House Energy and Commerce Committee Proposes Climate Change Legislation Framework

The House Committee on Energy and Commerce and its Subcommittee on Energy and Air Quality issued the first in a series of white papers that will outline designs for complicated climate change legislation and regulation. The first white paper, released Oct. 3, outlines a design for a cap-and-trade program covering major greenhouse gases (GHG) that would form the cornerstone of comprehensive federal climate change legislation.

In a letter to all the committee members, John Dingell (D-MI) and Rick Boucher (D-VA), chairs of the committee and subcommittee, respectively, announced the series of papers to "focus the discussion in the Committee as we move to the development and eventual passage of comprehensive climate change legislation. It is worth noting that while the use of white papers is not a policy-making tool frequently used by the Committee, this topic in its scope and complexity is unlike any we have confronted and time is of the essence."

The white paper addresses key components of a climate change program as well as specific elements of a cap-and-trade program. Some of the components outlined in the paper include:

     

  • The U.S. should reduce its greenhouse gas emissions between 60 and 80 percent by the year 2050;
  • The federal program should be an economy-wide, mandatory reduction program;
  • A cap-and-trade program should be the main component of this reduction program; and
  • The program should obtain the maximum emissions reduction "at the lowest cost and with the least economic disruption."

 

Carbon dioxide, methane, nitrous oxide, and fluorinated gases are the four gases the program will cover. These gases are produced by electricity generation, transportation, industrial processes, and commercial, residential and agricultural sectors. The white paper identifies these sectors of the economy as those that need to be covered by the climate change program.

Cap-and-trade systems are common market-based approaches to regulating pollutants. According to the committee's paper, one advantage of this type of program is the certainty that the targeted reductions will be reached. Other methods, such as setting standards, may limit the rate of pollution that can be emitted by a source but do not address total pollution limits (a cap), so the amount of pollution may increase as the number of sources increases. Another benefit of a cap-and-trade program is the economic incentives it creates for industries to find the least expensive method of achieving the required pollution reductions. Companies that can achieve reductions at relatively low costs can then sell (or trade) their pollution permits to other companies.

Cap-and-trade programs require accurate accounting of emissions levels and an understanding of the place in the chain of economic activity that is the best point to track the emissions. To use this type of emissions reduction strategy successfully, any legislation must recognize that the sectors of the economy are very different. Thus, it may make sense to allow trading at the point where a fuel is produced or at a point further "downstream" in the chain of economic activity.

The white paper addresses these complexities and describes how the cap-and-trade program should cover each economic sector. For example, for electricity generation, the generators would become the point of regulation where emission caps and trading allowances are set. In the transportation sector, however, because emissions come from so many mobile sources like cars, planes and trucks burning petroleum-based fuels, the point of regulation might be vehicle manufacturers or further upstream to petroleum refiners and importers.

In addition, the paper recognizes that multiple approaches are needed to address the complexities associated with regulating GHGs. The committee plans to issue more white papers that will address additional elements of the cap-and-trade approach, carbon sequestration and other complementary approaches. For example, the paper states that the federal government should "distribute allowances" (the pollution permits), but it does not outline whether these initial allowances are to be sold or would be free. Presumably, these and many other details will be addressed in subsequent white papers.

The committee also plans to hold hearings on the white papers. No timetable for hearings or for introducing legislation was put forward by the committee. There are other congressional committees with jurisdiction over individual parts of the issues contained in the design framework, and several other legislative proposals have already been introduced, so it is unlikely that legislation will pass soon.

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