Opening Statement: A Hearing to Examine America's Climate Security Act of 2007
October 24, 2007

Contact:

Marc Morano 202-224-5762

marc_morano@epw.senate.gov

 

Matt Dempsey 202-224-9797

matthew_dempsey@epw.senate.gov

 

Senator Inhofe Opening Statement

 

 

Subcommittee on Private Sector and Consumer Solutions to

Global Warming and Wildlife Protection

 

A Hearing to Examine America's Climate Security Act of 2007

 

 

Mr. Chairman, I thank you for holding this hearing today on S.2191. This is a much needed hearing in what should be the beginning of the process of looking at the bill, examining it in-depth, hearing from a wide-variety of stakeholders. But that process is getting short-changed. And the full Senate and the American people will be short-changed as well.

Senator Boxer has been reported in the press as saying her goal is to complete Committee action on this bill before her trip to Bali. I would ask Chairman Boxer to repudiate that idea and publicly state that her goal is to get the legislation right, not legislate for a public relations deadline.

When this Committee considered the Clean Air Act Amendment of 1990, the Subcommittee and full Committee heard from over 60 witnesses from a vast cross-section of America during a series of legislative hearings examining the bill.

When we considered Clear Skies, we heard from dozens of witnesses examining the bill over a period of two years. We conducted staff briefings which all Committee staff were invited to participate. We obtained analyses from EPA and the Energy Information Administration. Even through this, members of this Committee complained EPA hadn't done enough analysis to allow them to understand the implications of the bill.

Yet for this bill, the entire extent of the process prior to a Subcommittee markup is to have one legislative hearing at which only one witness with grave concerns is invited. It also appears that the full Committee process will be truncated - that there will be an attempt to create the appearance of process, but no cooperation in providing Committee Members the opportunity to examine the substance of the bill.

In fact, it appears that no analysis of the massive impacts that this bill will impose on the U.S. economy has been conducted. Nor do we have an analysis of what this bill will achieve in terms of reducing global concentrations and, consequently, global temperatures - in short, the benefits. I fear the bill is all pain and no gain.

Every passing day brings more questions than answers. I have here a short preliminary list of questions about the rationale of various provisions and requests for clarification, which I request be made part of the record. This bill was released only last week, and we have had little time to analyze this bill and to hear from stakeholders, who themselves are just beginning to understand how it will affect them. I hope you will answer these questions and others that will be forthcoming before moving forward with a markup.

My concern is also with the fundamental construction of this bill. Our nation is headed for an energy crisis in the next few years. Just last week, the North American Electric Reliability Corporation (NERC) announced its annual 2007 Long-Term Reliability Assessment, and found that unless additional resources are brought into service, some areas could fall below their target capacity margins within two or three years. Over the next 10 years, we are expected to increase our need for electricity demand by 18% -- or 135,000 megawatts. Over that same timeframe, our committed capacity will grow by only 8%, or 77,000 megawatts. This bill will worsen the problem.

We do not know how expensive this bill will be, but we know it will cost more than McCain-Lieberman, which itself increases gasoline and electricity prices by 22 percent cuts production in 33 out of 35 sectors of the U.S. economy.

As Senator McCain's spokesperson, Melissa Shuffield is quoted yesterday as saying in an article discussing his decision not to co-sponsor the bill:

"We can't effectively reduce our emissions without including nuclear energy, which is more efficient than the technologies in the bill."

Senator McCain and I may differ on the need for climate legislation, but his point is hard to ignore. If nuclear is not part of the path forward, how do you plan to reduce emissions?

As we will hear in testimony from one of our witnesses today, Mr. Paul Ciccio, the unfortunate answer is that this bill will cause massive fuel switching to natural gas, driving industrial users out of the country.

There are many areas of this bill to criticize, such as the creation of what is essentially a new carbon Federal Reserve board completely insulated from oversight, the manipulation of its provisions to send money to certain states for no real reason other than to gain votes, and of course, its completely unrealistic targets and timetables. But I do not have time now to go through them all.

At its core, this bill, like all cap and trade bills, tries to obscure the real costs to our economy and the number of jobs we will send to China and other countries. And based on the experience of the Kyoto Protocol, it will not work. It is a far more honest approach to simply propose a tax. Unlike this bill, it would at least work, and would be far less harmful to the economy. It may not help companies wanting windfall profits, but it would do less harm to American families.

