Climate Change Legislation
On Friday the U.S. House of Representatives approved the American Clean Energy and Security Act of 2009, a bill to establish a far-reaching program to control U.S. emissions of greenhouse gases (GHGs). The vote was 219-212 with only eight Republicans voting in favor of the bill and 44 Democrats opposing it. The bill adopts a cap-and-trade program designed to reduce U.S. GHG emissions by 17% below 2005 levels by the year 2020, and by 83% by 2050.
The bill seeks to fulfill an important campaign promise by President Obama by having the U.S. join the ranks of all other developed nations who have committed to control their GHG emissions to reduce the severity of climate change. President Obama has asked Congress to enact such legislation by December when the nations of the world will meet in Copenhagen to adopt a successor to the Kyoto Protocol.
To win acceptance in the House many compromises had to be made. Instead of auctioning off all emissions allowances, as President Obama had advocated, the bill distributes 85% of them for free to various entities, including electric utilities, in order to reduce their compliance costs. To mollify farm interests, it gives the Department of Agriculture, instead of EPA, responsibility for certifying by projects that offset GHG emissions. A few environmental groups, such as Greenpeace, opposed the legislation as not strong enough, but most argued that it is better than not having any legislation to control GHG emissions.
The debate on the House floor, and the near party-line vote, illustrated how polarized the debate over climate change has become. Some opponents of the bill denounced the concept of climate change as junk science and argued that the legislation would cripple an economy that already is reeling. I was reminded of the dire predictions made by the opponents of the 1990 Clean Air Act Amendments, which established a national cap-and-trade program to reduce emissions of sulfur dioxide. Opponents of that legislation, citing a group of Nobel prize-winning economists, also forecast dire economic consequences and argued that the U.S. could not afford it on the eve of the first Gulf War. Yet that legislation has produced enormous net benefits, as even OMB agrees.
The bill now faces a difficult fight in the U.S. Senate where it will be necessary to win 60 votes to overcome a Republican filibuster. Legislation that imposes short-term costs for long-term benefits is always a difficult political sell. Thus, many environmental laws were adopted only after highly publicized environmental disasters and Congress often exempts existing sources from new pollution controls. A basic flaw in the original Clean Air Act was that it indefinitely exempted existing power plants from the new pollution control standards it imposed on new plants. This encouraged companies to go to extraordinary lengths to extend the lives of existing plants, causing far more pollution than anticipated. A much better approach was adopted by Congress in the Oil Pollution Act when it phased in new double hull requirements for oil tankers based on the age of existing ships.
The climate bill approved by the House responds to concerns that countries that fail to control their GHG emissions could gain a competitive advantage over U.S. industries by authorizing a form of carbon tariffs to protect industries that face such competition. In a report issued on Friday, the World Trade Organization (WTO) and the UN Environment Programme (UNEP) suggested that carbon tariffs may be acceptable under existing WTO rules to level the playing field between domestic industries that have to control their GHG emissions and foreign competitors who do not. A copy of the report, WTO & UNEP, Trade and Climate Change (2009), is available at http://www.wto.org/english/res_e/booksp_e/trade_climate_change_e.pdf.