Climate Law Update: Climate Change & Sustainable Energy News : Thelen Reid Law Firm : Renewable Energy, Construction, Project Finance Lawyers & Attorneys

The report noted that many in the industry favor free allocations, as a way of reducing the costs of complying with carbon dioxide reductions. But discouraged that approach, warning of potential excessive profits and noting the "overly generous" allocations under the first phases of Europe's trading system. 

With electric power generation responsible for about 40 percent of the nation's carbon dioxide emissions, or about 2.7 billion tons annually, according to the report, the industry has a big stake in the outcome of any legislation.

The issue is not confined to the federal level. In states such as California, which is contemplating a cap-and-trade program to help the state meet the demands of its groundbreaking AB 32, regulators are also wrestling with the subject. California officials are expected to make a recommendation on the allocation question this summer (see Climate Law Update story here).    

Under Lieberman-Warner, credits covering about 45 percent of the emissions would be distributed for free in 2012, according to the report, while another 573 million tons worth would be handed out to distribution companies. Those allowances would then be auctioned off to raise money for energy efficiency programs or to provide customer rebates. The Bingaman-Specter bill, on the other hand, would provide about 80 percent of the allowances for free in 2012.

At a hypothetical value of $10 a ton -- no one really yet knows how much the credits would be worth -- the value of the free credits allocated to the 100 largest utilities under the Lieberman-Warner approach would be about $10.4 billion. That comparable figure under the competing measure would be more than $18 billion.

Restricting the amount of free credits is clearly favored by at least one sponsor of the report, the Natural Resources Defense Council. In a statement accompanying the release of the assessment, Dan Lashof, science director of the environmental group's climate center said (see full text of statement here):

"Billions of dollars in allowances are at stake under the proposals to cap and reduce global warming pollution. The value of pollution allowances should benefit consumers and smart programs that deliver real pollution reductions, not polluters." 

Along with the NRDC, the report was sponsored by Ceres, a coalition of investors and environmental groups, as well as two utilities, Pacific Gas and Electric Company and Public Service Enterprise Group of New Jersey.

The report also shows stark differences between utilities based on whether credits are distributed based on the utility's emissions, or its electricity output. The emissions-based method would "penalize companies that have invested in low- and zero-carbon technologies in advance of the cap-and-trade program," the report noted.

Under an emissions scenario, the Southern Company, described by the Wall Street Journal's online site Environmental Capital as "coal heavy," would get $600 million in credits under the proportions outlined under the Lieberman-Warner bill, as opposed to $734 million if the allowances were doled out based on emissions.

For a company such as Northern California's PG&E, reliant on hydro, nuclear, natural gas and renewable generation, the differences would be even more dramatic. The company would get as little as $2 million to $4 million in allowances under the emissions scenario but receive between $99 million and $174 million if allocations were based on output, according to the report.

On a somewhat different subject, the report made another fairly startling point: Since 1990, overall carbon dioxide emissions from power plants have gone up by 29 percent; but emissions of other pollutants, including sulfur dioxide and nitrogen oxide, have dropped more than 40 percent. The difference, suggested the report's authors, was that the latter two pollutants are regulated under the Clean Air Act, while carbon dioxide has not been.      

 (Photo: Lake Almanor, California, part of PG&E hydroelectric system; Wikipedia)

"Two separate government analyses have now come to the same conclusion," Lieberman said in a statement (see text here).  "Our bill curbs global warming without harming the U.S. economy."

Lieberman said the new study predicted impacts "below even the modest figures" cited by the EPA He said the energy department also found that the bill would benefit wind and solar, as well as carbon capture and storage technology.       

The Environmental Defense Fund, which supports using markets to tackled climate change, also lauded the study's conclusions, as did the Natural Resources Defense Council (see press statements here and here). Environmental Defense recently released its own analysis of Lieberman-Warner, concluding that economic models showed cap-and-trade "consistent with long-term economic growth (see Climate Law Update story here).”

Both environmental groups characterized the economic pull of the legislation as virtually unnoticeable.

"It's like two cars driving different routes from New York to L.A. and predicting one will get there at noon and the other will arrive at 12:45," said Environmental Defense's climate campaign director Steve Cochran in the group's statement. NRDC said bill's impact would be equivalent to a two-month delay in growth.

Environmental Defense also again noted, as it has in the past with other studies, that the document didn't look at the price of doing nothing, including higher insurance costs, damage from droughts and more intense storms.

