September 30, 2009 / 8:42 PM / 11 years ago

Fight looms on U.S. climate price controls

WASHINGTON (Reuters) - Electric utilities and heavy industry will fight for stronger controls on the prices of greenhouse gas permits than those offered in a draft climate bill unveiled on Wednesday by lawmakers in the Senate.

The bill proposed by Democratic Senators Barbara Boxer and John Kerry features a so-called “soft collar” on the price of permits to emit greenhouse gases like carbon dioxide.

The mechanism seeks to protect polluters, like power plants, cement makers and oil refiners, from excessive costs should prices in a national emissions cap-and-trade market spike. It could also protect consumers, as industry would likely pass high emissions costs on to prices for things like electricity, motor fuels and materials.

Unlike a hard collar that would simply prevent prices from getting too high or too low, a soft collar would allow the U.S. Environmental Protection Agency to auction off permits to pollute from a reserve once permits hit the $28-per-ton level.

The Boxer-Kerry proposed bill would go a step further than the House bill by escalating the $28 ceiling by 7 percent a year plus the price of inflation from 2018, rather than escalating it by 5 percent plus inflation.

As the bill stands now, it won’t likely do enough to attract the 60 votes needed to make it “filibuster-proof” to pass the Senate.

“We believe the ‘soft’ price collar mechanism in the climate bill may need to be strengthened (into a hard collar) to gain support from moderate rust-belt Democrats,” Whitney Stanco, a policy analyst for Concept Capital’s Washington Research Group, wrote in a note on Wednesday.

Democratic Senators on climate regulation in the industrial states include Sherrod Brown from Ohio, Debbie Stabenow in Michigan, and Evan Bayh in Indiana.

NEGOTIATION POINT

The Edison Electric Institute, an industry group, declined to talk about specifics of the proposed bill, but said in a release it wants an “effective price collar with a moderate floor and ceiling on allowance prices to contain costs, reduce volatility and concerns about potential market manipulation.”

An industry source who did not want to be identified, however, said the power industry would like a hard collar with a lower maximum price ceiling than the $28 in the proposed bill.

“If anyone is going to criticize it is going to be the utilities, because it imposes a higher baseline cost than they would have wanted,” said Kevin Book, an analyst at Washington-based ClearView Energy Partners, LLC.

Jason Grumet, president of the Bipartisan Policy Center, said inclusion of a collar in the proposed bill was a “significant step toward building the consensus needed for action,” on climate, but he added there will be haggling from all sides on how to make it better.

“The whole thing is starting left of center,” said Book, about the proposed bill. “It is a point from which to negotiate.”

Editing by Christian Wiessner

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