The climate change public policy agenda for the United States in 2009

1. The Climate ChangeThe Climate Change
Agenda in 2009Agenda in 2009
December 17, 2008
Kevin M. Dempsey

2. 2
Two Track Agenda on Climate ChangeTwo Track Agenda on Climate Change
• Cap and Trade Legislation
 Obama commitment: reduce emissions to 1990 levels by
2020 and 80% below 1990 levels by 2050
 U.S. emissions in 2007 were 16.7% above 1990 levels
 Appointments of energy/climate czar and Energy Secretary
show priority of climate change agenda
 EPA rulemaking under Clean Air Act remains underway
• Copenhagen Conference in December 2009
 Treaty to replace Kyoto Protocol in 2013
 Major issues unresolved at Poznan conference
 World waiting for new U.S. Administration

3. 3
U.S. Climate Change LegislationU.S. Climate Change Legislation
• Cap and Trade vs. Carbon Tax
 Cap and trade approach most favored on the Hill
 Waxman, Dingell, Markey, Boxer, Lieberman, Bingaman
 CBO and many economists favor carbon tax as more
economically efficient
• Advantages of Cap and Trade Approach
 Environmental certainty on level of emissions
 Easier to grant subsidies through free allowances
 Linkage with rest of world
 Kyoto Protocol endorsed emissions trading
 EU, Australia, New Zealand pursuing cap and trade

4. 4
History of Cap and Trade: Acid RainHistory of Cap and Trade: Acid Rain
• Adopted in 1990 after Decade of Debate
 Capped SO2 emissions from coal-fired power plants
 Allowances allocated based on historical data
• Technological Solutions Well-Established
 Scrubbers, low-sulfur coal
• Main Goal: Regional Cost-Sharing
 Burden focused on Appalachia and Mid-West
 Bonus allowances for retrofitting scrubbers
 Many companies banked allowances for later use
 Regulators kept electricity prices under control

5. 5
EU Cap and Trade ExperienceEU Cap and Trade Experience
• Emissions Trading System – Phases I and II
 Over-allocation of allowances led to price collapse
 Windfall profits for electricity producers
 Criticism of Clean Development Mechanism credits
• Updated Scheme for Post-2012
 2020 goals: 20% emissions reduction, 20% renewable
energy, 20% increase in energy efficiency
 Begin auctioning allowances in 2013, full phase-in by 2027
 Sectors exposed to risk of carbon leakage and eastern
utilities will get free allowances for transition period
 Increased ability to use international offset credits

6. 6
Major Issues in Cap and Trade LegislationMajor Issues in Cap and Trade Legislation
• Allocation of Allowances
 Free vs. auctions
 Significant energy price impact expected
• Offsets
 Additionality/potential for abuse
• Carbon Leakage/Competitiveness
 Border measures and/or free allowances
• Technology Alternatives
 No silver bullets – need more research and development
 Tech industry role could be key

7. 7
Timing of U.S. Climate Change LegislationTiming of U.S. Climate Change Legislation
• Pressure to Move Legislation before Copenhagen
• Difficult to Enact Final Bill by End of 2009
 Bills to date have been extremely complex
 Clean Air Act Amendments of 1990 took two years to enact
 Senate dry-run on cap and trade in June 2008 failed after
only 48 Senators voted to end debate (6 supporters absent)
• Action in Committees and/or in House Possible in 2009
 New Chairman Waxman – committed to move quickly
• Key Question: Path to Senate Passage?
 Letter from 10 Democratic Senators

8. 8
International NegotiationsInternational Negotiations
• Kyoto Protocol
 Negotiated in 2007; took effect in 2005
 Developed countries to reduce emissions by 5.2% on
average below 1990 levels by 2012
• Bali Roadmap in December 2007
 New treaty for post-2012 to be negotiated by December
2009 in Copenhagen
 Developing countries agreed to “nationally appropriate”
mitigation if given technology and adaptation funding
• Poznan Conference
 Officially launched Adaptation Fund, but no agreement on
source of funding or on technology transfer

9. 9
What Must Be Agreed in CopenhagenWhat Must Be Agreed in Copenhagen
• Emissions Reductions Goals for Developed Countries
 Binding obligation to reduce 80% by 2050, goal for 2020?
• Commitments by Developing Countries
 Environmental imperative: China now largest emitter
 Political imperative: Essential for U.S. ratification
(remember 1997 Byrd/Hagel Resolution)
• Adaptation Fund
 Estimates as high as $50-100 billion needed per year
 Source of funds?
• Technology Transfer
 Risk of compulsory licensing?

10. 10
ConclusionsConclusions
• Legislation More Likely in 2010 than 2009
 Will require significant compromises, especially in Senate
 Filibuster threat will be real
 Opportunity for tech industry to position itself as part of the
clean energy solution
• Adoption of New Treaty a Serious Challenge
 Developing countries must make measurable commitments
 Treaty needs 67 votes in Senate for ratification
 Where to get funding for developing country adaptation?
 Technology transfer pressure a risk to tech industry

11. 11
Thank youThank you
For additional information, please contact:
Kevin M. Dempsey
Dewey & LeBoeuf LLP
kdempsey@dl.com
(202) 346-7997