Wednesday, August 5, 2009

ACES: Implications for Business in Canada and Quebec -PROJET DE LOI Waxman-Markey: les conséquences sur l’industrie canadienne et quebecoise

The American Clean Energy and Security Act (ACES) HR 2454 or the Waxman-Markey bill, named after its two major supporters Henry A. Waxman and Edward J. Markey of the Energy and Commerce Committee, was passed in the US House of Representatives on 27 June 2009 and is now being considered by the Senate. Its major mandate is a cap and trade system though it does have other green practices scattered throughout (Clean Energy, Energy Efficiency and Transitioning to a Clean Energy economy).

Recent discussion on the viability of a cap and trade system in the U.S. has increased dramatically and, after more than one month of analysis, debates etc. since it was first introduced, the purpose of this blog is to take a somber second glance and offer some advice to our Canadian (and provincial) policy-makers.

With the future of the planet hanging in the balance, with the world watching for what the United States will do, and with Congressional action likely to have a major influence on whether we’ll see a global climate agreement at Copenhagen, this is probably the most important exam the current members of Congress will ever take.

The basics of a cap and trade are fairly simple. It is a way to limit emissions through a credit system. Every business acquires a certain amount of credits; depending on the type of system these credits are either auctioned off or given away by the government. These credits represent the amount of carbon that businesses can emit. If the business cannot adhere to the limit of emissions their credits allow, they must buy credits from companies who are below their cap. Thus the companies who are responsible and limit their emissions are rewarded and those who are not as environmentally friendly are punished.

Power plants, factories and other major emitters would need to obtain permits for their emissions or invest in “offsets”, such as newly planted trees or local CDM projects, which reduce the amount of carbon dioxide in the atmosphere.

One point that I would like to raise — the claim that carbon taxes are better than cap and trade — is, in my view, just wrong. In principle, emission taxes and tradable emission permits are equally effective at limiting pollution. In practice, cap and trade has some major advantages, especially for achieving effective international cooperation. Any further thoughts on this are welcome (I still will not be convinced).

With this particular cap and trade system only 28% of the credits would be auctioned off over the next ten years. The other 72% will be given away for free, especially to heavy users of coal and other fossil fuels to help them cope with the change. The auctioning of the 28% will generate an estimated $276 billion, which will be distributed to a range of places. Low and middle income families will receive money to help them deal with the increases prices passed down as a result. Big carbon emitters will also receive money on top of getting a good chunk of the free credits. The proposed bill would essentially let polluters buy huge amounts of offsets rather than actually cutting their emissions – up to 2 billion tons of emissions annually, close to a quarter of all U.S. emissions.

The bill also includes strict energy efficiency standards and requirements for wind, solar and other renewable sources. The opportunities in this realm are tremendous and we are already seeing banks and venture capitalists jumping on this new green bandwagon.

Unfortunately, one of the provisions which were inserted late in the House debate seeks to penalize imports from nations that fail to cut their emissions in step with the United States. This can be a blow for China and India in particular. But it will encourage Canada to step up to the plate and take action.

The bill contains other provisions to defend U.S. manufacturers and their employees from lower-cost foreign competition -- including free emissions permits for energy intensive industries vulnerable to foreign trade, such as steel and aluminum.

Then there are the freebies:

• The bill as it stands rights now gives away 35% of the allowances to the electricity industry every year for the first decade – that's about 90 percent of the credits they would need. Even if the energy source for the electricity generated is coal or heavy fuel. To try to avoid the sort of windfall that dragged down the EU’s carbon trading system, the bill would require U.S. utilities to pass the savings on to consumers, according to a summary of the bill’s allocations segment, and the freebies would be phased out between 2025 and 2030.
• Manufacturers in steel, cement, aluminum and other energy-intensive, trade-sensitive industries would get 15% of the allowances for free for the first 10 years.
Natural gas distributors would get 9% for free for the first five years, and would also have to pass the savings on to consumers.
• The auto industry would get 3% for free for the first five years.
Oil refiners would get 2% for free for the first 10 years.

