Henry Waxman is rolling out the compromised version of his climate change bill, which is expected to get through its committee by next week. FBR Capital runs down the changes below.
The bad news for any legislative effort on the carbon taxing front, is the fact that this is a very unpopular measure. There’s already reports coming out about the cost of capping emissions. And the industries most effected by the legislation are pulling out all the stops in a PR blitz to disrupt the effort. Producing a weak bill is pointless. Producing no bill is worse. This is going to be a long drawn out process.
Here’s some changes:
- 17% reduction by 2020. The tentative deal would increase the 2020 carbon cap to 83% of 2005 levels, from 80% in the original Waxman draft. The long-term target has yet to be resolved but would likely remain a near-83% reduction by 2050.
- Large free-allocation to energy-intensive industries. The agreement would provide 35% of the total emission allowances, for free, to local electricity distribution companies and roughly 15% to energy-intensive industries, including steel, aluminium, chemicals, and glass. The free-allocation regime underscores our view that the coal industry will have significant assistance in transitioning to carbon constraint, whereas the oil sector will have relatively few protections.
- 15% RES plus 5% efficiency standard. Committee Democrats also reached an agreement to include a 20% renewable electricity standard, requiring utilities to produce 15% of their energy from renewables and 5% from efficiency, with some flexibility. The Senate has struggled to pass a stringent RES.
- Fuel sources would shift over time. The EPA analysis of the original draft projects that consumption of natural gas and coal without carbon capture and sequestration would fall significantly and be replaced by efficiency and low-carbon energy, including renewables, nuclear, and coal plants that capture CO2. Estimates indicate that, under similar legislation, the greenhouse gas market would be worth, approximately, $60 billion to $85 billion per year.
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