From today’s Washington Post:

Q and A on the Climate Bill

By David A. Fahrenthold and Steven Mufson
Washington Post Staff Writers
Sunday, July 5, 2009 7:21 PM

The climate bill approved by the House last month started out as an idea — fight global warming — and wound up looking like an unabridged dictionary. It runs to more than 1,400 pages, swollen with loopholes and giveaways meant to win over un-green industries and wary legislators.

Here are answers to some key questions about the bill.

How would it work?

The legislation sponsored by Reps. Henry A. Waxman (D-Calif.) and Edward J. Markey (D-Mass.) would set a limit on greenhouse gas emissions and gradually tighten it. Major emitters of greenhouse gases — including any business that burns fossil fuels such as oil, natural gas or coal — would have to reduce their emissions or buy allowances, which would be traded on markets like commodities. This would be the first economy-wide limit on greenhouse gases in the United States; Europe has had a similar system in place for years.

Would this bill stop climate change?

No. Even if it works exactly as planned — delivering a 17 percent reduction in U.S. greenhouse gas emissions by 2020 compared with 2005 levels — it might not slow down the rate of climate change by very much.

That is because emissions are a global problem: Greenhouse gases contribute to the Earth’s warming whether they are emitted in China or in Chevy Chase. Even if the United States meets the legislation’s goals for 2020, the world’s total emissions would be reduced by about 3 percent, according to Energy Department projections.

That would be a start, environmentalists say. Usually emissions grow as the economy grows, so a 17 percent cut would be a huge feat for the energy industry. But scientists say that far deeper cuts are needed to head off disaster from warming temperatures, rising sea levels and other climate changes. The legislation would require reductions of 42 percent by 2030 and 83 percent by 2050.

What will all this change cost, and who will pay?

Less than 50 cents per household per day, according to estimates by the Environmental Protection Agency and the Congressional Budget Office. And that does not take into account benefits from avoiding hard-to-calculate costs associated with accelerating climate change.

According to the Heritage Foundation, a conservative think tank, the cost would be much steeper: $11.78 per day in the coming decades. According to House Republicans, the costs would cripple the U.S. economy and drive American jobs to countries that do not have climate regulations.

These costs are a mix of higher prices for carbon-based fuels — the whole idea of a cap-and-trade system — offset by a complex series of tax breaks and free allowances, new technologies and behavioral changes, and impacts on corporations and their profits.

Any estimate is tough to make because it is difficult to forecast exactly how the system would work and what new technologies will emerge. New technologies might make it cheaper to turn wind and sunlight into electricity, or make it possible for coal plants to capture carbon dioxide on a wide scale and store it underground.

Or they might not: It is difficult to forecast the effect of inventions still un-invented. Photovoltaic cells are similar to computer chips, whose prices keep falling, but carbon capture and storage is largely uncharted territory.

What did Waxman and Markey give away to get the bill passed?

Plenty. But the compromises — with the possible exception of one involving agriculture interests — would affect who pays the costs of cutting greenhouse gases, without undermining the emission targets.

What Waxman and Markey gave away were free emission allowances during a transition period of 10 to 20 years. The biggest chunks would reduce costs for certain companies and consumers, especially those reliant on coal. Other allowances would essentially be subsidies, going to states, a new clean-energy bank, forestry groups, automakers, and others that would sell them and use the proceeds.

Who loses in these compromises?

The federal government. Under President Obama’s initial proposal, the federal government would have auctioned off 100 percent of the emission allowances under the cap. The Waxman-Markey bill would auction off about 15 percent to start with and would not phase out the free stuff until 2030. During the program’s first 10 years, a full auction could have pumped an extra $713 billion in revenue into the Treasury. That could have been used to slash the deficit, pay for health care, cut payroll taxes or fund energy research. Obama had proposed a combination of energy aid for lower-income households and an extension of a temporary tax cut approved this year.

Who benefits?

— Local electricity distribution companies that rely heavily on coal would get 35 percent or more of the allowances through 2025. Local utility regulators would decide whether costs can be passed through to consumers, but the Waxman-Markey bill has provisions designed to ensure that the benefits of free allowances flow to consumers.