But not so fast. Inhofe, the ranking minority member of the Senate Environment and Public Works Committee, had his own take on the study, which also foresaw potentially higher prices for coal and natural gas. Inhofe focused the study's predictions of higher energy costs for households, and the consequences for industry. He also said the energy department analysts also based some assumptions on a "massive and unrealistic" boom in the construction of new nuclear plants (see statement here). Said Inhofe:

"Only in Washington could higher energy prices be characterized as not negatively impacting the U.S. economy. If Democrats have their way, Americans will pay significantly more at the pump, in their homes and in many cases, with their jobs, all to accomplish an undetectable impact on the climate."

The EDF's Cochran might have had Inhofe in mind when he declared the debate over:

“Anyone claiming the Lieberman-Warner bill will bring economic doom can now go sit with those still saying climate change is a hoax. It’s time for the Can’t-Do crowd to retire the scare tactics.”

But there's little evidence the two sides will see eye-to-eye anytime soon.

(Photo: Sen. James Inhofe's office)

Bush also expressed concern over efforts to employ existing laws, such as the Endangered Species Act and the Clean Air Act to tackle the problem. Environmentalists have been trying to prod action with the species law (see Climate Law Update stories here and here). California, and by extension other states, want to use the air law to control climate-changing emissions from cars but they have been thwarted by Bush administration officials (see Climate Law Update story here). In addition, the U.S. Supreme Court has required the U.S. Environmental Protection Agency to consider whether to regulate greenhouse gases as air pollutants under the law (see Climate Law Update stories here and here).

Bush, in his speech Wednesday, predicted the application of those laws could have widespread intrusive effects, forcing the federal government to "act like a local planning and zoning board, [having] crippling effects on our entire economy." 

The president, who has opposed such international treaties as the Kyoto Protocol, said that "all major economies" must take action to make a dent in the problem. He then suggested the United States would be willing to enter a new pact:

"Like many other countries, America's national plan will be a comprehensive blend of market incentives and regulations to reduce emissions by encouraging clean and efficient energy technologies. We're willing to include this plan in a binding international agreement, so long as our fellow major economies are prepared to include their plans in such an agreement."   

Congressional critics of Bush also quickly ripped the president’s stance. U.S. Sen. Barbara Boxer, the California Democrat who chairs the Senate Committee on Environment and Public Works, issued a statement (see text here) saying Bush’s “plan to have America stand by while greenhouse gases reach dangerous levels and threaten America and the world is worse than doing nothing – it is the height of irresponsibility.” Although greenhouse gas emissions have shown some decreases lately in the United States (see Climate Law Update story here), officials estimate they have grown nearly 15 percent since 1990 (access latest inventory here).   

Others, meanwhile, reacted more cautiously. Sens. Joseph Lieberman, I-Conn., co-sponsor of legislation that would limit greenhouse emissions and set up a trading program to help control them, said he shared the president’s preference for a market-based approach over the imposition of new carbon taxes. Lieberman said he did not believe Bush’s statement would hamper the chances of the bill he and Sen. John Warner, R-Va., are sponsoring. The measure is expected to come before the Senate in June (see text of legislation here), .

Warner, in the same statement, said the president’s support for “measures to reduce greenhouse gas emissions in the U.S. is welcome news as the Senate prepares to consider climate change legislation this summer.” Warner also praised Bush's call for an international approach to the issue (see full text of statement here).

(Photo credit: White House)

Last November the IPCC, which won a share of the 2007 Nobel Peace Prize for its work sounding the global warming alarm, issued its fourth report assessing the climate threat (see text here). Researchers asserted that the climate is changing and that most of the increase in global temperatures since the mid-20th century was very likely due to human-caused increases in greenhouse gases. They also saw little time to act to prevent the most severe effects from occurring.

At the same time, the report also concluded that a combination of responses, including efforts to reduce or mitigate the growth in emissions, could significantly reduce the risks. Since 1997 Metz, a senior researcher at the Netherlands Environmental Assessment Agency, has co-chaired the IPCC's group looking at mitigation strategies (see mitigation report). Metz is also a visiting professor at Stanford University.

Metz said that in order to achieve the goals of avoiding the worst effects of climate change, government support for technology and “a lot of R&D” was needed. He also said that other steps, including setting a price on carbon by means such as a cap and trade program, were also critical:

“At that moment, emissions of [carbon dioxide] and other greenhouse gases get factored into business decisions. They become really part of the balance sheet. That’s a very good incentive for businesses to take proper action.” 

