Clean Energy and Security Act - First Step for U.S.

By Sarah Sorensen
June 30, 2009

While we may have had the weekend to try to digest the House's passage (by a close vote of 219-212) of the American Clean Energy and Security Act, I find there's still no consensus on what it means for the U.S. It's not just because it is hard to extract saliency from the 1200 pages that make up the bill, but rather because it's virtually impossible to understand what form the bill will ulitimately take if (and that's a potentially sizeable if) it gets through the Senate. (You may fondly remember the catchy Schoolhouse Rock song "I'm just a bill").

I was at the Silicon Valley Energy Summit yesterday at Stanford University, where experts debated almost everything about the bill, from whether the cap and trade system it introduces will be effective to whether the carbon emissions targets are going to be impactful. And after much discussion, no agreement could be reached on what form the bill would need to take in order to pass the Senate; questions of which were the biggest sticking points abounded. So rather than dwelling in the world of "what if," let's look at what it means today.

In a very broad nutshell, the Act as it stands now, also known as the "Waxman Markey" bill, uses a 2005 baseline to set reduction targets of 17% on carbon emissions by 2020 and 83% by 2050. These percentages would be used to cap "allowable" emissions, putting a limit on the amount of pollutants that an energy producer can emit into the atmosphere. These "allowances" will then be made available by the government in the form of permits, which can be traded on the open market (hence the moniker cap and trade system). Ultimately the cap will get "tighter" and the allowances fewer, with the intent of pushing up the price of emissions to motivate greater reductions. The benefit of a cap and trade system is that the outcome is predictable in the form of specific emisison reductions; the downside, is that the costs of achieving it are less so because they are set by the market.

With this backdrop, one of the biggest sticking points is that these targets don't align with the Koyoto Protocol, which is the international agreement that came out of the United Nations Framework Convention on Climate Change. The Koyoto Protocol uses a 1990 baseline to set reduction targets, which when compared to the Act's targets fall short by more than 5% of where the U.S. should be in 2020, if we had signed the accord (The Koyoto Protocol called for a U.S. reduction of 7% from 1990 levels; if we adjust the 17% reduction from 2005 levels, it translates to a 1.8% reduction from 1990 levels). These targets also are not in line with many European country's emissions targets (for example, the EU has set a target of 20% below 1990 levels by 2020).

Turning to the proposed cap and trade system, there are some that question the reasoning behind initially giving away many of the permits. There is also talk of whether a carbon tax would not be a more effective mechanism. The benefit of a tax is that it would fix the cost of carbon; the downside is there is no certainty of the outcome - depending on what that cost is, there is debate on whether a tax would be enough of an incentive for high pollutants to dramatically change. Still others question the impact that any new model might have on the recovery of our economic system.

So, when asked the question "what does this Act mean?" I think the only thing we can say for certain, is that it's a start. And it's an important one. Regardless of how much we may actually be doing to address climate change concerns (there are definite pockets of goodness that are recognized internationally, for example, in California, Colorado and the northeast), the U.S. as a nation has a perception problem that needs to be overcome. Timing is critical, as the December meeting in Copenhagen draws near. This is when the world, with President Obama at the table, will meet to try to come to agreement on where to take the Koyoto Protocol. The passage of this Clean Energy Act would help build credibility that our political machinations are ready and able to enact change, regardless of whether or not, it contains all the provisions and goals that advocates would like to see.

We have to start somewhere, and this is definitely a start.

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