 

 

Senator Inhofe Questions about Lieberman-Warner Bill

(S.1291 "America's Climate Security Act of 2007")

 

S.1291 was introduced on October 18, 2007. Based on an initial review of the bill through October 23, 2007, below are a small number of preliminary questions that require clarification or explanation regarding the construction the bill's provisions. Upon further review and after an opportunity for stakeholders to comment, additional questions are expected to be raised.

1. Regarding the overall costs and benefits of the bill:

a. Has the bill been modeled by an econometric modeling firm?

b. Has a request been made to the Energy Information Administration or other federal governmental entity to model the bill?

c. If a request has been made from any entity, who is conducting the analysis and when is a response anticipated?

 

2. For Section 1201:

a. What is the basis for selecting a 2012 cap of 5.2 billion metric tons considering that total U.S greenhouse gas emissions are greater than 7 billion tons? (Section 1201(d).

b. In response to a Bingaman-Specter request July 26, 2007, on October 1, 2007, EPA presented has an analysis of the global CO2 impacts of several senate climate change bills. This analysis suggests that very stringent early phase reductions are projected to have marginal environmental improvements over climate bills with more gradual reductions during the early phases. Was this analysis considered in the selection of the early phase reductions?

c. From where is it anticipated that the early phase reductions will come from in terms of sectors and emission source types?

d. In terms of emission reductions, what percentage is anticipated to come from fuel switching, and what percentage from installation of new or replacement technologies?

e. One oft-repeated approach to emissions reductions is to "slow, stop, and reverse." Are the emissions targets chosen consistent with this approach?

 

3. For coverage under the bill:

a. What is the basis for selecting three out of six sectors of the U.S. economy for coverage under the bill?

b. Were the three sectors not covered because it would not be cost-effective to include them within the cap?

c. If cost-effectiveness was a criterion, what cost in dollars per metric ton that was used as a cutoff?

 

4. A "new entrant" is defined as a facility that commences operation on or after January 1, 2008. (Section 4(19))

a. What is the basis for selecting that date as the cutoff?

b. What is the rationale for requiring commencement of operations instead of commencement of construction as used in the Clean Air Act?

c. Has the difference in the number of qualifying facilities between these two definitions been evaluated?

 

5. For the definition of "facility":

a. What does "any activity... at a facility" mean?

b. Could this include coal mining operations or the transport of coal to a facility via train, truck, barge etc.?

c. Does the definition of "facility" to include "any activity or operation" also include fugitive emissions that are not under the direct control of the facility?

 

6. Under the bill, allowances can be borrowed for a period of up to 5 years. (Section 2302)

a. Why was 5 years considered an appropriate time limit?

b. Would 6 or more years provide more flexibility for sources that find it necessary to borrow allowances?

c. What considerations are more important than that additional flexibility that necessitate the more restrictive time period?

d. Since the allowances become increasingly scarce over time, which creates a sliding upward pressure on price, to what degree is it anticipated the borrowing mechanism will mitigate allowance price increases?

e. If future allowance prices exceed market prices for current allowances, will this mechanism be effective?

 

7. The bill seems to indicate that the interest rate on borrowed allowances is 10%. (Section 2302) Is the interest compounded annually?

 

8. Under certain conditions, the bill allows covered facilities to satisfy up to 15% of its allowance submission requirement with allowances or credits from foreign GHG trading markets. (Section 2501) One of these conditions is that the foreign government's program be of "comparable stringency" to the U.S. program. (Section 2502(b)(2)).

a. What criteria would EPA use in determining whether the emission caps, for example, of another country are "comparable" to those of a U.S program?

b. Would this "comparable stringency" be based on regulatory requirements or on compliance?

 

9. Under Section 2603, a Carbon Market Efficiency Board shall carry out one or more of six "cost relief measures" if the board determines that the emissions allowance market "poses a significant harm to the economy of the United States."

a. Would the board be empowered under the bill to provide cost relief measures if the economy of a region or an individual state faced significant economic harm?

b. What criteria would the board use to make a significant harm determination?

c. How would the board determine which measures and the precise extent of those measures that would be adequate to mitigate significant economic harm?

d. How would the board coordinate its activities with the Federal Reserve board in decision-making to relieve inflationary pressures on the economy, and which would be lead as between them in decision-making?

e. What allowance price is contemplated to pose significant risk of harm to the economy?

f. Is it contemplated that the CMEB will provide the same level of certainty for investors in advanced technologies as a tax or safety valve?

 

10. Section 3402 requires EPA to allocate extra allowances to states that enact statewide GHG reduction targets that are more stringent than the targets established under the bill.

a. What is the basis for providing an explicit inducement for states to adopt more stringent requirements?

b. Could this lead to inconsistencies among state programs that reduce the potential cost-effectiveness of a nationwide program?

c. What is the basis for an allocation level of 2% of the allowances for this purpose?

