What States Gain and Lose Under Proposed US Senate Climate Change Bill

After years of states leading the fight to promote clean energy and reverse climate change and the House passing an energy bill last year, U.S. Senate leaders have finally introduced climate change legislation, the American Power Act (APA).  The bill is lengthy and complex with compromises that many leading environmental groups object to (see Greenpeace and Friends of the Earth for examples of statements by major organizations and coalitions criticizing the bill), although other groups (see Center for American Progress, Apollo Alliance, Environment America, Blue Green Alliance and Natural Resources Defense Council) have more positive evaluations of the bill as a flawed, but important step forward.

The proposed Senate bill includes a wide range of provisions, including a cap and allowance on greenhouse gas emissions, a target for reducing those emissions to 17% below 2005 levels by 2020 (and 80% below by 2050), and a fee for "carbon leakage" on imports to level the playing field between American manufacturers and foreign competitors that emit climate change-inducing carbon.  For more bill details, the NRDC has a comprehensive initial summary of provisions here.

The impact of the federal bill on state government efforts to promote clean energy policy could be profound, with at least three major effects:

1. State cap and trade programs would be eliminated, potentially replaced by weaker federal rules, albeit ones covering more states.
2. The federal government would provide additional funding for states’ efforts to develop renewable energy sources, including funding for the smart grid.
3. States would have greater financial incentives to engage in off-shore drilling while also gaining greater protections if they want to opt out of off-shore drilling.

State Cap and Trade Programs:  Long before federal efforts, states created their own cap and trade initiatives, which will be shut down under the federal bill and replaced by a national system more favorable to polluting industries.  The first cap-and-trade government program was the Regional Greenhouse Gas Initiative (RGGI), composed by 10 Northeastern and Mid-Atlantic states.  To date, eight auctions have taken place under RGGI and the revenues have been reinvested in energy-efficiency initiatives and innovations.  Other states in the West and Midwest have similar regional cap-and-trade programs.

Although a federal standard is necessary, an RGGI official stated, “you don’t want to preempt states who can go further and become a model for the country.’’  Preemption would be extremely damaging to states that depend on the clean energy economy to create more jobs and reduce the high levels of pollution.  Thanks to the allowances operating in these states, hundreds of millions of dollars have already been raised to create jobs and help homes and businesses become more energy efficient.  While there are promises in the Senate bill to compensate states for those losses, it is unclear how complete that compensation will go.

More positively, state authority to set vehicle standards is retained, as is authority to establish clean energy, energy efficiency, and other greenhouse gas control programs with higher standards than federal requirements. 

Funding for Renewable Energy Programs:  The Act supports state renewable energy programs by promising that a percentage of the revenues raised by allowances be distributed to the states.  APA recommends the development of energy efficient buildings (see PSN’s Green Buildings Shared Agenda), as well as renewable electricity incentives, gas utility efficiency programs and smart appliances.  The bill also defines the smart grid and promotes its development in the states, including the integration of renewable energy resources and distributed generation, demand response, demand-side management, and system analysis.  For a detailed analysis on how the smart grid and other technologies build a green economy, click here.

Off-Shore Drilling and The States:  In response to the catastrophe caused by the oil spill in the Gulf of Mexico, the bill now includes two restrictions to off-shore drilling.  First, states can opt-out of drilling up to 75 miles offshore.  Second, states can veto the drilling plans if they “suffer significant adverse impacts in the event of an accident.”  On the other hand, the bill offers large financial rewards to states that allow offshore drilling, with 37.5 percent of royalties from new offshore rigs directed to states, and 12.5 percent of royalties would be deposited in the Land and Water Conservation Fund for federal and state parks and land acquisition.  With hard-pressed state budgets, many environmental leaders see these provisions encouraging states to take reckless risks to allow drilling near their states.

A Preemption Dilemma for State Leaders:  Many of the states that have pioneered green energy programs are left in a confusing position.  On one hand, the bill offers general support for states to run renewable energy programs, but on the other, it will prevent those states who were first to adopt comprehensive energy solutions to fulfill their cap and trade programs and will preempt them from taking some additional steps in regulating destructive industry practices.  Many federal environmental laws have long allowed states to adopt standards that are more stringent than federal policies, so any preemption of state initiatives that cap greenhouse gas emissions is a step backwards that should be reevaluated as debate on federal legislation moves forward.