Of the remaining allowances, 15% would be auctioned from the start with the proceeds going to help low- and middle-income families, according to the summary of the bill's proposed allocations.

Lawmakers have indicated that more giveaways are to come. For example, utilities that in the future are able to make use of so far unproven carbon capture and storage technology could get up to $100 billion in bonus pollution permits.

The bill’s renewable electricity standard (RES) also took a serious whack to the knees. Some of the swing Democrats complained the RES wouldn’t be fair to states that lack the wind power of Texas and the sunshine of California. The original draft of the bill called for utilities to provide 25% of their power from renewable sources by 2025. The compromise cuts that to 15% by 2020 and as little as 12% if the state make up the difference with energy efficiencies.

A recent analysis concluded that the U.S. climate bill would give states that are heavily reliant on greenhouse-gas emitting fuels, like coal, more carbon credits on a per capita basis than those that use clean fuels. This will undoubtedly influence the final outcome of the bill.

Intergovernmental Panel on Climate Change (IPCC) suggested that industrial economies would have to reduce emissions 25-40 percent below 1990 levels by 2020 to keep warming to 2 degrees. The bill’s greenhouse gas reduction targets already falls short of what the IPCC recommends and now it falls even shorter: Emissions would be cut to 17 percent below 2005 levels by 2020 (the initial goal was 20 percent); 42 percent below 2005 levels by 2030 and 83 percent below 2005 levels by 2050. Considering the mandates being implemented in California and 21 other states (for instance, buildings will use net zero energy or have net zero carbon emissions by 2030), these reductions do not seem extreme. Waxman-Markey caps emissions at only 3.6 percent below 1990 levels by 2020 –pitifully short of what the scientific community say is necessary.

Earlier this year, Sen. Barbara Boxer, chair of the Senate Environment and Public Works Committee, announced several principles she said are necessary in acceptable climate legislation. Among them are “certain and enforceable” short-term and long-term emission targets and a “transparent and accountable market-based system” for cutting emissions.

Waxman-Markey falls short here, too. “Transparent” is an adjective no one can honestly apply to the House bill with its complex trading system, allowance allocations, exemptions and other machinery. The emission reductions contemplated outside the cap are not “certain”.

International Dimension

Climate change is a global problem that requires a global solution. With little more than three months left before the international community convenes in Copenhagen, however, there has been little apparent progress. At the last G8 meeting in Italy, the 17 biggest economies failed again to agree on specific targets and timetables for emissions reductions.

The European Union today remains the most advanced region in the world when it comes to environmental protection. Not only has the EU signed-on to the Kyoto Protocol, they have also implemented strict green building standards, emissions limits for cars, and the EU Emissions Trading Scheme (existing cap and trade system in place). Interestingly, they implemented all of these environment-saving standards with their economies intact…

The US has always lagged behind Europe and other developed nations when it comes to environmental conservation measures. Though this bill is flawed it is a positive step forward in its intent and power to reduce emissions. Nation-wide opinions need to change on the role of sustainability in the U.S. (and Canadian) society and hopefully the success of this bill can be the catalyst.

The Obama administration is working on several fronts to demonstrate U.S. leadership, including its ongoing attempt to reach a bilateral agreement with China, EPA’s decision to regulate greenhouse gas emissions, and its endorsement of carbon emission standards for vehicles. But nothing President Obama can do between now and December will have the political power of strong climate legislation from Congress. Climate stabilization and the clean energy economic necessary to achieve it must become the law of the land.

From the standpoint of the rest of the world, particularly developing nations, the U.S. is the country most responsible for the greenhouse gases in the atmosphere today. The U.S., Canada and the other industrialized economies have exhausted the environment’s capacity to tolerate the fossil fuels that developing countries hoped to use to lift their people from poverty. The standard by which much of the rest of the world will grade the outcome is whether the U.S. will meet its moral obligation to cut greenhouse gas emissions and find adequate sources of clean energy.