His remarks mirrored those of other experts who have recently advocated that more than a market-based approach will be needed to cope with global warming. There is a note of increasing urgency in light of information, such as that cited by Metz from the IPCC suggesting that more serious problems may occur at lower temperatures than earlier estimated.

The New York Times recently reported on the shifts in the debate over what to do (see story here). Among those it cited was prominent Columbia University economist Jeffrey D. Sachs. In a piece in Scientific American (see article here), Sachs argued that a variety of approaches, including new research, was needed:

“We will need large-scale public funding of research, development and demonstration projects; intellectual property policies to promote rapid dissemination to poor countries; and the promotion of public debate and acceptance of new options. We will need to back winners, at least provisionally, to get new systems moving.” 

He argued that even with a cutback in "wasteful energy spending," current technologies could not support both a reduction in carbon dioxide emissions and a growing global economy.  The key, Sachs wrote, "is new low-carbon technology, not simply energy efficiency."  

A critical issue is time. Metz displayed statistical graphs showing that emissions should have peaked no later than 2015 in order to prevent global temperatures from increasing by much more than 2 degrees Celsius, a kind of benchmark denoting the point at which serious human adaptation would have to occur.

“What we do in the coming ten to 20 years is of crucial importance, [determining] how much warming and how many impacts we will have in the longer term,” he said. Metz noted other estimates showing that if carbon were to achieve a price of about $100 a ton by 2030, that could drive emissions down to 2000 levels, which he called “a fairly positive signal.”

But he also noted that as of right now, emissions are still on the increase, and there were other factors at play. For instance, he said, even some actions that pay off economically are not being pursued.

“If you invest in energy savings in buildings you earn your money back quickly. It makes economic sense to do it and still it’s not happening because of all sorts of barriers and low incentives. That’s why specific action in terms of policy needs to be taken to make things happen.”

The task ahead, Metz suggested, employing a metaphor rooted in the fossil fuel industry, is formidable.

“It’s like turning around a super-tanker,” he said.

(Photo credit: Climate Law Update)

In general under a cap and trade system, credits or allowances represent the right to emit a certain amount of greenhouse gases. A debate has long been raging over whether at the beginning of the trading system to sell or give away the credits.

The British Columbia law would establish a cap for designated large sources of gases by issuing a limited number of what officials call “tradable compliance units” or emissions allowances for a given period of time. The emitters will then have to obtain units equivalent to the amount of greenhouse gases they emit within the specified time period. The units would then have to be surrendered to the government as proof of compliance.

The act identified three types of compliance units, including allowance units issued by the government; emissions reduction credits, which are offset credits from approved emission reduction or removal projects in the province, and recognized compliance units from other cap and trade systems, such as the Western Climate Initiative. Each unit would equal a ton of carbon dioxide or its equivalent.

Kate Thompson, a spokeswoman for the province's Ministry of Environment, told Climate Law Update that the legislation was silent on whether the emissions allowances would be auctioned or handed out for free. "That hasn't been decided yet," she said.

She said the legislation would likely progress through the provincial Parliament by May.

The Western Climate Initiative, which British Columbia joined last year, is considering a recommendation from a subcommittee that would require all of the partnership's participants to auction between 25 percent and 75 percent of their allowances, with the final figure not yet determined. Officials of the initiative are accepting public comments on the recommendation until April 16.

Under the April 2 proposal, the allowances would be sold through a coordinated process, with each of the states and provinces auctioning its allowances throughout the Western Climate Initiative region. Proceeds would go to the partners in the initiative, which include British Columbia and its sister province Manitoba, as well as the U.S. states of California, Oregon, Washington, New Mexico, Arizona, Utah and Montana. The initiative is expected to have its market system developed by August (see WCI document repository here).

Those hoping for an auction system would seem to have gotten some ammunition in the pages of the newest report on the subject, prepared for the environmental group WWF (also known as the World Wildlife Fund for Nature) by the market analysis firm Point Carbon. The report, which looked at the trading system set up in Europe, estimated that windfall profits for electricity generators in five countries between 2008 and 2012 could hit 71 billion Euros, or $111 billion.

According to the report:

"Windfall profits are highest in countries that have a high level of pass-through of [carbon dioxide] costs into wholesale power prices, countries with emissions intensive (coal) plant setting the price the majority of the time, and countries that allocate the highest percentage of free allowances to the power sector." 

