Industries Push for Free Pollution Credits

By Stephen Power
Wall Street Journal
May 4, 2009

A growing number of industries are lobbying for free pollution
permits under legislation capping greenhouse-gas emissions, in a potential
threat to the funding for President Barack Obama's proposed middle-class tax cut.

A range of industries, including electric utilities, auto makers, and oil and
natural gas refineries, are making their case to lawmakers ahead of a vote on
proposed climate legislation expected this week by the House Subcommittee on
Energy and the Environment. The jockeying has intensified in recent days after a
push by electric utilities to secure up to 40% of the emissions permits for
free, an amount that would be proportionate to their share of U.S.
carbon-dioxide emissions.

The measure by Reps. Henry Waxman (D., Calif.) and Edward Markey (D., Mass.)
calls for reducing U.S. greenhouse-gas emissions roughly 20% below 2005 levels
by 2020 and 83% below 2005 levels by mid-century. It is largely silent on how
much companies would have to pay for pollution permits under a proposed
cap-and-trade system that would allow companies to buy and sell such permits.
Mr. Obama has called for auctioning off 100% of the emission allowances and
using the bulk of the revenue to fund tax credits for the middle class. His 2010
budget blueprint projects raising $645 billion from the auction of emissions
permits between 2012, when the system kicks in, and 2019. A smaller portion
would be devoted to research and development of low-carbon technologies. But Mr.
Obama and some of his aides have signaled they are willing to compromise on
giving away the pollution permits.

The bill's fate could hinge on how willing Messrs. Waxman and Markey are to give
in to the demands of about a dozen Democratic committee members who want to
soften the impact on their districts, which depend on coal, manufacturing, or
oil and natural gas for jobs.

"There are a lot of things in the bill I need to have changed," said Rep. Gene
Green (D., Texas). Mr. Green, whose district is home to the largest
petrochemical complex in the world, wants Mr. Waxman to give some pollution
permits to oil refiners for free. "If that's not in the bill, I can't vote for it," he said.

Refiners are lobbying to get for free 30% of the pollution permits, an amount
that corresponds roughly to the share of U.S. greenhouse-gas emissions produced
by transportation fuel. Without such allowances, the industry says, it will lose
out to refineries in India and the Middle East that ship their product to the
U.S. and don't operate under carbon caps at home.

"The electric utilities want 40%, and if they're getting 40%, the refiners say
'Why shouldn't we get 30%?"' Mr. Green said. Mr. Green said he has asked Mr.
Waxman to give the refining industry a smaller share of the allowances -- roughly 5%.

Messrs. Waxman and Markey have said they intend to work out a distribution of
the allowances after consulting with their colleagues, but haven't indicated
specifically how the matter will be resolved. A spokeswoman for Mr. Waxman said,
"We are encouraged by the progress that we are making, and the committee will
continue meeting with members to discuss the legislation."

Economists say generally that consumer prices will rise regardless of whether
permits are given away for free, and that giving them away for free will divert
money from other purposes in the public interest, such as tax cuts for
consumers. But "the politics of passing [climate legislation] in the committee
are tough; it's hard to be a purist," said Chad Stone, chief economist of the
Washington-based Center on Budget and Policy Priorities.

The issue is particularly thorny for the auto industry. The Obama administration
has billions of public dollars at stake in turnaround efforts at Chrysler LLC
and General Motors Corp. At the same time, Mr. Obama has vowed to promulgate
more aggressive fuel-economy standards for vehicles, which won't be cheap. Last
summer, the Transportation Department estimated that its proposal to require
auto makers to achieve fuel efficiency of 31.6 miles per gallon by 2015 would
cost auto makers $46.7 billion, which the agency said would make it among the
most expensive rule makings in U.S. history.

"There are a lot of interests competing for the pot of money, but I think
there's a general recognition that some of the revenue…should be used to push
advanced, low-carbon technologies because that's how we're going to drive the
emissions reductions we need," said Alan Reuther, legislative director of the
United Auto Workers.

The union, along with the Alliance of Automobile Manufacturers, is lobbying Mr.
Waxman to direct that a portion of the revenue raised from the auction of carbon
allowances go toward helping the industry develop more fuel-efficient vehicles
to meet a federal mandate to improve new-vehicle fuel economy at least 40% by 2020.

Mr. Reuther's concerns have been echoed by Rep. John Dingell (D., Mich.),
another swing vote on the panel who is leaning on Mr. Waxman to devote a portion
of permit revenue to an Energy Department program that awards low-interest loans
to car makers to develop advanced vehicles.


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