11. Section 3501 allocates 10% of the allowance account annually to load serving entities, which are overseen by state regulatory bodies. Section 3503(c)(3) prohibits the exercise of certain prerogatives on the part of these state regulatory bodies such as requiring the filing of rate cases in order to pass through the credit from the sale of allowances. What is the purpose of this provision?

12. Title III, Subtitle F provides bonus allowances for carbon capture and geological sequestration projects. Section 3604 limits these bonus allowances to the first ten years of operation. What is the basis for limiting the incentive to ten years?

 

13. Title II, Subtitle D states that domestic offsets have to be permanent. What exactly does that term mean in terms of biologic sequestration?

a. What are the anticipated impacts to food prices associated with providing incentives to farmers to convert cropland to grassland or rangeland?

b. What would be the impact of such incentives to production of ethanol and the cost of ethanol?

 

14. Section 3903(b) distributes allowances to rural electric cooperatives equal to their 2006 emissions. What is the basis for giving preferential treatment to rural electric cooperatives?

 

15. Regarding Section 1103(d):

a. What methods are facilities contemplated to employ to determine complete and accurate data for the years 2004 through 2007 where no data was collected or readily available?

b. Also for Section 1103(d), how are facilities that currently do not have monitoring systems in place going to be able to submit quarterly data starting in 2008?

c. Is the $25,000 per day for each violation going to apply these facilities for these time periods?

d. What is the process, and who is the authority, for determining what constitutes complete and accurate data for these time periods?

 

16. Based on EPA's 2005 U.S. greenhouse gas inventory, the electric generating sector accounted for 46% of the proposed 2012 cap level of 5.2 billion metric tons. Between allocations to generators and load serving entities, the bill allocates 30% of the total allowances to that sector, and reducing the sector's subsequently. What is the rationale for this differential treatment of the electric sector?

17. The allowance allocation to electric generating units in the first year of the program represents approximately 44% of that sector's 2005 emissions based on EPA's inventory. Electric demand is anticipated to increase, and reducing emissions by replacing current plants with lower or non-emitting plants will take years to achieve. Based on this, does the bill contemplate some mechanism, or set of mechanisms, whereby emissions will be reduced during this timeframe or allowances will be available, or will allowances have to be purchased?

a. If purchased, have preliminary cost estimates to electric generators and their customers been calculated?

b. At least one preliminary estimate indicates that the cost of allowances alone could be close to $500 for average households in the early years for some generators. Have cost estimates of electricity price increases to households through the purchase of allowances been calculated or modeled?

 

18. Section 3803 allocates 3 percent of allowances to projects in other countries for forest carbon activities.

a. What is the projected subsidy to other countries under this provision?

b. China's carbon dioxide emissions now exceed that of the United States and are projected to increase. Will China or other countries whose emissions eclipse those of the United States in the future be eligible for these allocations?

 

19. Regarding Section 8001:

a. This Section calls for a national assessment of carbon dioxide storage capacity. Presumably, this assessment would determine whether the US has sufficient capacity to geologically sequester the carbon dioxide that would have to be captured to comply with the bill. Absent the results of this survey which has not been undertaken yet, what is the basis for assuming the U.S has adequate storage capacity?

b. How do you envision the program addressing the long term oversight of the carbon storage sites?

c. This Section provides EPA with the legal authority to develop a permitting program for carbon storage through the Safe Drinking Water Act's Underground Injection Control program. Long term monitoring and particularly in the west, property rights, are just two of the several issues that will need to taken into consideration under any regulatory regime.

i. Is the bill's approach sufficient to address these issues?

ii. Should there be a statutory role for the states?

 

20. Subtitle G, Section 4702(b)(1)(F) stipulates money is available for adaptation activities in accordance with recovery plans for threatened and endangered species.

a. Does the bill envision that all existing recovery plans will be rewritten to address all climate change related effects?

i. If so, will the monies in the adaptation fund be available to FWS to re-write the recovery plans or will FWS have to bear that cost from other monies?

b. Within Subtitle G, how do does the bill contemplate FWS will prioritize species to receive adaptation funds?

i. Is it based on their overall threatened or endangered status or the degree to which they are affected by climate change?

ii. Are plants and animals not affected by climate change eligible for these funds?

iii. How does the Department of Interior distinguish those ecological processes that are due to man-made climate change from those that due to normal species development and evolution?

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