April 2009 Vol. 236 No. 4

From the Burner Tip

New Administration Plans Sweeping Climate Controls

Carol Freedenthal, Contributing Editor

Economic calamities have taken center stage in the administration’s agenda. However, that hasn’t taken anything from the other important programs actively pursued by President Obama’s administration.

Very high on his list is climate control and its resulting side issues of fossil-fuel consumption and clean air. He spoke of this in his address to the joint session of Congress in late February when he promised a cap on carbon pollution. Action to promote clean air and lower carbon dioxide levels is aimed at reversing potential global warming, which is blamed on increased levels of carbon dioxide in the atmosphere caused by burning fossil fuels.

Before we discuss the proposed actions to affect climate control and the potential effects from this, some discussion of the alleged man-made impact on climate is important. Climate changes and supposedly a warming trend of the earth’s climate have been major talking points since the early 1990s. Talk of climate change is really nothing new. As far back as the 1970s, an alleged cooling trend and the potential disastrous effects from this were the big topic!

In the beginning, the discussions and concerns on potential earth warming were mainly among the technical and scientific communities. The debate has since become a political football and now includes politicians, entrepreneurs, and charlatans who all have something to say. Although nothing can be said in this column that would settle this chicken-or-egg controversy, it is important to remember that much of the climate change argument is built on passion, perception and politics, so the impact of these should be kept in mind before embarking on a bold, demanding and very expensive path to control the earth’s climate!

Regardless of what is really the case, the political push is to accept the potential that the earth is in a warming trend that could result in all kinds of bad things. Further, right or wrong, carbon dioxide released when fossil fuels are burned is taking the blame as the major culprit.

The administration’s proposed plans are to reduce fossil-fuel usage and, where possible, recover the carbon dioxide released from major fuel consumption sources. Both sequestering released carbon dioxide into old oil and gas reservoirs and using it for additional crude oil tertiary recovery are being explored to reduce the amount of dioxide released into the atmosphere. In President Obama’s speeches, he has discussed taking a more aggressive, direct action to accomplish these two objectives. And even though the economic woes of the country are so pressing, he has promised to take action early in his term to clean the environment and reverse or slow the warming trend.

He is pushing a multi-pronged attack to lower the consumption of fossil fuels and ways to capture and contain released carbon dioxide. While the hope is to find a technical way to supply energy and still reduce the carbon dioxide that is released, the initial major thrust is strictly economic! Money talks!

President Obama strongly favors what is called, a “cap-and-trade” program to reduce carbon emissions. A cap will be a legal limit as to the amount of carbon that can be emitted on a yearly basis. Major entities like coal-fired electric-generating plants, refineries, steel producers and big users that exceed the cap could buy allowances for high emissions.

In simple terms, this means taxing carbon-dioxide releases. The trade part will allow companies to trade or swap the amount of greenhouse gases (GHG) emitted. The alternative to the cap-and-trade is an outright tax on carbon-dioxide emissions. Either way, the feeling is a tax on carbon emissions will lead to less fuel consumption as well as to more efficient systems for using the fuel.

Where the cap would be set for the legal limits is something yet to be decided. Many advocates talk in terms of setting caps so that carbon-dioxide emissions are set to be reduced by 15% of 2005 levels by 2020. Some go as far as to largely eliminate greenhouse gases in four to five decades.

Both plans could raise fuel costs significantly and the potential of $5-$10 per gallon gasoline becomes a reality. The planned emission charge or tax would affect everyone, but lower-income families would be hit hardest because all forms of energy, from gasoline to electric power, would carry the increased costs. Regardless of wishful thinking, finding a non-carbon releasing fuel other than nuclear fission is long, long in the future.

Since even with the trading, considerable costs will be incurred for emissions above the cap, how the earned income will be dispersed is a part of the program. According to a Hearst News Service article of March 12, 2009, “the administration estimates its cap-and-trade system would generate $645.7 billion in revenue for the federal government by 2019, with $525 billion of that reserved for a tax credit that would help cushion consumers against higher energy costs.”

How the revenue from the tax will be disbursed is a major consideration of the administration. Some of the options envisioned include dividing the tax revenue evenly among all state residents; making larger rebates for low-income families; job training to develop a better green-oriented workforce or as money to communities to help in pollution-abatement programs.

Reporting emissions will be a major part of the planned program. On Jan. 7, 2009, bill HR 232, “Greenhouse Gas Registry Act”, was introduced in the U.S. House of Representatives. According to PACE Global Energy Consultants, “to give a sense of this modest compliance (of the bill) threshold, this is equivalent to approximately 500 MMBtu/d of natural gas consumption or only 4,000 tons of coal consumption per year.” PACE continues, “Moreover, industrial and manufacturing facilities can trigger ‘Covered Entity’ designation in a variety of ways,” making even lower limits possible.

The bill would establish a very aggressive timeline for implementation along with severe penalties for non-compliance with the reporting. Reporting entities would have to report in 2011 emissions for 2010. Fines for non-reporting could be $25,000 a day.

The Environmental Protection Agency (EPA) issued on March 10, 2009 a draft of potential rulemaking calling for annual reporting requirements from 2010 onward for “parties that either emit greenhouse gases (GHG) or produce or import fossil fuels or industrial GHG.” In addition to carbon dioxide GHG includes such gases as methane, nitrous oxide, sulfur hexafluoride, and various hydrofluorocarbons. Once the proposed rule is published in the Federal Register, there will be a 60-day public comment period. The EPA is setting June 26, 2009 for the release of the GHG reporting rule.

The EPA is taking this action as part of its overall policies. Many see this rule making as a complement to legislation action but with the added benefit that the EPA can proceed regardless of the legislation’s timing and successes. To help the EPA with these new duties, the planned budget has a 35% increase of $10.5 billion, which includes money for the cap-and-trade monitoring.

In addition, Senate Majority Leader Harry Reid, (D-NV), last month introduced legislation to give the Federal Energy Regulatory Commission more authority to site new transmissions lines for green energy sourced deliverability.

The affect of the administration’s plan could be very severe, both from the revenue-generating and information-reporting demands. Already, comments are coming from both Democrats and Republicans who are worried about the economic impact that this legislation could have on the country, especially when the economy is in such dire shape. As reported by Hearst News Service, key Democrats are saying the president’s ideas will hurt firms and the poor.

“Chairman of the Senate Budget Committee, Sen. Kent Conrad, (D-ND), said the White House might have to soften its proposal to minimize the new costs that would be shouldered by heavy manufacturing, coal-fired plants and other businesses,” stated the Hearst article.

Proposals being generated by administration could have a severe and serious impact on the U.S. economy. Some states have already started plans for a cap-and-trade program. Although the politicians promise to return much of the income received from the taxes on fossil fuels to the lower income classes, it would still put severe restrictions on fuel use by everyone. The timetable starts shortly – now is the time to work out the details and plan to cope with these changes.

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