An official of the WWF called the findings "a stark warning to the rest of the world on the danger of free allocations of pollution permits (see WWF statement here)."

The report said that when the European Union set up the system it allowed most of the allowances to be distributed free of charge, as a way of providing a "soft landing" to companies faced with having to deal with an emissions trading system for the first time. In addition, the study noted that in the first phase of the system starting in 2005 more allowances were handed out than required because the allocations were based on estimates rather than measured emissions.

Other jurisdictions are also dealing with the thorny issue of whether to charge for the allowances when they are initially distributed. California utility and energy officials recently adopted a recommendation to the California Air Resources Board that included advocating at least a partial auction of allowances. But it left for later critical details, such as what percentages should be sold or handed out for free (see Climate Law Update story here).                

(Photo of B.C. Environment Minister Barry Penner via Legislative Assembly of British Columbia)

Cox said the manufacturers’ organization was not trying to dispute evidence that the planet is getting warmer. But he said officials run the risk of creating “economic havoc” in the country, especially in light of what other nations, such as China, are doing to move forward with fossil plants. Burning such fuels, such as coal and oil, produces carbon dioxide and other greenhouse pollutants.

“There’s a limit in how fast we can move our energy mix away from fossil fuels,” Cox said. He said there is already a virtual moratorium on the construction of new coal plants in the United States, a situation he said could easily produce power shortages in a few years.

Critics of the trade association’s economic analysis of global warming legislation have knocked it for, among other alleged shortcomings, looking only at the costs of reducing emissions but not the cost of inaction, potentially leading to unbridled climate change. But Cox, who said society must “wean” itself off of fossil fuels and toward other energy sources such as rewewables, said it will take a viable economy to be able to deal with the problem.

“If you shut down the economy,” Cox said, “that will take people’s minds off global warming quickly.”

 Another group that was apparently pleased with Johnson’s decision was the Heritage Foundation, a conservative think tank. The Los Angeles Times reported that official of the organization said it had spent months sending detailed legal analyses and memos to government officials noting the Supreme Court decision could have widespread impacts on businesses. An EPA spokesman, the paper reported, said Johnson had acted independently.

Backers of the Kansas bill had noted that it included other provisions that could have boosted other elements of the state’s renewable industry. Builders of the project also included plans for a bioenergy center that would capture some of the carbon dioxide and used it to grow algae for fuel.

But in her public statement and veto message, Sebelius cited not only the threat of climate change to her agricultural state but also the potential for federal legislation, which she did not specifically name, that would “have the net impact of taxing carbon.” That description could apply to proposals such as the Lieberman-Warner bill that would establish a cap-and-trade program for greenhouse emissions. Sebelius said the new plants permitted under the Kansas bill would have produced 11 million new tons of carbon every year. Building new coal plants “is likely to create a significant economic liability for Kansas in the future.”

She also had this to say about wind generation:

“I am encouraged that the Legislature made a modest attempt to address some of our alternative energy assets, but this bill fails to promote our wind assets and sends the wrong signal to potential investors for transmission lines and additional wind power.

“The new feature of net-metering does not include wind power which could have served as a powerful incentive to individuals and communities to embrace our most abundant natural resource.”

Sebelius also signed an executive order (see text) creating a new advisory group to explore strategies for reducing greenhouse emissions and protecting the economy. She named Jack Pelton, president of Cessna Aircraft Company, to head the group.

In a statement, Earl Watkins, president of Sunflower Electric Power Corporation, one of the companies that had hoped to build the 1,400-megawatt project, said the veto would “unnecessarily raise electric rates” for the state’s residents (see project description).

“We are experiencing significant growth on the Sunflower system, and we must add new coal generation to support our existing natural gas and wind generation assets,” Watkins said.

The Utah conflagration brewed up over the EPA's issuance last August of a permit allowing Deseret Power Electric Cooperative to add a 110-megawatt unit to its existing Bonanza power plant. Such "prevention of significant deterioration" permits are issued for larged stationary facilities. The decision came just months after the U.S. Supreme Court weighed in on the issue of the EPA’s authority to regulate greenhouse emissions in its Massachusetts v. EPA decision. Although the court held that greenhouse gases could be regulated as air pollutants, the EPA has yet to decide what to do.

