Monday, March 22, 2010

After Health Care, Climate Change

With health care almost through the US Congress – just the small hurdle of a simple majority Senate vote to come – the attention is now moving to the climate change legislation that has been stalled in the Senate for some considerable time.

Democrat senator John Kerry has been working for several months with Republican Lindsey Graham and independent senator Joe Lieberman, to develop a compromise version of a bill that they think could secure bipartisan support. This move has received support from the environmental organizations as well, surprisingly, from the American Chamber of Commerce. There appears to be fast moving support for the new bill, due to be released before the end of this week.

The new bill downgrades emission reduction targets as set out in the original and much derided Boxer-Kerry bill, proposing cuts in emissions of 17 per cent by 2020 on 2005 levels as opposed to the original 20 per cent target. The new bill also proposes increased financial support for the nuclear energy, domestic oil and gas, and clean coal industries, and sets out many safeguards designed to support those sectors that would be hit hardest by the introduction of a nationwide emissions cap-and-trade scheme. For example, it raises the prospect of a price ceiling for carbon credits, financial assistance for those sectors that face the threat of "carbon leakage", incentives to help farmers cut emissions, and trade measures to protect US firms from "imports from other countries that do not adhere to emissions-cutting measures". This last provision targets, according to some commentators, bitumen from the Alberta oil sands.

Gone, at least for now, is any suggestion that a new draft bill will include cap and trade arrangements covering all of US industry. Instead, it is likely to focus initially just on energy producers, with provisions for this to be extended later to other manufacturing sectors.

One other provision of the bill will to encourage and enable investment in green technology. This will be done in part by direct government investment, support for feed-in tariffs and other R&D investments, but may also include other measures. Meantime, in Britain, the Government has indicated its intention of creating a state run Green Investment Bank with initial capital of £2 billion ($3 billion) and other jurisdictions are looking at issuing Green Bonds to support technology developments related to climate change mitigation, renewable energy and transport systems.

Opposition to the bill will likely be strong. Senator Inhoffe, the High Priest of climate change skeptics, will oppose any attempt to introduce emissions controls, cap and trade and supports for renewable energy on the ground of it not being needed (the science is corrupted) and being bad for the economy. Others will oppose the bill on the grounds that it doesn’t go far enough. Yet others will suggest that the US cannot afford to do anything while its debts are so high.

Canada will watch these developments with interest. There is a clear commitment that the Canadian cap and trade and climate change policies will be aligned to those adopted by the US. Based on the idea that doing otherwise might create competitive disadvantage for Canada, focusing cap and trade on energy producers and creating incentives for technology based innovation is in line with the current Canadian governments thinking. The Liberals, NDP and Bloc will likely seek to push Canada to do more than the US.

Health care reform is a key moment for the Obama administration – a turning point from being a “no change yet” President to becoming “a yes we can, a little” President. Climate change is likely his next challenge.

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