supporting measures to encourage its expansion. Yet the bill lacks several essential measures to make that happen. Why?

- Sen. Boxer, why does your bill include “climate change worker adjustment assistance”? Does this mean that your bill will cause workers to lose their jobs?

- Sen. Boxer, your bill allows the EPA to regulate greenhouse gases under the Clean Air Act, on top of your cap-and-trade mandate. How is this conducive to regulatory certainty? Does this conflict with your call for a “market-based” program? - Sen. Boxer, by providing “rebates” to electricity consumers, are you acknowledging that, as President Obama said, electricity prices will “necessarily skyrocket” because of your cap-and-trade bill?

- Sen. Boxer, how does the “rebate” program work? Does it mandate that local distribution companies cut checks to consumers? Would those checks completely offset electricity price increases for consumers? Or is that the local distribution companies could provide “rebates” through, say, energy efficiency programs?

- Sen. Boxer, your “price collar” is tied to a “strategic reserve fund,” in which a limited number of allowances could be issued at the collar (ceiling) price. This is not a true “safety valve.” David Montgomery with CRA International wrote that, “Without a true safety valve based on an open window and unlimited sales and purchases, there will continue to be significant risks that allowance prices will uncontrollably exceed the collar, in one direction or the other. The result will be a system in which price volatility increases the difficulty of long term investment planning, with the additional uncertainty of how legislation itself will change if a period of unexpectedly high (or low) prices occurs.” Why is he wrong?

-Senator Boxer, because this is a global issue, how does your draft ensure that other developing countries, such as China and India, will make binding emissions cuts that are as strict as those that are required for the United States under this Act?