Lieberman-Warner bill could raise gas prices - The Hill
May 20, 2008
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Lieberman-Warner bill could raise gas prices
By Jim Snyder
Posted: 05/19/08 06:09 PM [ET]
A bill that the Senate will debate after Memorial Day could add about 50 cents to the price of a gallon of gasoline, according to a study.
Lawmakers have spent the spring debating ways to lower prices at the pump. But they will soon find themselves discussing a measure that could push fuel costs even higher.
A study paid for by a group that represents oil refiners found that the global warming bill, co-authored by Sens. Joe Lieberman (I-Conn.) and John Warner (R-Va.), would raise pump prices by around 48 cents (in 2007 currency) by 2030. It also found that the bill would increase gas prices by as much as 13 cents over the next four years.
The debate highlights the difficulty lawmakers will face in trying to tackle global warming as they simultaneously try to provide economic relief to the nation’s drivers.
The Warner-Lieberman bill, which is expected to be debated on the Senate floor the first week of June, seeks to cut greenhouse gas emissions to 65 percent below 2005 levels by 2050.
It does so by imposing a cap on the amount of greenhouse gases an industrial sector can release. Companies that exceed that cap could buy emission allowances from greener businesses in an open market.
For refiners, the bill would act like a tax on carbon dioxide, a leading greenhouse gas released when fossil fuels are burned. The total price hit would reach 60 cents, the study predicts.
About 80 percent of that would be passed on to consumers.
The report was performed by NERA Economic Consulting , a group that has helped craft a cap-and-trade system in Europe, and underwritten by the National Petrochemical and Refiners Association (NPRA) , a group that has called efforts in the United States to reduce greenhouse gas emissions “premature.”
But the study reflects the findings of an earlier report performed by the impartial Energy Information Administration, a division of the Energy Department that tracks and reviews energy data. That report also projected around a 50-cent increase in gas prices due to new carbon dioxide emissions restraints.
Both reports also say a climate bill could lead people to drive less, which would lower demand and therefore the price of gas.
David Harrison, who heads NERA’s global environment group, said reduced demand could lower the price of gasoline and other refined products by nine cents. Overall, “There is a lot of uncertainty related to price,” he said.
The NPRA study and others could, however, leave supporters of a climate change bill open to charges of hypocrisy, given their simultaneous efforts to reduce gasoline costs by requiring the administration, for example, to stop filling the Strategic Petroleum Reserve, leaving more oil on the market.
The subject of gas prices will continue to dominate debate on Capitol Hill this week. House Democrats plan to take up a bill that would allow antitrust challenges to OPEC, the oil cartel.
Republicans will again push for measures that would open up areas that are now off-limits to oil and gas development as a way to boost domestic supply.
With debate on climate change set for the first week in June, the Senate Energy and Natural Resources Committee, meanwhile, is wading into the various economic analyses on Warner-Lieberman and other climate change bills at a hearing scheduled for Tuesday.
The National Association of Manufacturers , National Mining Association , Congressional Budget Office, Congressional Research Service, Environmental Protection Agency and Environmental Defense Fund have all examined the potential costs.
Charlie Drevna, the president and CEO of NPRA, said the reports should convince lawmakers to think twice before pursing aggressive climate change bills.
“Policymakers are going to have to get mugged by reality,” Drevna said. “This study is but one step in that mugging.”
But Paul Bledsoe, a spokesman for the National Commission on Energy Policy , a nonpartisan think tank, said lawmakers should be wary of economic predictions relating to a climate change bill.
“There is a lot of data out there,” Bledsoe said.
“The tricky part is that every one of the analyses makes assumptions about what the world is going to look like. It all depends on how quickly clean-energy technology will penetrate the marketplace.”
The studies do underscore, Bledsoe added, the need for some type of mechanism to control the costs to the economy. The Warner-Lieberman bill, for example, would create a Federal Reserve-like board that would keep track of allowance prices. If prices rose too high, the board could decide to release more credits in the market, thereby reducing the price.
Other bills include a safety valve that establishes a price ceiling for an emissions allowance.
There is also a cost to not acting, supporters of climate change legislation point out.
A manager’s amendment of the Warner-Lieberman bill released to lobbyists last week notes predictions by the Intergovernmental Panel on Climate Change (IPCC) that rising temperatures caused in part by humans will lead to more erosion on the coasts, decreased snow pack in the West — and therefore less water — and new threats to forests from insects and fire.
Crop output in Africa could decline 50 percent due to global climate change, IPCC reported.
Opponents will use more than costs to lobby against the Warner-Lieberman bill. The NPRA study also questions whether the emissions curbs called for in Warner-Lieberman are achievable.
For example, the study found that it would take “at least” 70 new nuclear reactors by 2030 to meet the bill’s climate goals. But the report suggests that could be an unrealistic expectation given the costs of constructing a nuclear plant.
Progress Energy estimated in March that it would cost nearly $15 billion to construct two 1,000-megawatt nuclear units. That price is more than 40 percent of an average investor-owned utility’s market capitalization, the study notes.
Also, NERA’s study says there would have to be a tenfold increase in wind power generation.
That translates into 40,000 new turbines, which would cover 2 millions acres, an area three times the size of Rhode Island.
Drevna said the addition of that many new turbines is likely to raise land-use issues and not-in-my-backyard concerns similar to those already seen in the debate over whether to build a wind farm in Nantucket Sound.
Harrison said NPRA did not seek to influence the outcome of the report. He said that lawmakers should view it and other studies as indicators of the potential effects of the Warner-Lieberman bill but that there were a number of uncertainties in such a broad bill that could affect the ultimate outcome.