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How Should the U.S. Apportion the Right to Pollute?

House Democrats have come up with a plan to hand out and auction allowances to emit carbon dioxide
house-of-representatives



White House photo 2/24/09 by Joyce N. Boghosian

Democratic leaders of the House Energy and Commerce Committee have reached agreement on the distribution of hundreds of billions of dollars in allowances that would be used for compliance with a new U.S. climate policy, according to a summary of their proposal.

Reps. Henry Waxman of California and Ed Markey of Massachusetts circulated the proposed allowance allocations last night to committee Democrats ahead of next week's planned markup of the climate and energy bill. The complete legislative text, expected to fill about 1,000 pages, will be released later today, Democratic aides said.

In their summary, Waxman and Markey explain that they are trying to accomplish three goals with emission allowances: "to protect consumers from energy price increases, to assist industry in the transition to clean energy economy and to spur energy efficiency and the development and deployment of clean energy technology."

The allowance-allocation proposal comes after months of negotiations among Democratic lawmakers and outside interests trying to grab pieces of the allocation pie. President Obama campaigned for the White House last year seeking a complete 100 percent auction of cap-and-trade allowances, but he has since acknowledged that compromise was necessary to get agreement on the legislation.

Republicans have continued to criticize the legislative process, with Rep. Joe Barton (R-Texas), the ranking member on Energy and Commerce, insisting that Democrats were buying votes by handing out allowances. Barton has predicted that Democrats would make too many promises and give away more than they have.

"I don't see how Henry and Ed put the genie back in the bottle," Barton told reporters.

But aides to Waxman and Markey said today the allowance breakdown totals up to 100 percent, starting in the cap-and-trade program's opening year, 2012, with 85 percent given free and an auction for the remaining 15 percent.

Here's how the Democrats would divide the credits:

The electric utility industry, which produces the largest share of U.S. greenhouse gas emissions, would receive 35 percent of the allowances for free. More specifically, state-regulated local electric-distribution companies will get 30 percent of the credits, with a stipulation that they must use the funds to protect consumers from electricity price increases. Merchant coal and long-term power producers will get the remaining 5 percent of the allowances. All of the utility sector credits will be distributed according to a formula suggested by the industry, split along historic emission levels and retail sales. Credits will be phased out between 2026 and 2030.

Local natural gas distribution companies would get 9 percent of the allowances, with a requirement that state-regulated firms use the funds to protect consumers from natural gas price increases. The free allowances will be phased out between 2026 and 2030.

States would get 1.5 percent of the allowances for programs to benefit users of home heating oil and propane, an issue of primary concern in the Northeast. The free allowances will be phased out between 2026 and 2030.

Democrats plan to begin auctioning 15 percent of the allowances around 2011, with the proceeds directed toward low- and moderate-income families. The funds would be distributed via tax credits, direct payments and electronic benefit payments -- which is similar to how states now process food stamps and other low-income assistance programs. Unlike the free credits, the payments will not phase out. U.S. EPA would have a year to set up the program following enactment, with the first compliance auction beginning in 2012. The House Ways and Means Committee must sign off on this provision.

Energy-intensive industries, including pulp, paper, cement and steel, would get free credits -- 15 percent starting in 2014 but phasing out by about 2 percent per year. The allowances will be phased out after 2025. Also, the bill would give the president authority to impose tariffs on carbon-intensive goods from developing countries.

Oil refiners will get 2 percent allowances for free, starting in 2014 and ending in 2016.

Carbon capture and storage efforts would get a boost from the bill, with 2 percent of the allowances from 2014 to 2017 and 5 percent from 2018 and beyond. Democrats say the allowances will help electric utilities "cover the cost of installing and operating carbon capture and sequestration technologies."

States would get free allowances to invest in renewables and energy efficiency. More specifically, they would get 10 percent from 2012 to 2015, 7.5 percent from 2016 to 2017, 6.5 percent from 2018 to 2021, and 5 percent after that.

The battered auto industry would get 3 percent of the allowances through 2017 and 1 percent from 2018 to 2025. The allowances must be used for increased production of electric and advanced vehicles. Rep. Bart Stupak (D-Mich.) said today several Democrats were considering an amendment on this provision that would set additional criteria on auto manufacturers to keep them from shifting their production out of the country.

"Clean Energy Innovation Centers" would get 1 percent of the allowances for research and development at universities and institutions.

Efforts to prevent tropical deforestation would see 5 percent of the allowances from 2012 to 2025, 3 percent from 2026 to 2030, and 2 percent from 2031 and beyond. Democrats said the free allowances would lead to the equivalent of a 10 percent reduction in U.S. greenhouse gas emissions by 2020, compared to 2005 levels.

Domestic adaptation efforts would get 2 percent of the allowances from 2012 through 2021, increasing to 4 percent between 2022 and 2026 and to 8 percent in 2027 and beyond. Half of the allowances will go toward wildlife and natural resource protection, while the other half are directed to other areas, such as public health.

International adaptation and clean technology transfer would get 2 percent of the allowances from 2012 to 2021, increasing to 4 percent from 2022 to 2026 and then to 8 percent in 2027 and beyond. Democrats would split the allowances 50-50 between the two goals.

Worker assistance and job training would get 0.5 percent of the allowances from 2012 to 2021, increasing to 1 percent after that.

Democrats say that some of the remaining, unallocated allowances will be auctioned off, with the revenue directed to the Treasury to ensure the bill is deficit neutral. "We're taking our CBO haircut," a House Democratic aide said yesterday, referring to the Congressional Budget Office. Any additional allowances would also be used for consumer protection.

Click here for the Democratic allowance-allocation plan.

Reprinted from Greenwire with permission from Environment & Energy Publishing, LLC. www.eenews.net, 202-628-6500

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