US CAP fracturing?
Posted February 18, 2010 at 7:21 am 
Filed in: Sheila McNulty and Ed Crooks have a good piece in this morning’s FT about recent departures from the strange-bedfellow coalition that has been the U.S. Climate Action Partnership, or USCAP.
(http://www.ft.com/cms/s/0/fe85190a-1c10-11df-86cb-00144feab49a.html?nclick_check=1):
“After making common cause for years, the energy companies campaigning for legislation to curb US greenhouse gas emissions are finding that what divides them may be as important as what unites them. On Tuesday, BP and ConocoPhillips, the oil and gas groups, withdrew from the US Climate Action Partnership, which campaigns for climate legislation.” The article could also have referenced the departure of Caterpillar — but at the same time could have noted that new companies have also recently joined USCAP — but not from the oil and gas sector.
Why the departures? The FT reports that the oil companies “argue that many of the bills that have come before Congress place an unfair burden on motor fuels and offer too many concessions to coal.”
That’s right. Utilities, acting through their trade group, the Edison Electric Institute (EEI), cut a deal with House sponsors of the climate bill. Ostensibly in order to protect rate payers, they received a large swath of free allowances AND access to a large pool of cheap offsets to achieve their remaining compliance burden. The oilies got, well not much, as the FT puts it:
“The Waxman-Markey bill that passed in the House of Representatives last year, for example, allocates 2 per cent of allowances to fuel producers but makes them responsible for 44 per cent of emissions.”
Part of the rationale behind that disparate treatment is that the price impact on consumers for increased gas prices struck folks as reasonable, while doubling electricity rates in the Midwest — a potential outcome of serious climate legislation sans free allowances and offsets — struck folks as not so good.
At the same time, the oil and gas industry was recording record profits as the bill was being developed — hardly allowing them to plead that they would need to stick consumers with even the minimal increase in fuel prices that would result from a cap on greenhouse gas emissions.
Today’s picture in the industry is far different, of course, and the FT notes that respected consulting firm Wood Mackenzie believes that Waxman Markey “could threaten the sustainability of the US refining industry, costing US refiners $100bn (€73bn, £64bn) a year within three years. That would hit an industry under pressure from a drop in demand.”
And of course, the need to find new revenues after last year’s stimulus party leads to the industry being “upset” that “President Barack Obama’s new budget outlines about $80bn in tax increases on the US oil and gas industry.”
The FT cites the thoughtful Jim Mulva, chief executive of Conoco, as explaining that ”the bills in Congress seek unnecessarily punitive measures on the industry while ignoring the “critical role” natural gas could play in reducing carbon emissions.”
In case you aren’t intimately familiar with the details, the point there is that combining the free allowances with the generous offsets — and adding a renewable fuels portfolio requirement to boot, as Waxman-Markey provides — has a serious unintended (one assumes) consequence: natural gas use goes down, coal use stays stable, and emissions grow. The formula here is Coal + RPS – Natural Gas = Higher Emissions. No wonder the Waxman-Markey bill barely squeaked by in the House and has fallen flat in the Senate.
Previous Post
January 30, 2012
January 24, 2012
January 23, 2012
