BIOMASS HUB

The Senate Climate Bill (APA) is off to the races without Graham, but with offshore drilling provisions. While advanced transportation technologies get support, biofuels stand to indirectly benefit through other provisions.

After efforts to introduce the Senate’s Climate Bill were sidelined in late April due to Sen. Graham’s (R-SC) sudden decision to withdraw support, Senators Kerry (D-MA) and Lieberman (I-CT) have marched ahead.

In a move likely precipitated by the Gulf oil spill, the Senate leaders introduced a long anticipated energy and climate change bill (American Power Act) Wednesday intended to cut U.S. greenhouse gas emissions and reshape the energy sector for the 21st century. At the end of the day, it’s about portion control — making our energy infrastructure leaner by cutting out the excess and incentivizing carbon-neutral technologies.

Kerry said the bill is essential for the United States to remain globally competitive and in control of its energy situation:

If we want to claim our share, we need to lead.

On climate change, the 987-page bill seeks escalating reductions in greenhouse gas emissions in coming decades that match the levels set as goals by the Obama administration and contained in a separate House energy bill (ACES) passed last year.

Specifically, the proposal calls for emissions reductions from 2005 levels of 17 percent by 2020, 42 percent by 2030, and 83 percent by 2050.

While aggressive with GHG reduction provisions, the American Power Act (APA) is short on biofuel-specific provisions, which is to be expected given the biofuel mandate expanded under the EPA’s RFS2. APA indirectly benefits the industry by acting as a vice intended to grow the value of low carbon fuels as a replacement for fossil fuels by placing a ceiling on the amount of carbon that can be pumped into the atmospher.

Some of the key strategies for incentivizing low carbon fuels under the bill include increasing fuel economy standards, incentivizing low carbon investments among municipalities and local government, creating offset incentives for farmers to reduce emissions on their lands, as well as insulating the refining industry from offset market forces.

Refining Industry Insulated from Offset Market


Instead of forcing the refining industry to compete for offsets in the open market, APA takes the producers and importers of fuel out of the greenhouse gas market in order to maintain a robust refinery market. This will enable refiners to work aggressively towards augmenting biofuel supplies without the distraction of competing on the open market for allowances.

A summary of the bill’s refinery provisions explains:

We take the producers and importers of fuels out of the greenhouse gas market, and instead require them to purchase allowances that have been set aside for them at a fixed price.

Since a robust domestic refining industry is critical to our national security, we needed to make a change. We took refiners and fuel providers out of the market. Instead of having them participate in the market for allowances, we made sure the price of carbon was constant across the industry. That means all refiners and fuel providers see the same price of carbon in a given quarter.

The system is simple. First, the EPA and EIA Administrators look to historic product sales to estimate how many allowances will be necessary to cover emissions for the quarter, and they set that number of allowances aside at the market price. Then refiners and fuel providers sell fuel, competing as they have always done to offer the best product at the best price. Finally, at the end of the quarter, the refiners and fuel providers purchase the allowances that have been set aside for them. If there are too many or too few allowances set aside, that difference is made up by adjusting the projection for the following quarter. These allowances cannot be banked or
traded, and can only be used for compliance purposes.

Gas, Efficiency, and Electrons

APA embraces the President’s efforts to create strong federal standards for greenhouse gas emissions and efficiency improvements in our vehicle fleet. The bill focuses primarily on incentivizing efficiency, electric vehicles, and natural gas for metropolitan and federal fleets as well as the trucking industry by investing more than $6 billion per year in critical new transportation infrastructure across the US.

Does APA Preempt the EPA’s Clean Air Act?

Not really. On APA’s interaction with the EPA’s Clean Air Act, Kerry explains:

This part of the bill has generated a lot of commentary and reporting recently, and some of it has just missed the mark. Here’s the deal: This bill does not take the EPA out of the mix on regulating carbon. In fact, it strengthens the Clean Air Act by expanding the authority of the EPA and making that authority permanent. First, the entire pollution-reduction program is under the authority of the EPA.  The bill specifically requires the EPA to regulate large sources of carbon pollution, but it does not allow it to issue what in many cases would be duplicative regulation of the same sources.  Essentially, what the bill says is that EPA should use the program specifically designed for making the deep reductions in carbon pollution called for in the bill.  The bill preserves key Clean Air Act tools for sources not in the program, and it calls on EPA to continue setting tough emission standards to reduce global-warming pollution from cars and trucks.  It also continues EPA’s ability to set performance standards for old, dirty power plants to make sure they clean up. 

Bringing the Farming Sector into the Mix

Farmers are exempt from the obligation to turn in greenhouse gas allowances under APA.

• We establish a new multi-billion dollar revenue stream for the agricultural sector through a
  domestic offsets program that provides incentives for farmers to reduce emissions on
  their land. The program provides USDA with primary authority over domestic
  agriculture and forestry projects.
• Additionally, the bill supports the Rural Energy for America Program (REAP), which has already
  reduced costs and created thousands of new clean energy jobs across rural America.

Comparison of Obama’s Policy, ACES, and APA

Below is a comparison of fuels and transportation policy goals set forth under the Obama Administration, the House’s ACES bill, and the Senate’s APA compliments of the Wonk Room.

OBAMA: Increase biofuels to 60 million gallons by 2030, low-carbon fuel standard of 10% by 2010, 1 million plug‐in hybrid cars by 2025, raise fuel economy standards, smart growth funding, end oil subsidies, promote natural gas drilling, enhanced oil recovery

ACES: Smart growth funding, plug-in hybrids, raise fuel economy standards

APA: $7 billion a year for smart growth funding, plug-in hybrids, natural gas vehicles, raise fuel economy standards; offshore drilling with revenue sharing and oil spill veto, natural gas fracking disclosure

Notable Quotes from the Biofuels Industry

Jonathan Wolfson, CEO and co-founder of Solazyme, Inc.:

The catastrophic event in the Gulf Coast is a tragedy that serves as a reminder that we need to accelerate our transition to a clean energy economy. This framework will allow companies to continue to develop and bring to scale innovative, low carbon technologies to ensure our country’s energy security.

John Doerr, Partner at venture capital firm, Kleiner Perkins Caufield & Byers:

Passage of comprehensive clean energy and climate legislation will allow the U.S. to be a worldwide leader in the next great global industry, green technologies. This pragmatic framework is crucial to the success of American entrepreneurship and will ensure a cleaner, stronger and more secure future for us all.

Jack Oswald, CEO of SynGest Inc.:

The substantive structure provided by Senators Kerry and Lieberman will allow the US Senate to begin the discussion around a long term energy policy – one that strengthens our country by reducing our dependence on foreign oil, creating new American jobs, and supporting energy intensive industries in a smooth transition to the clean energy economy of the future.

Related posts:

Biomass Blunder: Cap-and-Trade and Carbon Leakage

GHGs on the Run: The Regulatory Endgame After Copenhagen

Image: Flickr/Paolo Camera