Posted on April 21, 2009 by George von Stamwitz
A report discussed at the March 31st meeting of the Midwestern Governors Association that highlights significant “leakage” if a regional GHG cap-and-trade program were adopted in the Midwest may be the beginning of the end for the Midwest GHG cap-and-trade program. Essentially, the report notes the likelihood of significant increases in GHG emissions (“leakage”) in other parts of the country that would result from a proposed regional cap-and-trade program. According to a report cited in Carbon News, a companion publication of Inside EPA, the issue of leakage undermines the Midwest effort and attenuates the level of enthusiasm among state officials for a regional program.
The report, “Cap-and-Trade Modeling: Initial Policy Run Results,” presented by the Pew Center on Global Climate Change, projects that more than half of the planned GHG emissions cuts would be offset by GHG emissions increases in other states. Since only six states signed the Midwest Accord, the model assumes that the Midwest program would apply only to power generators within these six states, leading to an increase in electricity imported from non-participating border states. The governors of Illinois, Iowa, Minnesota, Wisconsin, Kansas and Michigan (along with the Canadian province of Manitoba) signed onto the Midwest Accord in November 2007. Ohio, Indiana, South Dakota and Ontario are observers to the process. The final meeting of the accord’s advisory group is May 11-12.
Another factor that strongly contributes to a stalled Midwest GHG effort is the increasing likelihood that Congress will pass a national GHG cap-and-trade program. On April 2, the House Energy and Environment Committee released a discussion draft of “The American Clean Energy and Security Act of 2009” (the Waxman-Markey bill). While many important details have been left for future discussion, this comprehensive legislation promotes renewable sources of energy, carbon capture and sequestration technologies, energy efficiency, and would establish a national GHG cap-and-trade program. The draft bill would apply to all sources greater than 25,000 tons per year and set aggressive reduction targets of 3% below 2005 level by 2012, 20% below by 2020, 42% below by 2030 and 85% below by 2050. It has been projected that such reductions would virtually eliminate the use of carbon base fuels in the United States. According to Rep. Waxman, D-California, a final draft of the bill will be sent to the floor for debate by Memorial Day.
While some semblance of a Midwest GHG model rule may continue, it appears that any such effort under the Accord would serve simply as a prototype for a federal GHG cap-and-trade program (as would the Western Climate Initiative program). Others argue that if the federal government fails to enact climate policy reasonably soon, the Midwestern Accord could serve as a “backstop,” but the more likely scenario would be the on-going effort at the EPA to regulate GHGs under the Clean Air Act.
George von Stamwitz
Armstrong Teasdale LLP