Hurry up and wait on Lieberman-Warner climate bill

Update: the Bill's new number, with Boxer amendments, is S. 3036. See the updated analysis here.

Should the US pass landmark greenhouse gas emissions legislation this year or wait until we have a new administration that will support stronger legislation? There are pros and cons to both arguments.

S. 2191: America's Climate Security Act of 2007, also known as Lieberman-Warner, would cap greenhouse gas emissions from certain industries and allow for trading within the cap to establish a market price for carbon credits. Groups like Environmental Defense (ED) have worked very hard to develop this bill, but a number of groups are against the bill in its current form. Friends of the Earth have put out a commercial, which urges Congress to "fix or ditch Lieberman-Warner". The problems, with quotes from The Congressional Research Service (CRS) bill summary, are that:

1. The bill gives away some free carbon credits which industries could sell and make a profit on. This could be a windfall for a company like Exxon-Mobil, if it did not need to use all of its credits. The bill "provides for the distribution of emission allowances, including initially giving allowances to: (1) specified owners and operators of covered facilities; (2) states; (3) load-serving entities that deliver electricity to retail consumers; (4) the Secretary of Agriculture to reduce GHG emissions in the agriculture and forestry sectors; (5) international forest protection activities; and (6) the Emission Allowance Account for covered facilities in the electric power and industrial sectors."
2. A number of industries that contribute a significant amount of greenhouse gases are exempt from the legislation as it stands. "Covered facilities includ[e] specified facilities within the electric power and industrial sectors and facilities that produce or entities that import petroleum- or coal- based transportation fuel or chemicals."
3. The legislation provides huge subsidies to the coal industry including an "advanced coal and sequestration technologies program." It also "requires the Secretary of Energy to study the feasibility of the construction of: (1) pipelines for the transportation of carbon dioxide for sequestration or enhanced oil recovery; and (2) geological carbon dioxide sequestration facilities...[and] Directs the Administrator to establish a task force to study the cost implications of potential federal assumption of liability with respect to closed geological storage sites."
4. The legislation subsidizes agriculture and forestry sequestration offsets, some of which are problematic because they involve short-term carbon storage, can be difficult to account, and need excellent monitoring and maintenance to be successful [On the other hand, these subsidies help the US to compete with other countries that may not have the same environmental standards].

ED argues in its Climate 411 blog that the price of waiting even two years at this point is too high. They refer to "the national allowance account for the years 2012 - 2020 from the S.2191 as reported out of the EPW Committee [in the attached graph]. The emissions growth from 2005 to 2013 is assumed to be 1.1 percent (an average of the 2004 and 2005 rate reported by the EPA [PDF])." They also quote studies showing the cost of inaction:

"A recent report by the University of Maryland found that 'negative climate impacts will outweigh benefits for most sectors that provide essential goods and services to society.' For example, "New York State’s agricultural yield may be reduced by as much as 40%, resulting in $1.2 billion in annual damages."

"A more detailed study of Florida reached similar conclusions. Economic damage to just three sectors - tourism, electric utilities, and real estate - combined with hurricane damage would shrink the state’s gross domestic product by more than 5 percent by the end of this century. "

"A study by McKinsey & Company also warns about the high cost of delay. Greenhouse gas abatement can be highly affordable, but won’t remain so forever. From the executive summary: 'Many of the most economically attractive abatement options we analyzed are ‘time perishable’: every year we delay producing energy-efficient commercial buildings, houses, motor vehicles, and so forth, the more negative-cost options we lose.'"

It is possible to begin a trading system and change the rules of the game over time. For example, if companies suddenly report that they don't need all of their permits, the permitting authority in the next round could issue significantly less permits.

There are also efforts supported by Obama and Hillary to auction 100% of permits and include more polluting industries. Such a corrected version of the bill would almost certainly not pass in the current Congress. It is unclear if the House will vote to support the bill in its current form this year anyway (though it has passed in the Senate). The current version of the bill ironically has some support at the corporate level because of the giveaways implicit to the proposed scheme and the fear of more stringent regulation in the future if legislators wait. The backlash against a more stringent bill in the near future may make it impossible to pass. As long as the American Public hires legislators that are shills for the oil, gas, and coal industries, this problem will be unavoidable.

There is also a certain amount of uncertainty as to how much the cap-and-trade system will negatively impact industry. Industry, of course, is keeping its cards close to its chest. Should the competition for credits create heavy costs, the costs of items the public uses (like oil and gas and electricity) could rise significantly. In the past, markets for pollutants were not as competitive as regulators thought they would be; companies cried that they would go broke from the regulations until the regs actually took place and the markets lagged due to lack of demand. The impact to regulated industries, largely since they are such a bunch of liars, is not completely known.

The bill also highlights a widening argument in the Republican Party about the need to address greenhouse gases. John McCain is a huge supporter of this bill, many Republican industrialists are reluctantly pushing for it, and yet the Republican base still has yet to acknowledge the existence of global warming as anything other than a gigantic hoax of the liberal establishment.

Should we pass Lieberman-Warner this year? It's a really tough call. I agree with ED that the bill should be passed in the current year, so long as the permitting authority reserves the right to change the system at regular intervals. Congress should also reserve the right to heavily tax windfall profits from the sale of carbon credits and should use its experience with auctioning permits under the Clean Air Act to correct some of the problems from those trading programs.