The Waxman-Markey bill fails this test. China wants developed economies to cut their emissions in the 30-40 percent range by 2020, a level it feels is justified since the industrial nations’ unbridled greenhouse gas emissions over the past 200 years have brought-on this crisis. The European Union has committed to a 20 percent reduction from 1990 levels by 2020. The Waxman-Markey cap doesn’t come close.

While Waxman-Markey sets the stage for additional emission reductions through carbon offsets and other measures outside the cap, those cuts are not mandatory. It’s the mandatory reductions under the cap that are likely to count most. America’s climate goals will set the bar for other countries, especially in Canada. So what are the chances that we will inherit a watered-down version of the Waxman-Markey Bill?

Extending the Reach to other sectors: Transport, Homes, Agriculture... Canada and Quebec: Please Take Note

In the United Kingdom, a July 15 White Paper, the Department of Energy and Climate Change rolled out a raft of policies making up the UK's Low Carbon Transition Plan — an economy-wide strategy aiming to slash emissions and help the UK meet its five-year carbon budgets, goals it set in last year's Climate Change Act.

So how does the newest plan from across the pond stack up to the U.S. climate legislation currently before the Senate?

In the UK, the power and heavy industry sectors, which account for a full 50% of emissions, have been subject to carbon caps under the EU ETS since 2005. But up to now, no umbrella policy has explained how the UK will reduce emissions and increase efficiency in non-traded sectors that together generate the other half of UK emissions: transportation, homes, workplaces and agriculture.

The new low-carbon transition plan closes the gap, extending low-carbon policies to cover the entire scope of the UK economy. That includes a stronger push for home energy efficiency and small-scale renewable power production; tighter vehicle emission standards and investments in developing low-carbon cars; and support for sustainable agricultural practices.

Likewise, Waxman-Markey bill/ ACES seek to provide a comprehensive framework for jump-starting the U.S. transition to a clean energy economy. It too shoots for energy efficiency in homes, buildings, transportation and agriculture.

The differences between the two are often stark, though, starting with the very goals they’re seeking to achieve: ACES aims to cut emissions by 17% below 2005 levels by 2020 — a far less demanding baseline and target than the UK’s 34% below 1990 levels.

Improving the energy efficiency of buildings is a key element of both plans. In the UK, building codes will contribute to emissions cuts under a regulation requiring that homes built after 2015 meet a standard of zero net emissions. Similar provisions in ACES set a target for buildings to use 30% less energy, working up to 50% less by 2015.

If the bill is about promoting renewable energy, it is even more about catalyzing energy efficiency, a goal likely to save companies far more money than cap-and-trade will cost them. If ACES makes a kilowatt-hour cost more, it also offers ways for companies to use fewer of them. So, while electricity rates may increase modestly, the actual bills that businesses pay will go down.

For most companies outside the manufacturing sector, the majority of electricity used comes from the facilities they own and lease: Heating, ventilation, air conditioning, lighting, computers and other machines in buildings are collectively responsible for nearly 40 percent of all energy use and a similar percentage of total greenhouse gas emissions in the United States. In some U.S. cities, buildings are responsible for three-quarters of all emissions.

Energy use can be significantly reduced in commercial buildings with little or no upfront cost.

The bill establishes a national building code mandating energy improvements for new and substantially renovated buildings (Section 201), and it creates a Retrofit for Energy and Environmental Performance (REEP) program for upgrading existing buildings with energy improvements (Section 202).

REEP creates mechanisms for public funding, loan guarantees, interest subsidies and other credit support to help owners make energy improvements. Requiring owners to enhance efficiency while providing the means to do so represents a balanced solution that will put a big dent in greenhouse gas emissions.