That is great politics. But it means consumers would not have as much financial incentive for energy-efficient home improvements. The bill would still send powerful signals to anyone building a power plant, which is expected to last long after the phase-out of the proposed free allowances.

— Energy-intensive manufacturers, such as those that make aluminum, glass or steel. These firms are worried about competition from countries such as China and India, which do not price greenhouse gases. These firms would get 10 to 15 percent of allowances for most of a decade. (A tariff would take effect in 2020 for goods from countries still lacking carbon prices.)

— Various companies and agencies. According to Point Carbon, a market analysis firm, rural electricity firms would get an extra $6.4 billion worth of allowances thanks to an amendment to the bill. Three-quarters of 1 percent of all allowances would go to about a half-dozen small, independent oil refiners, said Kevin Book, managing director of research at ClearView Energy Partners; major oil refiners would get 2 percent of allowances. Automakers would need allowances to cover only their manufacturing emissions, not tailpipe emissions. But they would still get 3 percent of allowances for six years, then 1 percent of allowances for eight more.

Companies working on carbon capture and storage would get as much as 5 percent of allowances.

In the initial years, state governments would get 10 percent of allowances, which they would sell to finance a range of energy-efficiency activities, including mass transit.

An additional 5 percent of allowances would help groups fighting deforestation. They would sell the allowances to fund projects in places such as Brazil, Indonesia and China.

What could go wrong?

The bill’s success depends heavily on carbon offsets. These are official certificates given for greenhouse gases that might have been emitted but were not or for emissions that were somehow removed from the atmosphere.

U.S. polluters could buy them and pay someone else to reduce emissions, instead of doing it themselves. But, if some offsets turn out to be bogus, the climate loses and the system bleeds credibility.

The idea behind overseas offsets is that foreign companies might be able to reduce their emissions more cheaply than U.S. firms could here. That would provide an equal benefit to the climate at a lower cost. It also might prompt foreign companies to buy emissions-reducing technology made in America.

If the government does not allow offsets from overseas, the EPA estimates, this might drive up the price of carbon credits, the allowances that polluters need for each ton of greenhouse gases emitted, up by 89 percent.

But some critics say that it will be difficult to verify whether an overseas company really reduces its emissions — and show that these reductions would not have happened on their own. Offsets make political targets, too. “I’m sure our constituents want our money shipped overseas to plant trees,” House Minority Leader John A. Boehner (R-Ohio) said sarcastically during debate on the measure.

“I think people will buy the offsets,” said Kenneth P. Green, a resident scholar at the American Enterprise Institute, a conservative think tank. “The question is whether or not the offsets, especially the foreign ones, can be validated and meaningful.”

What about U.S. farmers?

U.S. agriculture interests won two key concessions. Unlike interest groups that won free allowances, the agriculture concessions could undermine the cap. That is because the bill would put the Agriculture Department, instead of the EPA, in charge of agricultural offsets. Those could include credits for tillage techniques that would minimize carbon dioxide emissions. If the Agriculture Department is too lax with standards or credits for long-standing practices, it could mean little change in emissions.

What else is in the legislation?

A lot. It is called a cap-and-trade bill, but key portions are about regulation. The provisions would act as backstops, cutting emissions even if the cap-and-trade system does not work as advertised.

One section would require new coal-fired power plants to emit 50 percent less carbon dioxide than existing plants do. Plants licensed after 2020 would have to cut emissions by 65 percent. Other parts would establish more energy-efficient building standards and order the phasing out of hydrofluorocarbon, a refrigerant that is a strong greenhouse gas.

Finally, the legislation would establish a nationwide renewable electricity standard, requiring utilities to meet 20 percent of their 2020 power needs from renewable energy sources or energy efficiency. The generous set-asides for efficiency and the definitions of renewables make this standard weaker than those most states have already adopted.

How will the world view this?

This might be the most surprising answer of all: A bill swimming in bureaucratic minutiae might make its biggest impact as a broad-stroke idea, a symbol that the United States is serious about climate change.

“It really sends a signal to the international community that one of the largest emitters means business,” said Elizabeth Perera of the Union of Concerned Scientists, an environmental group. If that persuades other large-scale polluters such as China to set their own emissions standards, Perera said, the world might get the major reductions that scientists say are needed.

© 2009 The Washington Post Company