Australia Delays Cap-and-Trade Program, No Surprise There!

The delay by the big coal producer and user signals yet again the difficulties of passing climate change legislation amid a recession. The same opposition is brewing in the United States.

Ucilia Wang May 04, 2009

Ucilia Wang

People saw it coming: Economic downturn is likely to crimp efforts to implement programs to make polluters pay for emissions.

Australia, which gets 80 percent of its energy from burning coal, on Monday said it would delay launching a cap-and-trade program by a year after caving to pressures from businesses and conservatives. Prime Minister Kevin Rudd announced that the program would start in mid-2011 instead. He also offered concessions, such as capping the carbon price at a low level for year and making it easier for companies to get free emissions permits.

Understandably, Rudd's compromise didn't win him much love from the right or the left.

The brouhaha over Australia's cap-and-trade program gives a glimpse of the tough fight ahead for President Obama to pass a climate change bill with an effective cap-and-trade program. Obama is counting on the deployment of a cap-and-trade program to generate revenues to fund a host of his greentech and other initiatives (see Chu's Wish List: Cap-and-Trade and Cheaper Solar).

House Speaker Nancy Pelosi has vowed to pass such legislation this year. Congress has been holding hearings for a bill introduced by Henry Waxman, D-Calif., and Edward Markey, D-Mass. (see House Energy Bill Draft: Cap-and-Trade Included).

The Waxman bill aims to cut emissions by 3 percent below the 2005 levels by 2012, 20 percent below 2005 levels by 2020 and 83 percent below the 2005 levels by 2050.

Senate Majority Leader Harry Reid, on the other hand, isn't so sure. But he recently said he hopes lawmakers from both chambers will make good progress on the bill and in time for an international gathering in Copenhagen to come up with a treaty to succeed the Kyoto Protocol.

Outsiders tend to lean toward Reid. Steve McBee of McBee Consulting told us last week that although Congress might pass a bill this year, the odds of a carbon law coming into being were slim. He said it was more likely that one might come before the 2010 elections.

Others have said that a carbon bill may not become law until a second Obama administration.

A cap-and-trade program sets greenhouse gas emissions limits and requires businesses to buy permits if they exceed the limits. Those who manage to pollute less can sell their permits. The program caps the overall emissions by various participating industries by lowering the amount of available permits in the trading pool over time. The idea is to nudge polluters and countries into figuring out ways to emit less, such as by using technologies to harvest carbon dioxide emissions for other uses or building non-fossil fuel burning power plants.

Europe has had a cap-and-trade system in place since 2005, though its effect in curbing emissions is debatable.

The European Union's effort to expand its cap-and-trade program has met with stiff opposition from countries such as Poland, which has argued that stricter emissions rules would cost too much money for its industrial operators, such as coal-fired power plant owners, and render them less competitive.

The economic impact of a tougher, global climate change policy was very much on the minds of the delegates from 187 nations meeting in Poland last year as part of a multiyear effort to finalize a post-Kyoto treaty (see U.N. Climate Talks Pose Big Impact on Greentech).

"Finance is very much at the heart of the solution in Copenhagen," said Yvo de Boer, the U.N. climate chief, said at the time.

Lobbying for freebies has been intense in Washington, D.C. Utilities and other industries are asking for some free permits. Obama wants to auction all of the permits in order to generate roughly $646 billion between 2012 and 2019. The president has crafted his spending plans based on the assumptions that the revenues would be available.

All the costs of complying with a cap-and-trade program are likely to be passed on to consumers, who could see a rise in energy costs.

The House Subcommittee on Energy and the Environmental is scheduled to vote on the climate change bill this week.

While lawmakers work on the climate change legislation, the federal Environmental Protection Agency also is moving forward with plans to regulate certain man-made greenhouse gases. The agency recently issued a tentative finding declaring that six greenhouse gases, such as carbon dioxide, nitrous oxide and methane, are bad for human health and the environment (see EPA Says GHG Emissions Pose Health, Nat'l Security Risks).