Meanwhile, information technology industry groups are pushing for a LEED standard for data centers, the country’s most energy-hungry buildings. The market took a high-profile leap forward recently when Yahoo! announced that it was shifting its climate strategy from buying offset to investing in data center energy efficiency. The company's new goal: reduce its data centers' carbon intensity by at least 40% by 2014.

In the transportation sector, the UK pledges government support for green vehicles, and it mandates that cars sold in the UK after 2020 emit 40% less carbon dioxide per kilometer than cars did in 2007. ACES complements Obama's tough new fuel economy standards — fleets must average 35.5 miles per gallon by 2016, cutting emissions 30% — by laying preliminary groundwork for more transportation efficiency, through investments in plug-in hybrid electric vehicle (PHEV) production and support for electric vehicle infrastructure.

Agriculture provisions are sparse in both plans, since the sector is responsible for only about 6-7% of emissions in each nation.

While the UK plan sets no hard mandates for farmers, the government will encourage them to undertake voluntary efforts for reducing emissions through more efficient use of fertilizer, better management of livestock and manure, and reduced energy use. In ACES, few provisions address emissions reductions from farming and land use, except with regard to funding for emissions-reducing agricultural practices financed by domestic offsets under the ACES cap and trade program.


There were many reasons that 212 House members voted against the Waxman-Markey American Clean Energy and Security (ACES) bill. Some members are climate deniers. Some wanted a stronger bill. Some simply don’t want to give President Obama a victory. But others, including some of the 44 Democrats who voted “no”, did so because they were worried about re-election.

That’s no surprise, of course. The Center for Public Integrity counted 2,340 lobbyists from 770 companies trying to influence the climate bill last year. But the fact that some freshmen Democrats hid in the bushes on this vote left idealists like me wondering what’s happened to the idea of leadership.

The standard that will determine whether a climate bill passes the leadership test is whether it truly serves the public interest as well as, and if necessary rather than, the collection of special interests. Waxman-Markey shows too much deference to the coal lobby, the farm lobby and the big polluters who would like to see EPA’s regulatory authority rolled back.

On climate change – the mother of all environmental, economic, energy, public health, national security and international relations issues – responsible members of both parties need a gut check. They need to man-up. They need to inoculate their constituents against flat-earthers and demagogues by educating the voters about why climate action is so urgent an issue, why it’s time for the United States to seize the opportunity of a clean energy economy, and why every American, present and future, stands to benefit from the change.

None of this is meant to argue the House should not have approved Waxman-Markey. It was the first carbon pricing proposal to pass either house in Congress. That significantly increases the chance a bill will reach the President before Copenhagen. It lays the foundation for firmer action. But firmer action cannot be years away. It must be taken now, by the Senate.

Whether the bill meets the standard of climate science, is strong enough to trigger an international deal, prescribes goals that will be enforced and met, and shows that courage still resides in Congress – those are the standards by which we should judge success.

Congress is writing not only climate legislation. It is writing the latest and most important chapter in the history of the relationship between human civilizations and the natural environment. It is being asked to reaffirm the obligation of each generation to those that follow, to demonstrate the willingness of the world’s richest nations to protect opportunity for the poorest, and to prove that the species that claims to be the most intelligent has the common sense to care for the life-support systems on which decent lives depend.

Republicans and climate change deniers’ answer to energy security is to produce more oil, coal and gas in the U.S. and they claim “we have ample supplies”. The “drill baby drill” policy was a prominent plank at the Republican National Convention and its still being used, most recently by Wyoming Republican John Barrasso in a Senate Environment and Public Works Committee hearing.

The real question today isn’t how much carbon we have left in the ground; it’s how much we can put into the sky. The answer is: No more.

As a former Saudi oil minister said, “The stone age didn’t end because we ran out of stones.” It ended because we found a better way to do things. There is no mandate that we must extract all the fossil fuels we find and burn all the fossil fuels we can extract. However, there is definitely a limit on how much we can burn – and we have reached it.

