Climate Change Discussion Heats Up Part 1: H.R. 1862

Today, we start taking a look at Congressional approaches to combating climate change.

At the moment, most of the work is being done in the House of Representatives, where there are two major bills.

The first is sponsored by Democratic Congressional Campaign Committee Chairman Chris Van Hollen (D-Md.). 

Van Hollen recently annoyed some senior Democrats by publicly saying he wanted to proceed cautiously on climate-change legislation if it appeared the Senate would not take it up. He wants to avoid forcing freshman Representatives to take a stand on the highly controversial issue unless he is confident the effort to regulate greenhouse gases will not fizzle out.

The second is sponsored by House Energy and Commerce Committee Chairman Henry Waxman  (D-Calif.) and the committee's Subcommittee on Energy and the Environment Chairman Ed Markey (D-Mass.). The bill has not been formally introduced, but a discussion draft is available on the committee's Web site. Analysis will come later this week.

After the jump, we take a look at Van Hollen's bill.

To preface this discussion, it should be noted that Van Hollen's bill, H.R. 1862, is unlikely to go anywhere. He has just four cosponsors, and the bill is currently stuck in the committee Waxman chairs. But it contains several provisions that will likely color the course of debate.

Main provisions:

  • Establishes primary-point-of-sale-permit system for carbon. In other words, businesses selling carbon-based fuels (oil, coal, natural gas) in the US must have a permit for each ton of carbon burning the fuels would emit. This would affect big companies importing or producing fuels, not your local gas station.    

  • Sets up system of emissions reduction targets. The goal is to reduce 2012 carbon emissions to 2005 levels, 2020 emissions to 75 percent of 2005 levels, 2030 emissions to 55 percent of 2005 levels, 2040 emissions to 35 percent of 2005 levels,and 2050 emissions to 15 percent of 2005 levels.  
  • Provides for the auctioning of all permits and makes rules to prevent speculation or hoarding.

  • Awards permits to companies or people who successfully capture and store carbon   
  • Creates a monthly payment to all Americans that divvies up the revenue from carbon-permit auctions. Van Hollen terms this "cap and dividend."
  • Imposes a tariff on carbon-intensive goods from countries that do not regulate carbon emissions. 

Most intriguing from Van Hollen's bill is the cap and dividend proposal.  His approach works to counteract one of the main criticisms of any carbon regulation — the argument that it will spark rises in energy prices.

But how much will people receive? Well, according to the Carbon Dioxide Information Analysis Center, American emissions in 2005 totaled 1,576,537,000 metric tons of carbon. 

But pricing that carbon is far more difficult. As the European Union's carbon market has shown, prices can be extremely volatile. After rising to around $40 per metric ton, prices have recently dipped to about $19/ton. So it is hard to estimate with any precision how much revenue a carbon-permit auction would raise.

For the sake of analysis, however, assume the initial permit price will be $20. Multiplied by the 1,576,537,000 metric tons of carbon emitted in 2005 (the target for 2012 emissions) and you get $31,530,740,000. As of this post, the estimated population of the United States is about 306,000,000, so dividing up the money yields $103 per person per year. 

It is not insubstantial, but it is a relatively small amount of money — about $8 per month. If you assume a higher permit price — $80/ton — the benefit comes to about $32 per month. 

A study by MIT in 2007 of various climate change proposals (many of them more aggressive that Van Hollen's) found that a short-term estimate of carbon prices was in the range of $30-$50. Long-term, prices could rise to as high as $150.

At any probable permit price, the benefit will remain fairly small. Still, promising a monthly check is always a popular way to "grease the skids" of a policy, and it will be interesting to see if any elements of Van Hollen's proposal make it to the Waxman-Markey bill.

Another notable feature in Van Hollen's bill is the absence of carbon offsets, the controversial practice of allowing increased emissions in return for funding programs elsewhere, such as planting trees, that reduce carbon.

Finally, this proposal requires permits "upstream," meaning that only primary sellers of fuels need permits. This  approach has the advantage of administrative simplicity. Rather than dealing with thousands of smaller consumers of fossil fuels, such as steel mills and factories, the government only needs to monitor a few hundred fuel importers and producers.

Is Van Hollen's proposal a good idea, or can the government put the revenue to better use? Read our analysis of Markey-Waxman later this week, and tell us what you think.