Citing that ruling, which came in the context of a dispute over automobile emissions, the environmentalists including the Sierra Club appealed the decision through the agency’s internal processes. Those groups claim the EPA must establish new controls on carbon dioxide emissions for the project. From the Sierra Club brief (see text here):

“On April 2, 2007, the Supreme Court held that carbon dioxide and other greenhouse gases are ‘pollutants’ under the Clean Air Act. Massachusetts v. EPA, 127 S.Ct. at 1460. Now having been definitively ruled a pollutant, [carbon dioxide] is accordingly a regulated pollutant under the act and EPA is required to impose [carbon dioxide best available control technology] emission limits in the Bonanza [prevention of significant deterioration] permit.”

The EPA, however, has maintained that carbon dioxide “is not currently a pollutant regulated" under the federal Clean Air Act. In its response to the appeal, the agency cited a 1993 memorandum in which its attorneys concluded carbon dioxide was not subject to the EPA’s regulatory authority.

Last week, a coalition of trade groups representing a cross-section of energy and manufacturing, weighed in against the environmentalists’ position. In a brief (see text here) to the EPA the groups argued that the Supreme Court decision addressed only the government’s authority to regulate emissions from new motor vehicles. A finding requiring them to be covered for facilities such as Utah’s, they argued, would cause “a huge expansion of the number of sources and activities” that would require permits, which officials would not have the resources to process.

Quentin Riegel, deputy general counsel for the National Association of Manufacturers, one of the groups filing the brief, in a statement predicted “an impassable regulatory gridlock” would develop if the Sierra Club won.

But the environmental groups also had powerful allies. In another brief, eight states, including California, New York and Massachusetts, backed the environmental groups. They argued that the Supreme Court ruling “conclusively” established the EPA’s authority to regulate greenhouse emissions for the project and that the 1993 interpretation “did not survive” the court ruling.

See the EPA’s docket, with links to all the filings in the matter, here.

(Official press photo: Gov. Kathleen Sebelius)

The first report, issued by the nonprofit Environmental Integrity Project, discovered in the EPA data a nearly 3 percent increase in carbon dioxide emissions. It said that was the biggest one-year increase in nearly a decade. It also found that California, often viewed as a leader in greenhouse emissions-cutting efforts, was one of the ten states with the largest increases between 2006 and 2007. The others were Texas, Georgia, Arizona, Pennsylvania, Michigan, Iowa, Illinois, Virginia and North Carolina. However, the report noted that California generates significantly less carbon dioxide per megawatt of electricity than the national average. The report largely was based on the EPA’s “Clean Air Markets” database and it also cited information from the energy department.

It contrasted with the earlier government report, which included figures up to the year 2006. That report, which considered emissions from a wide variety of human sources, showed an overall reduction of about 1.5 percent in greenhouse gas emissions between 2005 and 2006. Among other information, it showed about a 2 percent drop in carbon dioxide emissions from fossil fuel combustion to generate electricity, and a slightly lower reduction from such emissions from all fossil fuel burning. The report attributed the figures, which came against a history of generally rising emissions since 1990, to a variety of reasons related to the weather, the economy and increased uses of natural gas and renewable sources for power generation. It was not immediately known whether the two reports’ estimates of power plant emissions were directly comparable.

Eric Schaeffer, the founder and director of the Environmental Integrity Project, in the organization’s statement announcing its report described its findings in cautionary terms:

“The current debate over global warming policy tends to focus on long-term goals, like how to reduce greenhouse gas emissions by 80 percent over the next 50 years. But while we debate, carbon dioxide emissions from power plants keep rising, making an already dire situation worse. Because carbon dioxide has an atmospheric lifetime of between 50 and 200 years, today’s emissions could cause global warming for up to two centuries to come.”

The report said the data "make clear why national environmental groups have expended so much effort trying to stop the construction of a new batch of conventional coal-firec power plants, which would make a bad situation worse."

Until 2002, Schaeffer directed the EPA’s office of regulatory enforcement. He left the agency in a dispute over what he considered the Bush administration’s laxity in enforcing air pollution laws.

The energy department report, originating from the Lawrence Berkeley National Laboratory, examined the plans made by 15 private and public utilities in the West for how they might deal with a new era of carbon regulations and costs. It discovered wide variances in their assessments but it concluded that they might have too rosy a picture of carbon prices under such mechanisms as a cap-and-trade system. Such programs are widely believed to be on their way as individual states go forward with greenhouse gas reduction plans and regional entities, such as the Western Climate Initiative develop their own strategies, including a market. Congress is also exploring legislation to establish a national market.

