The Senate climate bill is dividing the fossil fuel industry, revealing deep fissures among big energy interests over how to tackle climate change while protecting their own interests.
The National Petrochemical & Refiners Association said the "draconian" legislation should be rejected, while Shell, the third-largest U.S oil company, praised it as "a fresh approach" to carbon regulation.
Last week, after eight months of negotiations, Senators John Kerry (D-Mass.) and Joseph Lieberman (I-Conn.) rolled out their long-awaited compromise cap-and-trade package, the American Power Act (S.173). The sprawling, 987-page legislation would impose a cap on greenhouse gas emissions with a mandate to cut carbon pollution by 17 percent from 2005 levels by 2020 and 83 percent by 2050.
While most observers think the bill is unlikely to secure passage, that has not stopped every corner of the energy industry from weighing in to pressure Congress. The positions they’ve taken expose the fault lines any comprehensive legislation will still have to bridge despite the many compromises and concessions it already contains.
The current bill works hard to regulate greenhouse gas emissions from power plants, factories and transportation with a "tailor-made" approach for each — one "that recognizes the different needs of our different industries."
That’s why domestic producers and importers of refined petroleum products get unique treatment: they would not participate in the carbon market, the bill says. Instead, the industry would purchase pollution allowances from the Environmental Protection Agency (EPA) on a quarterly basis at a fixed price from the allowance auction.
Industry at Odds as Big Oil Gets ‘Special Giveaways’
While the bill prompted National Petrochemical & Refiners Association (NPRA), a trade association of 450 groups, to call it a "costly" death knell to the nation’s economy, Shell — which helped write the bill — said it would "strengthen our economy, create jobs and enhance our energy security."
In turn, other groups blasted the special treatment given Shell and other big oil firms by the bill’s primary authors.
The American Council for Affordable and Reliable Energy (ACARE), for instance, a coalition of business groups with ties to the coal industry, said the legislation contains "many special giveaways" to "certain major energy companies." In particular, ACARE slammed senators for adding a "linked fee" for gas, diesel and aviation fuels that would somehow be tied to the price on carbon.
The measure was supported by oil majors Shell, BP America, ConocoPhillips, ExxonMobil and others. Revenues would be reallocated to consumers to offset potentially higher prices at the pump, according to the bill.
"Senators Kerry and Lieberman have denied that there will be a specific gasoline tax, and so throughout the bill it is called a ‘linked fee,’" said Mike Carey, president of ACARE.
"This ‘linked fee’ will hit the lower and middle income families particularly hard as they pay a disproportionate percentage of their income on energy."
The transportation sector is responsible for nearly one-third of U.S. greenhouse gas emissions, according to U.S. Department of Transportation figures. Most analysts agree that reigning in vehicle emissions is a must for any effective carbon control regime.
But the controversial fee remains a lighting rod for industry groups who say it is nothing more than a gas tax in disguise.
The American Trucking Associations (ATA), which represents some 2,000 trucking companies, said it "cannot" support the bill, calling the measure "a hidden multi-billion-dollar tax."
Shell maintains that the legislation encourages the development of "home-grown energy" in the transport sector and enables refiners to compete against imports of diesel and gasoline.
On natural gas, the oil giant was particularly pleased. The bill calls for "significant" tax incentives to convert trucks and heavy duty vehicles to natural gas.
Texas oil tycoon T. Boone Pickens, creator of the Pickens Plan, which calls on Washington to switch the entire federal fleet to natural gas, commended the senators for its focus on "replacing foreign oil/diesel/gasoline with cleaner, abundant domestic natural gas."
America’s Natural Gas Alliance, a group of 34 natural gas companies, was less sanguine. It called the natural gas provisions a "useful starting point" but said "much more could be done right now."
Utilities, Manufacturing See Upside
For major power producer Duke Energy, which gets around 70 percent of its electricity from coal, the bill represents an "extraordinary" effort.
"The legislation can help the U.S. get its economic ‘mojo’ back," said Jim Rogers, Duke Energy’s chairman, president and CEO.
Calling himself an advocate for coal, Rogers said the legislation would help "get our transition right" to clean energy in a manner that protects U.S. families and factories.
Whether that is true or not, however, remains an open question for manufacturing lobbyists.
In that sector, reactions were split between those claiming the extra costs of carbon compliance would send U.S. jobs overseas and those that said it could keep America competitive.
Under the bill, importers from nations that have no carbon-reduction laws would have to pay up at the border to avoid so-called "carbon leakage."
The American Materials Manufacturing Alliance (AMMA), a group of self-described ‘trade-exposed’ industries that includes the American Iron and Steel Institute and the American Chemical Council, said carbon leakage would continue under the measure.
"We believe that compared with past bills, the legislation released today invests more in U.S. manufacturing competitiveness. However, in several key areas, more must be done to ensure the…retention of American jobs."
To keep U.S. manufacturing alive, AMMA called on senators to boost funding for energy efficiency, renewables, carbon capture and storage and nuclear energy.
In stark contrast, the United Steelworkers (USW) highly praised the bill’s "crucial anti-leakage provisions."
Some of the strongest industry support, though, came from the Public Service Enterprise Group (PSEG), a New Jersey utility with annual revenues of more than $13 billion. The firm heralded the "regulatory certainty" that would come from the law.
"The disastrous spill in the gulf serves as a reminder that we can no longer delay development of a comprehensive energy policy that achieves fuel diversity and puts a price on carbon," said Ralph Izzo, PSEG chairman.
"PSEG is ready to make significant investments that would help combat climate change, but we need the regulatory certainty that the passage of this legislation would provide."
Nuclear Industry Cheers Loudest
No single industry lavished more praise on the bill than the nation’s nuclear energy backers.
The bill lays out a slew of new nuclear handouts, including $54 billion in loan guarantees, regulatory risk insurance for 12 projects, a new investment tax credit to promote the construction of new generating facilities and faster licensing of reactors.
Marvin Fertel, CEO and president of the the Nuclear Energy Institute, a trade group, said the incentives demonstrate a commitment to building the nation’s next wave of reactors.
"We believe there is solid consensus on the need for, and the value of, the nuclear energy provisions in this proposal," Fertel said.
Nuclear firm Westinghouse, whose AP1000 reactor design is waiting approval from the Nuclear Regulatory Commission, said the bill will further support a "global nuclear renaissance."
The company has customers lined up for its controversial AP1000, with 14 plants under regulatory review at seven sites across the American Southeast. Anti-nuclear advocates say the faulty design could prove more unsafe than the nation’s current nuclear fleet.
Westinghouse used the Senate bill as an opportunity to defend the new plant design publicly.
"The new nuclear energy plants that are being built, and will be built, over the next decades are clearly the most efficient and safest electricity-generating plants ever designed," Westinghouse President and CEO Dr. Aris S. Candris said.
"The Westinghouse AP1000 nuclear plant, for example, makes use of naturally occurring, passive safety systems that rely on gravity, condensation and natural circulation to begin cooling the plant in the highly unlikely event of an accident even without human intervention."