The much ballyhooed Kerry/Liberman climate measure may face stiff opposition.
Sens. John F. Kerry (D-Mass.) and Joseph I. Lieberman (I-Conn.) introduced their “American Power Act,” compromise climate bill Wednesday, amid concerns about the legislation’s affect on production agriculture and the nation’s energy prices.
Industry groups and business are still assessing the content of the bill and many have not yet taken official positions. Legislative staffers for the two sponsors have only released parts of the language, with several key provisions still absent from the text.
“As with other climate change bills, we have concerns about the economic impact on farmers and ranchers because of potentially higher fertilizer and energy costs. We do not want to see farmers driven out of business due to additional regulation and the potential for higher input costs,” said American Farm Bureau President, Bob Stallman.
AFBF still has reservations about the potential that the measure would shift productive agricultural land out of production through afforestation measures in the bill. This concern was key to AFBF and CFB’s opposition to the Waxman/Markey proposal in the House.
In a sign that legislators are listening to farm groups, the bill contains a measure that would direct the USDA to study the impact of any potential acreage shift on food, feed, commodity prices, livestock prices, food prices and the environment. The agriculture secretary would be able to restrict the amount of acres or quality farm ground from converting to forestry for carbon-offset projects if such an acreage shift causes “serious adverse effects on United States agriculture or the public interest.”
The effect on energy prices is also of concern to many farm groups. The measure incentivizes the use of natural gas in the production of electricity which drives up costs not only for power companies, but for manufacturers that use the gas to make fertilizer.
Other industry sectors are also taking a measured approach to the bill, the details of which have been long in coming.
The American Petroleum Institute issued a noncommittal statement that said it is “reviewing the released text to assess the proposal’s possible impact on jobs, energy production and consumers of oil and natural gas.”
Similar cautionary statements were released by the U.S. Chamber of Commerce and the coal industry.
According to summaries released by the sponsors, the bill aims to reduce carbon emissions by 17% in 2020, and by more than 80% in 2050, the same as the companion legislation in the House. The primary mechanism for achieving these cuts comes from a modified cap and trade system in which only the largest companies in the utility and heavy industry sectors would have their GHG emissions capped. Companies would then be taxed for emitting carbon.
The system allows for limited trading of carbon credits on a restricted market, open only to those companies and industries being regulated by the legislation. It would give jurisdiction over the market to the Commodity Futures Trading Commission and order it to develop rules to keep speculators out of the market. Additionally, some “regulated carbon market participants” would be barred from using the trading system.
The transportation industry would not participate in a carbon market with utilities and manufacturers. And they couldn’t trade their allowances among themselves. Critics have described the program as a “gas tax.”
In an effort to mitigate the increased costs, the bill directs more than two thirds of the revenue generated by various energy taxes, to be distributed back to industry and individuals through myriad tax credits and incentive programs. For instance the bill’s authors augmented the carbon emission permitting program with an offer of $7 billion in incentives to expand the natural gas fuel market, develop electric car technology and other advances.
The bill provides for billions of dollars in consumer refunds and tax credits to offset energy price hikes, but the draft version offered little details on how various tax credits and incentives would work.
A key provision that would have allowed drilling in the eastern part of the Gulf has been dropped. The provision was touted as a way to help the bill achieve the 60 votes needed for Majority Leader Harry Reid to consider brining it to the floor. Instead the provision is now a major obstacle. Due to the recent gulf oil spill, Sen. Ben Nelson (D-Fla) has vowed to filibuster any legislation that would permit drilling off the eastern seaboard.
A compromise proposal would now allow a state to “veto” the decision of its neighbor to begin offshore drilling. The power could be invoked only when there is evidence of “significant adverse ecological and economic” risk, a standard that may not be too hard to meet in the future by any Gulf state.
That and other revisions may wind up consolidating opposition from the oil industry, which had been split on the reform measure.
States that go ahead with drilling would retain 37 percent of the federal royalties raised as a result. This may help encourage states to be less over-cautious. Public opinion polls show that despite the gulf spill, Americans still support the full use of our nation’s coastal energy reserves. Six in 10 Americans support an expansion of offshore oil drilling according to an NBC News/Wall Street Journal poll.
Nuclear Boost/EPA Loss
One industry that wholly supports the legislation is nuclear power. While Waxman/Markey barely made mention of the energy source, the Kerry/Liberman bill abounds in nuclear power.
The draft bill led by Senator John Kerry will contain $54 billion in loan guarantees, protections against regulatory delays, and other incentives that aim to help companies obtain financing for the nuclear plants, which can cost $5 billion to $10 billion to build.
“The nuclear-related provisions of this legislation provide a solid platform for the expansion of nuclear energy to meet our electricity needs, create thousands of jobs and help achieve the desired reductions of greenhouse gas emissions,” said Marvin Fertel, president of the Nuclear Energy Institute.
The bill would also bar individual states and the Environmental Protection Agency (EPA) from regulating greenhouse gases under the Clean Air Act.
Prospects for Passage?
The bill’s prospects are dim in the near term. It has no Republican support. Sen. Graham has withdrawn his support of the measure and Sen James Inhofe (R-Okla) has wasted no time in blasting the bills tax provisions.
“My first reaction to the Kerry-Lieberman bill is that it’s the same old cap-and-trade scheme that the Senate has defeated three times since 2003,” Senator Inhofe said. “In fact, it has a strong resemblance to the disastrous Waxman-Markey bill. Only now, along with paying skyrocketing electricity prices, consumers will pay a gas tax.”
Senate Minority Leader Mitch McConnell (R-Ky.) said Wednesday that he and other Republicans will fight the legislation. “Whatever their intention, this bill is little more than a job-killing national energy tax,” he said.
Some Democrats have expressed opposition to any expansion of drilling. In Florida, Gov. Charlie Crist, a newly declared independent, has announced plans for a special legislative session to consider an offshore-drilling ban. In California, Gov. Arnold Schwarzenegger, a Republican, has backed away from expanded drilling off his state’s coast.
The environmental community opposes the limitations on the EPA as well as any expanded nuclear energy provisions. Many on the left have rightly observed that the legislation is no longer about global warming, but energy reform.
As Michael Kieschnick writes in the Huffington Post, “…despite the best efforts of many environmental advocates, this legislation has been hijacked and is appropriately no longer even called global warming but is now called power legislation.”
This sentiment could complicate matters in the Senate.
Industry has given the measure a cool reception and key corporate interests are split on the measure. Tom Kuhn, president of the Edison Electric Institute, who joined Kerry and Lieberman in the bill’s unveiling, took a measured position afterward.
“I don’t think people are endorsing the bill per se. They’re looking at everybody’s ideas about how it could be improved, or changed, or whatever,” Kuhn said. “The wide variety of people on this platform would like to change it one way or another,” he said.
Majority leader Harry Reid has said he will only consider taking up the measure if it looks like it can garner the necessary 60 votes for passage, something Sen. John Thune (R- SD) thinks is unlikely.
“This is going to be a bill that’s heavy on mandates and heavy on costs, and I just think it is going to be very, very difficult for them to try and move a piece of legislation like that this year,” said Thune.