“Most utilities’ base-case carbon price assumptions are near the low end of the spectrum” compared to those developed by the energy department’s Energy Information Administration, the report said. It said most of the utilities analyzed their prospective portfolios’ costs in light of future carbon regulations. But it seemed to warn that they might be taking too narrow a view, and it also explicitly noted that planners were often ignoring indirect impacts that could flow from carbon regulations such as changes in wholesale electricity market prices, coal plant retirements and capital costs of generation. The report recommended that utilities take a close look at what the future might hold:

“Given the potentially far-reaching financial consequences, utilities shold consider the potential cost sof future carbon regulations – and the uncertainty of that cost – when developing their long-term resources strategies. The starting point in this process is to develop specific assumptions about the nature and timing of future carbon regulations that might realistically be implemented, at either the state or federal level, over the lifetime of the investments considered in the plan.”

It recommended that utilities evaluate their portfolios “across a broad range of carbon emission price projections” and that they consider evaluating “a diverse set of low-carbon” resources and look at portfolios “that include the maximum achievable energy efficiency potential.” In fact, the report discovered that utilities may already be moving in that direction, reporting:

“Energy efficiency and renewable generation are the dominant low-carbon resources being pursued by utilities in the West. All utilities selected preferred portfolios that include an expansion to utility-funded energy efficiency programs and new renewables, and half of the utilities selected portfolios in which energy efficiency and renewables together provide 50 percent or more of all incremental resource needs.”

The report also found only limited interest in nuclear power and carbon sequestration. But it found that most had included natural gas.

(Wikipedia photo: Castle Gate Power Plant, Utah)

The report came on the same day Lehman found itself embroiled in the continuing Wall Street jitters over the stability of financial firms. The New York Times reported the firm’s stock fell 20 percent by the end of the day Monday. On Tuesday, the company reported a first-quarter net income of $489 million, a 57 percent drop compared to last year's first quarter.

Announcement of the new environmentalist-industrialist ad campaign comes as discussion over the economic impact of addressing climate change heats up in advance of the anticipated June debate in the Senate over the Lieberman-Warner Climate Security Act. Last week, the National Association of Manufacturers and the Environmental Protection Agency released separate reports assessing the economic price tag from the legislation, sparking a spirited debate (see previous story). The legislation is named for its primary sponsors, Sens. Joseph Lieberman, an independent of Connecticut, and John Warner, a Virginia Republican.

In a statement, the Environmental Defense Action Fund, which is the non-tax-exempt lobbying arm of the Environmental Defense Fund, said that the industrial executives believe that “solving climate change is an opportunity to jumpstart the U.S. economy" and that quick action by Congress means "America can own the energy technologies that will power" the century.

"Amid a heated national debate over job losses, the business leaders point to the job-creating power of a national cap on global warming pollution,” the statement said.

The ads feature Chief Executive Officer Robert Lane of Deere, which is a major manufacturer of farming equipment and fellow CEO Alexander Cutler of Eaton, a company that produces devices that can improve the energy efficiency of buildings.

(Photograph of Sen. Joseph Lieberman via Wikipedia)

Environmentalists were more split on the EPA study, however, with Environmental Defense saying it showed the economy could grow substantially while controlling emissions, and the Natural Resources Defense Council accusing the agency of hiding the key conclusions that demonstrated emissions reductions are affordable. 

Under the Lieberman-Warner bill, known as the Climate Security Act, greenhouse emissions from major economic sectors, including electric power, transportation, manufacturing and natural gas would be capped and gradually reduced. It also would establish a trading program for emissions credits. Backers of the legislation have estimated it would reduce emissions by as much as 66 percent from 2005 levels by 2050. The full Senate is expected to take up the bill, which some environmental groups want to strengthen, in June.

The EPA report also did not discuss the economic benefits of reducing emissions. But the other newly released government analysis suggested those could be substantial. The study prepared by the U.S. Climate Change Science Program and the U.S. Department of Transportation and made public earlier in the week (see press release here) predicted global warming could pose huge threats to the Gulf Coast region. Those included increased intensity of hurricanes, sea level increases of up to seven feet, endangering roads and other infrastructure and the inundation of a “vast portion” of the coast from Houston, Texas, to Mobile, Alabama. One group said the government appeared to be trying to release the report in a way to minimize public notice. The report noted that about two-thirds of the nation's oil imports pass through the region, and that it is home to the largest concentration of freight-handling ports in the country. It painted the threat to the region's transportation network in stark terms:

"Warming temperatures are likely to increase the costs of transportation construction, maintenance, and operations. More frequent extreme precipitation events may disrupt transportation networks with flooding and visibility problems. Relative sea level rise will make much of the existing infrastructure more prone to frequent or permanent inundation – 27 percent of the major roads, 9 percent of the rail lines, and 72 percent of the ports are built on land at or below 122 cm (4 feet) in elevation. Increased storm intensity may lead to increased service disruption and infrastructure damage: More than half of the area’s major highways (64 percent of Interstates; 57 percent of arterials), almost half of the rail miles, 29 airports, and virtually all of the ports are below 7 m (23 feet) in elevation and subject to flooding and possible damage due to hurricane storm surge."

