Key legislation in Congress could see the next US president sign into law a nationwide carbon market in 2009, says Emily Farnworth

Climate change is not on the average American’s voting agenda. But the election of a new president in November provides a much-needed opportunity for the US government to change its rhetoric. It could open the door for positive discussions to set a carbon emissions reduction target as part of the post-Kyoto process.

Fuelling these hopes is the Climate Security Act of 2007, better known as the Lieberman-Warner bill. It proposes an economy-wide cap-and-trade programme to reduce greenhouse gas emissions in the US. It is the first climate change bill to be approved by a congressional committee, passing through the US Senate Environment and Public Works Committee by a vote of 11 to eight.

As the bill moves to the Senate floor for debate, it is likely to serve as a focal point for any future climate legislation in the US. The bill will establish a yearly cap on greenhouse gas emissions from the electric power, heavy industry and transportation fuel sectors.

In the electric power and industry sectors, the programme regulates facilities (downstream regulation) that emit more than 10,000 tons of CO2 equivalents per year. In the transportation fuel sector, the programme regulates emissions from refineries (upstream regulation) whose fuel will emit more than 10,000 tons of CO2 equivalents per year.

The regulated sectors account for between 75 per cent and 86 per cent of total US emissions. The cap would begin at 2005 levels in 2012 and tighten gradually each year, reaching 70 per cent below 2005 levels by 2050.

Debate about Lieberman-Warner, and other climate change bills including the Bingaman-Specter bill, is expected to continue in earnest through 2008. (Bingaman-Specter similarly calls for an economy-wide cap on emissions, auction and allocation of allowances, and funding for research and development.) Conventional thinking is that there will be no passage of legislation in 2008 because of the presidential elections.

The issue has been raised in presidential candidates’ election campaigns and flagged in speeches. However, all three of the main contenders are supportive of climate-change legislation – John McCain, the Republican presidential candidate, is the co-sponsor of one of the bills introduced in the Senate. Climate-change legislation will continue to be discussed and debated in the near and medium term, with the potential for legislation to pass in 2009-2010.

Vital influence

The Lieberman-Warner bill has gained traction in the Senate largely as a result of its sponsors. Republican lawmakers see Joe Lieberman, an independent, and John Warner, a long-serving Republican, as honest brokers. Their support of national climate legislation has sent a not-so-subtle signal to a group of moderate Republicans: that support of national climate legislation is a test of party loyalty.

Without such a highly regarded and senior lawmaker as Senator Warner on the bill, it is unlikely to have made enough impact to survive. This is evident in the fact that the Bingaman-Specter bill, of which maverick Republican Arlen Specter is a co-sponsor, has not moved out of committee.

Beyond politics, senators and business leaders have been willing to show support for the legislation because it effectively takes a middle-of-the-road approach to most design issues, including a mix of upstream and downstream points of regulation and a generous balance of allocation and auction of allowances.

Although passage of the Lieberman-Warner bill by the 110th Congress is highly unlikely, it is generally assumed that national climate legislation passed by the 111th Congress will have striking similarities to the Lieberman-Warner bill.

US business sees the potential for this legislation to help drive the low-carbon economy because it relies on market mechanisms and is less extreme than other proposals languishing in committee. Its measured approach to regulation is enticing to companies that have repeatedly asked Congress to lay out workable rules to which they could adapt.

In addition to legislation to frame the development of a price on carbon is the development of several mechanisms to trade carbon. In the US, many companies are preparing for the Regional Greenhouse Gas Initiative and the state-wide cap on emissions in California (AB-32) and are therefore buying from the compliance market. Volumes traded on the Chicago Climate Exchange, a membership-based cap-and-trade system, reached 23 million tons of CO2 equivalents last year.

The positive direction that climate-change legislation and carbon markets are taking in the US could go a long way to convincing cynical Europeans that the US really is ready to roll up its sleeves and get stuck into the fight against climate change. Continued niggling over the details aside, what is clear is that the momentum behind legislation, a budding carbon market and the appetite for leadership from North American corporations, states and cities mean it will take a mighty force to stop it.

This is a slightly longer version of the climate column appearing in May’s print magazine.

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