As of May 22, 2009, the bill (The American Clean Energy and Security Act of 2009 — HR 2454) was approved in a House committee after considerable “policymaking” efforts. The bill was passed in a 33-to-25 vote and lays the groundwork for a greenhouse gas cap-and-trade system.

Despite the rhetoric against a cap-and-trade system, this is not the first U.S. federal cap-and-trade system. Gases such as SOx and NOx (also declared air pollutants) are covered by a cap-and-trade system that has been in place since the early 1990s.

The key elements of the House bill are:

A “small segment” of businesses, including utilities, factories and refineries (those that produce gasoline and other fuels), would be required to buy allowances.

A reduction in greenhouse gasses by 17 percent compared with 2005 levels by the year 2020, and by 83 percent by 2050, would be required.

Electrical utilities would be required to generate 15 percent of their electricity from renewables by 2020 (watch the ongoing battle to define “renewables”).

A “floor price” of $10 per ton would prevent the price of carbon allowance permits from sinking too low, and a ceiling price of $28 per ton (during the first year) would be established. If the cost per ton went above $28, more allowances would be “released” to the market.

Most of the allowances would be distributed (given away free) as opposed to auctioned off (this is the greatest criticism from some environmental groups).

The “free” allowances would be distributed to: electric power companies; regulated electric utilities or local distribution companies; merchant coal and independent generators with long-term power contracts;
regulated natural gas distribution companies (beginning in 2016) and to home heating and propane consumers.

Now the fun begins. The bill was referred to eight other committees, including the Ways & Means Committee and the Agriculture Committee. The Ways & Means Committee will “consider” tariffs to protect U.S. goods competing with those from countries lacking regulations on greenhouse gas emissions (read: India and China). The Agriculture Committee will of course examine “incentives” for biofuels such as ethanol.

With regards to the battle for what are renewables, the definition was expanded to include certain hydro, biogas, biofuels, coal mine methane and waste-to-energy projects.

Those in Favor and Those Against

So who likes this “imperfect” bill?

Apparently the White House supports the bill, although it is weaker than what was initially advocated (100 percent auctioning of allowances versus 85 percent “free”).

Greenpeace withdrew its support, but the Environmental Defense Fund (EDF) supports the bill. EDF does not believe that the strength of the bill was impacted by the change in auctioning versus free allowances.

One of the more interesting supporters was AFL-CIO President John Sweeney. His comments are provided below:

“America’s workers commend Chairman Henry Waxman and the members of the House Energy and Commerce Committee for their leadership on the crucial issues of addressing climate change, investing in green technologies and creating jobs. Passing The American Clean Energy and Security Act out of committee was an important step forward, and as currently marked up, it makes significant, job-creating investments, while attempting to minimize impacts on existing workers.

Addressing the issues of climate change and energy policy is of immense importance. We must do it properly to prevent harmful effects on America’s workers.”

The Bottom Line

The bill will go through several changes in House Committee, and who knows what this will look like when it gets thru the Senate.

It is clear that there is no time to waste in quantifying your carbon footprint both “within your fence line” and within your supply chain. In addition, carbon labeling of products may actually be gaining some traction. One of the amendments, which was approved by the House Energy & Commerce Committee “appears” to lay the groundwork for a carbon labeling program for all products sold in the United States. The amendment, proposed by Rep. Tammy Baldwin (D-WI), requires that the EPA administrator conduct a study to “determine the feasibility of establishing a national program for measuring, reporting, publicly disclosing, and labeling products or materials sold in the United States for their carbon content…”

What impact carbon legislation might have on your business (operations and brand value) is the key question. Evaluating this potential impact (and opportunity) is smart risk management for any business.