The EPA's analysis of the climate change bill, which also did not factor in last year’s energy conservation legislation that, among other things, required better gas mileage in cars, some  impacts were potentially more significant than the business groups’ figures showed. The EPA compared a variety of scenarios to a baseline that assumed compliance with existing domestic and international policies but no new ones after 2007.

 According to the EPA, by 2030, the Liberman-Warner bill could reduce the nation’s GDP by as little as less than 1 percent to as much as nearly 4 percent, or $983 billion, compared to what it would be otherwise. The business groups’ report showed a maximum impact of about 2.7 percent by 2030.

On the other hand, the EPA report also predicted there might be no flight of emissions to other countries, known as “leakage,” as energy prices rise. It also predicts that the use of fossil fuels might peak as soon as 2010, followed by a slow decline to 2050. It also shows renewable sources, such as wind and solar, playing a “significant role” if the bill were enacted. Among other highlights of the report, which were also outlined in a letter to Lieberman from Robert J. Meyers, the EPA’s principal deputy assistant administrator, the bill could reduce emissions by up to 56 percent by 2050, a slightly lower estimate than that put forward by the legislation’s sponsors, and it cites the electricity sector as providing the greatest source of emissions reductions. The report also suggested that technology to capture and store carbon could deploy by as early as 2020.

Meyers' letter also promised that the EPA would issue a revised analysis in May or June, showing the effect of the new energy law. 

In a joint statement responding to the EPA’s analysis, the senators focused on findings under certain scenarios studied by the EPA that they said showed the economy would grow almost as fast with the legislation in place as without it, that greenhouse emissions would not be shifted abroad, and that that other benefits would occur, such as driving natural gas out of the electricity sector, to the benefit of manufacturers who use gas.  

“EPA’s detailed analysis indicates that the U.S. can curb global warming without sacrificing economic prosperity,” Lieberman said in the statement. “We will examine the results closely for improvements that they might suggest for the bill.”

Warner said the results also indicated that greenhouse gases could be controlled “in a manner that leaves the economy whole and is not burdensome on consumers.”

(Wikipedia Photo: Hurricane Katrina damage to New Orleans)

Although some groups, including those concerned about pollutants affecting poor and minority populations, have opposed cap and trade markets, the idea has gained support among other environmentalists and business groups. Peevey strongly backed the approach in remarks before the commission voted Thursday:

“A cap and trade program is likely to produce additional emissions reductions beyond the mandatory programs, it can tackle a wider variety of sources, potentially at a lower cost. It also encourages investment in innovative technologies that lower greenhouse gas emissions.”

But Peevey acknowledged that officials have only just begun to take on what he called the “thorny issue of allocation,” referring to the critical question of how emissions credits or “allowances” will be distributed among those producing greenhouse gases. Under a cap and trade system, credits represent the right to emit a certain amount of greenhouse gases. The document approved by the two commissions recommends that some credits be auctioned, suggesting that the money be used to benefit ratepayers or support energy efficiency and renewable energy investments. But it does not resolve important questions such as what proportion of the credits should be auctioned and how many sold or given away for free:

"Based on the current record, we are not able to determine the proper
relative roles of auctions and administrative allocation of allowances in a
deliverer-based system. Several parties recommend that there be a gradual
transition over several years from relatively more administrative allocations
initially to relatively greater reliance on allowance distribution via auctions.
Distributing some amount of allocations administratively in the early years of
the program could reduce the immediate impact on entities that would bear the
costs of obtaining allowances, and would give them more time to develop
emission reduction strategies. Based on the current record, it may be reasonable
to provide a transition from small amounts of auctioning in the early years to
greater amounts in later years. However, we require more analysis before
making a determination on this issue."

