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United States: Climate bill faces a tough ride in the Senate

THE PASSAGE through the House of Representatives of a version of the climate bill has triggered the expected jockeying for position among interest groups trying to influence a revised bill. The bill is expected to be formally introduced to the Senate in September.

Among those making the most noise are oil refiners, which are already suffering because of a slump in demand and could now see their costs rise to comply with the cap-and-trade element of the bill. The market in greenhouse-gas (GHG) emissions permits is intended to cover 85% of US emissions by 2016.

As in other cap-and-trade schemes, such as that operating in the EU, substantial amounts of free allowances are set to be issued to industries in the early stages of its operation to ease the financial strain. As the bill stands, refiners have been allocated free allowances amounting to just 2% of the total pot of permits. Utility companies are being allocated 30%.

Refiners are accountable for around 40% of US carbon emissions – a figure that includes emissions from the end-use of gasoline and heating oil, as well as emissions from the refineries themselves – and would have to buy most of their permits. But the initial allocation of free allowances proposed for utilities would cover most of their emissions.

The oil companies argue that the extra costs could open up opportunities for foreign refiners to undercut locally refined products. Criticism has come from the some of the largest players in the sector. Steven Fries, Shell's chief economist, told a US senate foreign relations sub-committee in July that, while the bill passed by the House was a good start toward a workable cap-and-trade programme, more work needed to be done to protect at-risk industries. "Shell is particularly concerned that the allowance value allocated to the US refining sector in the [House] bill does not cover direct emissions as fully as other sectors are covered," Fries said.

However, Shell and its big counterparts are better positioned to shoulder the burden of purchasing extra GHG permits than smaller players that have lesser financial resources and often operate more polluting facilities, for which the extra costs could be the final straw.

Assuaging such worries will prove a tough task for Democrat Senator Barbara Boxer, who, as chair of the Senate environment and public works committee, is in charge of steering the revised version of the House-approved bill through the Senate. Her committee must balance calls from industry for a less onerous cap-and-trade regime at a time of tough trading conditions, against those from politicians and environmental groups eager to ensure that big cuts are made to US GHG emissions as fast as possible.

The coal lobby has joined oil in pushing for a more benign introduction of cap-and-trade, while biofuels producers, to which free allowances were not allocated in the House bill, want to receive them. President Barack Obama, on the other hand, was originally pushing for all carbon permits to be sold – a measure rejected in the House version of the bill.

Another area where there is scope for revision is in the overall target for cutting carbon emissions. The House version of the bill calls for a 17% reduction from 2005 levels by 2020; this could vary by two or three percentage points either way, depending on whose view holds sway.

The Senate vote on the bill, probably in October, could be tight. It must garner the support of more than 60 of the 100 Senators to make headway. Winning support there will be tough, as many Senators need to carry the support of electorates in oil- and coal-producing regions and heavily industrialised states.

Whatever happens in the Senate, a final version of the bill will still need to be agreed with the House, possibly some time early in 2010. Between now and then lie the Copenhagen global climate change talks at the end of 2009 and those could provide a whole new raft of considerations for US legislators to wrestle with.

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