Interstate Oil and Gas Compact Commission

On the Hill for May 2009

(Washington, April 28, 2009)  Congress was back in session last week after the Easter recess for a busy 5 weeks before its Memorial Day recess.  On the energy front a lot is happening in Washington.  For one thing, energy was on President Obama’s agenda almost every day last week as he took part in numerous Earth Day events.  One of the things President Obama talked about was the economic danger to the U.S. of dependence upon overseas oil.  Obama’s solution, however, is not expanded domestic oil and natural gas production as much as it is a huge new federal government effort to develop and deploy renewable sources of energy.   

Also on the energy front, efforts are ramping up both on Capitol Hill and in the Obama Administration to limit the release of greenhouse gases into the atmosphere.  On Capital Hill, both the House and Senate are working on draft climate change bills.  On the House side, Congressmen Waxman and Markey unveiled the Democrats’ bill on March 31 in the form of a discussion draft.  Last week they began holding a series of hearings on the bill.  The hearings began with industry leaders testifying.  According to Congress Daily, Markey and Waxman were careful to draft their bill so as to secure the support of an industry coalition (auto, oil, electricity, chemical and others) known as the U.S. Climate Action Partnership.  It appears that industry support at the hearing was not as enthusiastic as expected because the current draft bill lacks critical details that are important to industry.  Reportedly the debate is over whether the bill should start with free allowances for businesses and only eventually require a complete auction for credits or whether all credits should be auctioned from the outset as the Administration has proposed.  This makes a huge difference to industry.  By and large Republicans are not supporting the Waxman-Markey approach.  With industry support, however, Democrats apparently believe that Republican opposition can be neutralized.     

On the Senate side, climate change legislation appears to be on a slower track.  It will also likely be much harder in the Senate to get a climate change bill passed than on the House side.  For instance, earlier last week Senator McCain, while saying that he had long supported a “cap and trade” climate change bill, blasted the Administration approach that requires all credits be auctioned from the outset.  Speaking at a national energy symposium, Senator McCain called the Administration cap and trade proposal “an irresponsible, ill-conceived, and distorted version of a cap and trade system that the President’s budget relies upon to raise nearly 650 billion dollars of revenues from a climate credits auction.  The President’s proposal of auctioning one hundred percent of the carbon credits in bad economic policy that would cost businesses billions of dollars and allow for little to no transition into a low carbon system.”  Bear in mind that this is a criticism from a Republican supporter of cap and trade.  Not all Republicans share this view and would much prefer to see, if anything at all, institution of a carbon tax.  The argument is that a carbon tax would require a much smaller government bureaucracy to administer and would be far more transparent. 

While at the start of this new session of Congress there was considerable opinion that climate change legislation would be unlikely this year, that view has shifted with the strong support of the Administration for early action on a climate change bill.  Congressional Democrats have thus stepped up their efforts.  As noted above, however, the challenge lies in the Senate.  It may yet prove difficult to secure a 60 vote filibuster-proof majority there to pass such a bill.  This brings up another issue--the Budget Resolution.

Prior to leaving on their Easter recess both the House and Senate passed Budget Resolutions, both without a single Republican vote.  The House and Senate will soon enter into negotiations to reconcile the two differing resolutions.  One option for House and Senate leaders is to include Reconciliation in final resolution for both health care and energy that would allow passage in the Senate with a simple majority vote, 51 Senators and not 60.  It is of consequence in that inclusion of Reconciliation would make passage of a climate change bill far easier and would mean that any bill that does pass would likely be stronger as there would be no need to water it down to secure Republican or moderate Democrat support.  Expect a bitter partisan fight on this, although there have been some reports that agreement has been reached not to apply Reconciliation to climate change.  Stay tuned.

Efforts to limit the emission of greenhouse gases into the atmosphere haven’t been limited to Capitol Hill.  Two weeks ago the Obama Administration, through the U.S. Environmental Protection Agency (EPA) under the Clean Air Act, announced a finding that emissions of carbon dioxide (CO₂) and five other gases (methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulfur hexafluoride) endanger public health and welfare.  This means that the Administration has effectively announced its intention to limit the release of these gases into the atmosphere.  Of course, if Congress acts and the President signs legislation into law, it will take make unnecessary the EPA move.  In the meantime, it makes clear that change is coming one way or the other and that the quantity of greenhouses gases that are released into the atmosphere will eventually be capped in the U.S..  One reason for taking the EPA action was to increase the pressure on Congress to act, sooner rather than later.  This is because the regime implemented by EPA under the Clean Air Act is likely to be far more rigorous and less flexible than would the regime prescribed under legislation.  Of course, this all means that CO₂ has now in essence been declared a pollutant.  For more information on this see the Wall Street Journal article entitled How Carbon Dioxide Became a ‘Pollutant’.

Of note, one component of the Waxman-Markey climate change discussion draft is a provision requiring the Secretary of Energy in coordination with the Federal Energy Regulatory Administration and EPA to conduct a study to assess the need for and barriers to the construction and operation of pipelines to be used for the transportation of carbon dioxide for the purposes of sequestration and enhanced hydrocarbon recovery.  Along these same lines, the IOGCC has recently formed a Pipeline Transportation Task Force to undertake a scoping on behalf of states of the issue of CO₂ pipeline transportation.  Funded by the U.S. Department of Energy and the National Energy Technology Laboratory through the Southern States Energy Board, the task force will hold its first meeting in Anchorage, Alaska on May 13 and 14, 2009.  The task force will be chaired by former IOGCC Vice Chairman Robert Harms of North Dakota and will produce a report in 14 months that should help states begin to understand the issues that will need to be addressed in licensing and regulating new CO₂ pipelines.  While not directly connected with the ongoing IOGCC Carbon Capture and Geologic Storage (CCGS) Task Force, the Chairman of the CCGS Task Force, Lawrence Bengal of Arkansas, will serve on the new Task Force as a liaison between the two task forces.