Peevey, during his presentation, said it would not be the commissions’ intention to punish utilities based on their past investments or decisions made prior to the passage of AB 32. However, he cautioned that the state’s retail electricity providers “are starting off in very different positions” with respect to their emissions. He noted, for instance, that some large public utilities spew twice as much carbon dioxide per unit of energy produced than do the state’s private utilities and some other public entities.

The allocation recommendation is expected to be addressed in a subsequent document to be ready in August.

Although other commission members lauded the recommendation, Commissioner Timothy Alan Simon expressed some concerns about the potential impact on municipally owned utilities. He said he would “closely monitor” the next phase to make sure that those utilities, over which the commission has no regulatory authority, are “treated fairly.”

“Clean energy has moved from the margin to the mainstream and the proof is in these numbers,” Pernick said in a statement announcing the report. “Amid last year’s plummeting housing prices, rising foreclosure rates and record high oil prices, clean energy continued to provide a bright spot in an otherwise sluggish economy.”

Wind constituted the largest component of the global increase in capacity, REN21 reported; solar voltaics connected to the grid comprised the fastest growing energy technology. The United States was the leader in new wind capacity added each year, as well as ethanol production, according to REN21. Clean Edge, meanwhile had figures showing wind power sales jumped by an estimated 68 percent in 2007 to $30.1 billion compared to a year earlier, equalling the generation of 20 conventional fossil-fueled plants.

Ethanol production also spiked in the United States, according to another report, this from the Renewable Fuels Association, an industry group. It estimated that the country produced 423,000 barrels of ethanol per day, an increase of more than 34 percent from a year earlier (see press release and economic report).

Meanwhile, a California company, Ausra, Inc., issued a report (view press release and report here), which concluded that more than 90 percent of the United States electrical grid and auto fleets’ energy needs could be met by solar thermal power. The company happens to be the developer of such technology, which uses fields of mirrors to generate heat and drive steam turbines.

Several forces appeared to be driving the global renewable industry’s numbers, experts noted. According to New Energy Finance’s press statement:

"Among the key factors pushing [the] numbers sharply upwards in 2007 were government policies around the world to promote renewable power and cleaner fuels, oil prices approaching $100-a barrel and rising corporate and investor awareness of the opportunities in clean energy.

One of the themes of 2007 was geographic diversification. Western Europe and North America continued to enjoy sharp increases in VC/PE, public market and project investment – but the momentum spread out to include other developed economic regions such as Eastern Europe and Australia. Even more significant was the pick-up in activity in emerging economies, with China moving strongly ahead with projects in wind, biomass and energy efficiency, Brazil seeing huge investment interest in its sugar based ethanol sector, and Africa starting to see renewable energy and efficiency as partial answers to its power shortages."

In speaking to Climate Law Update, Clean Edge's Pernick also cited the fact that while the costs of fossil fuels were on the rise, the technology used for wind and solar is getting cheaper. In addition, he said many governments are taking steps, such as imposing renewable portfolio standards requiring utilities to supply customers a certain amount of power from renewable sources. The governments, he said, are interested in attracting jobs and other economic gains.

“They’re competing to be clean tech leaders,” Pernick said.

He also noted that to reduce greenhouse gas emissions, public officials are moving toward establishing a price on carbon, either through cap-and-trade systems or other market means.

“There’ll be mandatory markets,” he said.

Investment, said experts such as Micael Liebreich, chairman and CEO of New Energy Finance, must accelerate. While 2007 was strong, he said in the company's statement, “on our estimate a further, fivefold increase is required for major countries to meet their own ambitious targets for reductions in greenhouse gas emissions.”

Clean Edge’s report, however, also warned that some clouds remain on the horizon. Those include the rising impact of biofuel production on food supplies and commodity agriculture prices and the uncertainty over production tax credits for renewables. And, despite the recent gains in renewables, they still represent only about 3.4 percent of global power generation, according to the REN21 report. That doesn’t include large hydropower projects, accounting for about 15 percent of the generation total.

Which brings us to Hoover Dam. And another new report, this one prepared by researchers at the Scripps Institution of Oceanography. According to a statement from the American Geophysical Union, which has accepted the paper for publication, the Scripps researchers have put 50-50 odds on Lake Mead, which lies behind the dam, running completely dry by 2021, given expected climate change scenarios and if future water demands are not reduced. That’s, of course, bad news for hydropower, since water from the lake pouring through turbines generates enough electricity for an estimated 1.3 million people in the West.

Meaning there might be even more riding on the development of the renewable industry.  

(Photo of Hoover Dam: U.S. Bureau of Reclamation)