If fiscal conservatives would like to make the marketplace even more efficient, they should repeal all subsidies for fossil and nuclear energy (subsidizing mature industries is corporate welfare) and give the money back to consumers to help them adjust to carbon pricing.

Opportunities for renewable power generators

The minimum renewable content requirements will drive a substantial increase in demand for hydroelectricity.

The U.S. Department of Energy estimated that there are up to 30,000 megawatts of potential energy at 5,677 undeveloped sites across the nation, more than half of which already have dams.

Newly added to the equation is the emerging market for so-called carbon credits. The credits are part of a strategy to place “caps” on damaging greenhouse gas emissions while allowing companies that can’t meet the restriction to buy credits from ones that achieve significant savings. The cap would be gradually lowered to reduce overall emission levels.

Hydroelectric power is a prime candidate to sell credits because it is largely emission-free. The credits typically would be granted only for new or additional power.

The market for the credits is tiny now but legislation is moving forward that would create caps and a national market that could ultimately reach $120 billion a year.

Even without a national cap-and-trade law, markets such as the Chicago Climate Exchange now allow companies to voluntarily limit their carbon emissions and lower their carbon footprint by purchasing credits, traded on the market like stock.

This added incentive has made building or upgrading hydroelectric facilities a more alluring prospect. And the potential benefits for Hydro-Quebec and BC Hydro, with the right vision and attitude, can be unparalleled for both the company and society.

Rising Insurance

In March this year, the Association of British Insurers claimed that estimates of climate change-related damage are too low and need to be updated in line with recent scientific predictions that temperatures could rise by between four and six degrees by the end of the century. Premiums for businesses and householders in areas that see increased risks of flooding as a result of climate change could more than double. These developments are not just occurring in the UK but in the U.S. and other regions as well.

Yesterday’s tornado activity in Mont Laurier is a taste of the forthcoming challenge. Man-up Canada, man-up.

(large chunk of source: - thanks!)


  1. Man up, Canada, indeed!

    I got really involved in the Carbon Tax vs. Cap-and-Trade systems as a result of my involvement with the NDP (who proposes cap-and-trade). To me the most difficult challenge may be in selling either idea to the voters. Happily, the Obama administration, for all its shortcomings, is proposing something outside of election season.

    Excellent article, Grace. I intend to use it for future reference.

  2. Hello Grace,

    Very nice article showing at the end the necessity to build an equilibrium point between the perpetual 2 forces: Economy and Environment needs, which aren't complementary.

    I fully appreciated. Particularly the point where it's mentioned that finally the mankind hasn't yet evolved from Stone Age, but stays with exactly the same minding, now with technology.

    Does there's a way to do different? With proof that even Obama, at the head of one of the main powers in the world, has to put water in its wine, the answer is actually no! At least, as long as the mankind well-being doesn't have a financial value and becomes included in the GDP as an asset, or that economy major changes regarding environment occur. Without this, we will assist to a fight between the same forces in presence since all times up to a near or non return point where mankind will be forced to evolve.


  3. I don't understand how a cap & trade system can possibly be considered as desirable as, let alone better than, a carbon tax. Both aim to achieve the same goal - forcing industry, business and consumers to reduce their carbon emissions.
    One is simple, straightforward, enforceable, and has government experience, expertise and existing mechanisms behind it.
    One is complex, untested, and will require millions of dollars to create the mechanisms for. It is not transparent, and cannot be applied to consumers. It is subject to lobbying, loopholes, and abuse, and in the current US (and EU) incarnation will give away the majority of credits for free, severely limiting its effectiveness (without limiting the setup or running costs). At its best, it will achieve what a carbon tax would have achieved, at higher cost. At worst, it is government greenwashing: achieving nothing by giving away credits and allowing for so-called "carbon off-sets", but posturing as a hard-line on climate change, generating complacency in a population that thinks it is doing the right thing.
    I understand why industry and lobbyists support a cap&trade system; I can't imagine why the administration prefers it, or how environmentalists in the general public support it.