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Many businesses can no longer fight the inevitability of North America’s groundbreaking climate legislation: How will this impact your business?

23 June 2009

As Congress pushes forward with climate change and clean energy legislation
The House Energy and Commerce Committee approved H.R. 2454, the “American Clean Energy and Security Act” (ACESA), by a vote of 33 to 25 on May 21, 2009. This action was the culmination of weeks of negotiations among House members since the bill’s draft release by Chairmen Waxman (D-CA) and Subcommittee Chairman Markey (D-MA) on March 31 and an often adversarial markup last week between the majority and minority on the committee. Chairman Waxman, however, fulfilled his pledge to pass the bill out of the Committee by the Memorial Day Congressional recess.

The bill that passed was substantially revised from the base legislation. The new version places a cap on greenhouse gas emissions from covered sources at 3% below 2005 emissions levels starting in 2012, 17% below 2005 levels by 2020, and 83% below 2005 levels by 2050. 

The new draft also includes a detailed emissions allowance allocation (not included in the initial draft). Local electric and natural gas distribution companies, energy intensive, and trade-exposed industries would receive significant free allowances through 2025. 

Another key aspect of the bill is the “renewable electricity and energy efficiency standard” that would require utilities to supply 20% of their demand from a combination (under set calculations with state input) of renewable energy and energy savings by 2020. The bill also includes energy efficiency and building standards and efforts to advance the Smart Grid initiative and carbon capture and sequestration.

Next steps
With hundreds of amendments initially filed, agreements and batching of amendments allowed for committee passage; however, several steps still remain before the legislation reaches the President’s desk. Other congressional committees, including House Agriculture and the Ways and Means Committee, have asserted partial jurisdiction and may seek to hold hearings on the legislation. In addition, votes on the House floor will be close. While the Senate Energy and Natural Resources Committee has begun markup of an energy bill that would be compatible with the first titles of the ACESA, there is no current legislation moving in the Senate that is similar to the climate change portion of the House bill. As a result, there will be additional challenges in conference when the House and Senate negotiate differences between their bills and the legislation is considered by the Senate.

House Majority Leader Steny Hoyer (D-MD) has said the climate change legislation could be brought to the House floor before the August Recess, but Chairman Waxman has stated that the schedule has not been decided.

How will this impact your business?
This groundbreaking legislation will have an impact on any energy or carbon intensive industry.  Some industries, such as those in the power sector which in the US has a high fossil energy mix, will be included in the “cap” and will have to submit allowances for their carbon emissions. Other industries that are “outside the cap” but use large amounts of energy will be impacted indirectly as the cost of their energy bill or their feedstock rises to incorporate the fuel’s carbon price. In some cases, these cost increases may be offset by allocations provided directly by the Federal government, by partial allowances or revenues from the auction of allowances, or through tax incentives or grants. 

What should you do now?
Determine where your company falls in this legislation and how changes to it may or may not impact your bottom line. At this time of economic uncertainty, one thing appears clear: there will be a price on carbon in the future. ERM recommends that companies understand their carbon footprint, their vulnerability to carbon prices, and how they can mitigate those costs through engagement in the legislative process or through investment in efficient energy technologies. 

Our Energy & Climate Change team is helping companies understand their carbon profile, assisting them in developing energy and carbon strategies, and working with them to impact current legislation and upcoming regulations.

 

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