U.S. climate bill set for vote: watch and learn, Canada

Professional climate policy wonks are watching the spectacle south of the Canada-U.S. border, where a House bill on climate change will receive its first major political test Friday. Political wrangling over what industries get covered (or hit, depending on your perspective), and how they are covered (or hit) has virtually ensured that the bill will be fairly innocuous in the U.S. Its impact on other countries, like Canada, may be different.

The bill, sponsored by Democrat congressmen Henry Waxman and Edward Markey, features a federal-level cap-and-trade system similar to the Regional Greenhouse Gas Initiative (RGGI). Republicans are unanimously opposed to the bill, which is no surprise. This makes the support of coal-state and farm-state Democrats all the more critical.

Both have won important concessions. For the coal-staters, the biggest concession, paradoxically, has been the bill’s centerpiece cap-and-trade provision. As I have said, politicians love cap-and-trade because the cap part of it is tunable: to soften the financial impact on consumers of fossil energy, you just need to be flexible with the cap—i.e., set it higher rather than lower. This ensures that the carbon allowances, which are the financial instruments that underpin the system, stay cheap in the carbon marketplace where heavy emitters go to buy allowances.

This allows cap-and-trade proponents to say they are pro-market, but in truth they control the levers that drive that market.

You can read the coal and farm lobbies’ victories in a statement from the president, who said two days ago the Waxman-Markey bill will “finally spark a clean energy transformation that will reduce our dependence on foreign oil and confront the carbon pollution that threatens our planet” (see article). While “foreign oil” plays a role, America’s biggest single source of greenhouse gases (GHGs), by far, is coal-fired power generating plants, which crank out trillions of kilowatt-hours of electricity and billions of tonnes of GHGs every year.

As I have pointed out elsewhere, low-priced carbon allowances favour coal over natural gas. And though the price of gas is unusually low today (less than $4 per million Btu), everybody expects it to rise again. That’s why the only company that has launched legal action against RGGI is a gas-fired generator. That case is before the New York State supreme court.

It’s the “foreign oil” in the president’s words that has some Canadians nervous.  Both Waxman and Markey are proud and relentless climate warriors. Both must be irritated at watching their bill’s teeth get yanked out, one by one, by opponents weilding the pliers of political reality.

(An indication of the kind of support they can expect came last Monday from Democrat senator Jeff Bingaman, who appeared on PBS’s Nightly Business Report to ostensibly support the bill; click here to watch the video. Other than a vague call for a renewable portfolio standard in electricity generation—another measure designed more to help its proponents score points for political correctness than to actually reduce emissions; see article—it is hard to tell from Bingaman’s commentary whether he even supports Waxman-Markey. And he was on PBS to give the “pro” side of the story.)

Waxman is the author of the famous section 526 of the 2007 Energy Independence and Security Act, which prohibits U.S. federal agencies from buying fuels with higher lifecycle carbon emissions than normal. Word has it that among numerous other concessions he has backed off interpreting s.526 as targeting Canadian oilsands petroleum—which definitely comes with higher lifecycle emissions. Will he and Markey make up for their domestic loss by trying to punish U.S. trading partners who don’t share the pain of emission reduction? In the current slightly protectionist congress, that might actually fly.

Well, if that happens, Canada has the template of a carbon offset program ready and waiting (see article).  We just need to wait to see what emerges from the U.S.House vote on Waxman-Markey before we start filling in the template so that it jibes with the U.S. bill, measure for measure.