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Conversations on the Hill and with US industry representatives on a climate change bill

I had recently exchanged views with the staffs of Representative Dianne Feinstein, Senator Jim Webb and Representative Jay Inslee on the shape of a future US climate change bill in Washington DC. Their knowledge of our ETS including the difficulties of the first trading period were extremely high.

Congress wants to adopt a climate change bill quickly. However, the US is still at the beginning of the process. Legislators are studying all possible options such as fixing the price of carbon, create an ETS and tackling carbon leakage with a border tax.

Possible time frame of the adoption of the bill

My interlocutors are divided on the time frame for the adoption of such legislation. Some of them consider it realistic to see a first proposal before the end of the year but do not believe on the adoption of a bill before the end of 2009. More realistically, the consensus is on a possible adoption in 2010 after Barak Obama’s interim, first round of elections.

In the meantime, an acceleration is possible as large industries and NGOs collaborate to draft the framework of an future US climate change bill. This work, which is very advanced, could be the basis for the discussion in Congress.

Another factor to take in consideration is how the new energy Secretary Steven Chu and President Obama’s environment Advisor Nancy Sutley will share their powers and who will have more political weight. Nancy Sutley is seen in Washington to be the one who will probably drive the climate change issue rather that Steven Chu or Lisa Jackson, the new administrator of the Environmental Protection Agency. Nancy Sutley is known for her green credentials which could pose difficulties in her relations and discussions with the Congress. This could cause delays in the adoption of the bill.

Lessons to learn from the previous proposed climate change bill in the US

For my interlocutors, the previous proposed climate bills were not very well prepared and failed for two main reasons:

1- The proposed bills were focused on environmental protection. For my interlocutors, most of the Congress sees climate change as an energy issue. For Congressmen, a climate change bill would be easier to sell to their electors if it were focused on the issue of energy supply security.

2- Some of the proposed bills indicated how to spend the revenue coming from a climate change scheme in an mandatory way. Congress felt uncomfortable with such provisions. Such articles could be considered anti constitutional: Congress can not adopt a bill which engages expenditures more than more one or two terms.

However, in the Congress a lot of obstacles are lifting for the adoption of a climate change bill with Senator Barbara Boxer remaining chair of Senate Environment and Public Works Committee and the new chairmanship of the Energy and Commerce committee by Congressman Henry Waxman, who previously wrote a cap and trade bill which called for 1990 levels by 2020.

Lessons to learn from our ETS

My interlocutors were aware of the difficulties of our first trading period: over allocations based on inappropriate data and the fluctuation of the carbon prices that resulted in this situation. In their view, our ETS failed to give to the market the right price signals.

One of our main problems in Europe is the insufficient data. This does not appear to be such a problem in the US. Some of the US legislations already require data on carbon emissions. If the US would create an ETS, the bill would almost certainly have a set-up period to collect data before starting the trading period.

The bill will be not tailored to some specific parts of the economy that produce the most CO2, but it will apply to the entire economy including transportation.

Few of my interlocutors discussed the idea of a carbon tax and are more favorable to consider an ETS. The general consensus is that the CO2 price should be around 20$.

Has the USA become a socialist country?

In a country which is used to believe in the power of the market, some of my interlocutors said that they are in favor of a fixation of CO2 prices by the government. This idea comes from big private companies including major energy ones.

Some of my interlocutors pledge for a taxation of gas in order to establish a fixed price. This fixed price will allow the financing of renewable energy projects even in case of a decline in gas prices. The system will have the advantage of not undermining the profitability of such projects.

Linking between an US and EU ETS

The US legislators are favorable to a linkage between a future US scheme and other international schemes including ours. However, my interlocutors believe that this linkage will be extremely difficult. In their views, Europeans will refuse to link the EU ETS with an US scheme with a 20$ carbon price.

I question DG environment on this subject. For the Commission, the price is a signal sent to the market. A lower carbon price in the US can demonstrate that the US uses more efficient technologies. In this framework, the Commission could assess if the price is artificially low to protect the US industry or if the price reflects the real situation of the market.

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