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April 27, 2009
Volume 87, Number 17
p. 5


Shaping Policy On Climate Change

Auctioning versus giving away emission allowances remains unsettled

Cheryl Hogue

IN PREPARATION to move a greenhouse gas cap-and-trade bill soon—and to make Environmental Protection Agency regulation of such gases unnecessary—the House Energy & Commerce Committee heard from a panoply of interested parties last week. The 67 witnesses discussed how best to lower emissions and operate an emissions-trading program.

EPA may regulate CO<sub>2</sub> and five other greenhouse gases under the Clean Air Act. Shutterstock
EPA may regulate CO2 and five other greenhouse gases under the Clean Air Act.

In a three-day marathon of hearings, the panel heard from business leaders, including representatives of the chemical and petroleum industries, who have drafted a blueprint for U.S. climate policy. Other witnesses came from automakers, electric utilities, state regulatory agencies, environmental organizations, unions, and an interfaith group. The panel also heard from the secretaries of energy and transportation, as well as the EPA administrator.

The hearings focused on a draft bill released earlier this month by Energy & Commerce Committee Chairman Henry A. Waxman (D-Calif.) and Energy & Environment Subcommittee Chairman Edward J. Markey (D-Mass.) (C&EN, April 6, page 6). The draft legislation would cap the amount of industrial carbon dioxide releases permitted in the U.S. and require businesses to hold allowances for the amount they emit. Those allowances could be bought and sold in an open market.

A crucial issue debated at the hearings is what portion of the emission allowances would be auctioned and how many would be given away by the federal government in a process called allocation.

President Barack Obama has called for a 100% auction of allowances to generate revenue to help families and businesses transition to a low-carbon economy. But the President has not pushed this position. Many in Congress and industry contend that coal-fired utilities and energy-intensive industries that face tough foreign competition, such as chemical manufacturing and steelmaking, need allowances given to them, at least in&nbsp;the early years of the program.

The Waxman-Markey draft bill, meanwhile, is silent on the auction-versus-allocation issue, presumably to allow a more wide-ranging debate. Rep. Joe Barton (R-Texas), the top Republican on the Energy & Commerce Committee, said the lack of clarity creates the opportunity for lobbyists in favor of free allowances to sway votes.

Regardless of how many allowances are auctioned or initially given away, they would sell for $13 to $17 per metric ton of CO2 equivalent in 2015, according to an EPA analysis of the draft Waxman-Markey bill. It estimates the price would rise to $17 to $22 per ton in 2020.

For several weeks, House lawmakers have articulated plans to move climate legislation this year, but they now have a new incentive for action, supplied by EPA. In mid-April, the agency took the first step toward regulating greenhouse gas emissions under the Clean Air Act, a situation that Congress wants to keep from happening.

That step was an EPA proposal determining that emissions of CO2 and five other greenhouse gases endanger public health and welfare. The agency made the proposed determination in response to a 2007 U.S. Supreme Court ruling (C&EN, April 9, 2007, page 9).

If finalized, EPA's so-called endangerment finding would require the agency to regulate releases of CO2, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride.

But Congress and the Obama Administration, backed by businesses, agree that the job of curbing greenhouse gas emissions and combating climate change is best handled by federal legislators rather than EPA.

Waxman and Markey are expected to formally introduce their climate bill this week.

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Chemical & Engineering News
ISSN 0009-2347
Copyright © 2009 American Chemical Society


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