House passes climate change bill, Senate bill in the works

by Jay Sjerven
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WASHINGTON — The House of Representatives on June 26, by a vote of 219 in favor to 212 opposed, passed climate change legislation that would require sweeping changes in how the nation conducts business. The American Clean Energy and Security Act (H.R. 2454) aims to dramatically reduce greenhouse gas emissions blamed for global warming, reduce the nation’s dependence on foreign oil and stimulate the development and use of emerging "green energy technologies" to lessen the economy’s reliance on fossil fuels.

The legislation would do so by mandating sharp reductions in greenhouse gas emissions over time by means of adopting progressively lower targets for emissions from a base of estimated emission levels in 2005 and establishing a carbon-allowance cap-and-trade system as the mechanism for the economy and individual regulated businesses to reach those targets.

The legislation drew wary responses from the grain handling, milling and baking industries.

Anne Giesecke, a regulatory consultant to the baking and food processing industry, said that while the bill does not target the baking industry specifically, bakers will feel a significant impact from the legislation.

"Operating costs will go up because of this legislation, and capital costs, construction in particular, also will be higher," said Dr. Giesecke, who is a contributing editor at Milling & Baking News.

The tightness in the vote reflected disagreement among lawmakers and in the United States as a whole over how to accomplish the reduction in greenhouse gas emissions, with a vocal minority asserting such emissions were not to blame for climate change and, therefore, no legislation was required.

The debate now shifts to the Senate, where the Committee on Environment and Public Works held a hearing on July 7 as it began to craft its climate change legislation. Senator Barbara Boxer of California, chairwoman of the committee, said she hoped to have the Senate’s bill completed before the August recess, but the full Senate wasn’t expected to consider a bill until the fall.

H.R. 2454 would require a 17% reduction in carbon emissions from large sources by 2020 compared with 2005 levels and an 83% reduction by 2050. A large source was defined as an entity emitting annually 25,000 tons or more of greenhouse gases, in carbon dioxide equivalent.

The bill would establish a carbon-allowance cap-and-trade system starting in 2012. Allowable carbon equivalent emissions would be capped at 2005 levels for the economy and for each regulated entity. Initially, 75% of carbon-emission allowances required to maintain operations would be provided to covered entities at no cost, based on formulae. The remaining required allowances would be sold at auction.

By 2030, 75% of the progressively reduced carbon allowances would be sold by the Environmental Protection Agency to covered entities under the cap-and-trade approach. Allowance holders would be permitted to emit more greenhouse gases than allowed under their original credits by purchasing additional allowances or offsets from those holding but no longer requiring such allowances or offsets or on markets the bill anticipates will be established for trading carbon-emission allowances and offset credits.

The bill would require the trading of energy derivatives (including energy swaps), carbon-emission allowances, offset credits and renewable-electricity credits occur on markets regulated by the Commodity Futures Trading Commission. Trading in energy futures would be subject to new rules, including limits and conditions on the C.F.T.C. granting hedge exemptions; repeal of no-action letters issued by the C.F.T.C. granting relief from speculative position limits; establishing a position limit energy advisory group to advise the C.F.T.C. on position limits; defining a "bona fide hedge" for energy markets, and enhancing reporting for index traders and swap dealers.

In addition to buying carbon-emission allowances on the market, those requiring more time in reaching their emission targets would be able to purchase emission credits from individuals and entities, including farmers, earning such credits through approved projects that result in a net reduction of greenhouse gas emissions.

A deal struck between Representative Henry Waxman of California, chairman of the House Committee on Energy and Commerce and chief sponsor of H.R. 2454, and Representative Collin Peterson of Minnesota, chairman of the Committee on Agriculture, bestowed on agriculture a special status and secured much needed votes for the bill’s passage.

The Waxman-Peterson agreement exempted agricultural and forestry production from the bill’s greenhouse gas emissions cap and established an agricultural and forestry carbon-offset program that would be administered by the U.S. Department of Agriculture. Under the offset program, farmers, ranchers and foresters may earn carbon credits for practices — such as no-till farming and planting of trees on farmland — that sequester carbon and thereby reduce greenhouse gas emissions. The credits apply retroactively to such projects implemented as long ago as 2001. Producers may sell their carbon credits to polluting industries under the cap-and-trade system.

Mr. Peterson also secured other plums for agriculture to sweeten the deal, including adoption of an agriculture-friendly definition of renewable biomass such as was contained in the 2008 farm law and prohibiting the E.P.A. from calculating indirect land use impacts of biofuels production for five years and until a study is conducted to determine whether an E.P.A. standard on such impacts is warranted.

Dr. Giesecke said higher costs to bakers will come from several directions as a result of the new law.

"At this time, the focus of the bill is on large energy users such as utilities, steel and cement," she said. "Consequently, when a bill becomes law, bakers and snack food manufacturers will notice increases in energy costs and construction costs. In addition, some bill language suggests that if you build a bakery, you may need to buy allowances or offset emissions in some other way. Because bakers are small greenhouse gas producers, the costs for the few credits they may have to buy will be relatively costly to the business. Parallel with the legislation, the Environmental Protection Agency will require 2010 reporting of greenhouse gases from all industrial facilities, including bakeries. The E.P.A. also has the authority to control greenhouse gas emissions from mobile sources, which will impact the cost of trucks."

The National Grain and Feed Association, the North American Millers’ Association and seven other agribusiness associations urged the House to reject the bill.

"While food, feed and beverage producers account for 1.21% of the nation’s direct greenhouse gas emissions, we will be more affected by cap-and-trade legislation than this suggests," the groups said. "All members of the food supply chain are disproportionately vulnerable to indirect costs passed through by suppliers. When considering the total greenhouse gas emissions from each sector, including suppliers, the food, feed and beverage sector has the fourth-largest exposure to carbon costs — more than the chemical, retail, basic resources and automobile and parts sectors."

The groups said they believed cap-and-trade would work best if allowances were distributed proportionately to each industry’s emissions, thereby mitigating the direct and indirect impacts on all regulated industries.

"Such a proportionate allocation would be the fairest system because it would avoid arbitrarily picking winners and assist all industries making the challenging transition to a low-carbon economy," the groups asserted. "A fair distribution of allowances would allocate an appropriate percentage of allowances to the food, feed and beverage sector."

The agribusiness organizations noted the bill offered allowances to control price increases in electricity, natural gas and home heating oil and would auction allowances to fund further assistance to lower-income households.

"While we agree with developing a program that will help offset increases in energy costs, the same consideration should be given to another indispensable necessity: food," the groups said.

Rasma I. Zvaners, senior manager of government relations for the American Bakers Association, agreed, saying "Climate change legislation will have significant direct and indirect impacts on the nation’s supply chain of food and beverage providers, and, in turn, profound impacts on the food security of our nation. Legislative approaches must be carefully crafted not only to reduce greenhouse gas emissions, but also to avoid adverse impacts on food prices and food accessibility."

Despite the special status won for agriculture, the American Farm Bureau Federation, while urging support for the Peterson amendments, nonetheless urged House members to vote against the bill.

Bob Stallman, the A.F.B.F. president, said, "H.R. 2454 may be the most important legislation considered in the 111th Congress. It is critical that legislation not be approved that will harm agriculture, harm our economy and reduce economic opportunity for our children — all in the name of computer-driven scenarios, the science of which is increasingly brought into question."

A rival farm organization, the National Farmers Union, applauded the passage of the act.

"This legislation recognizes the unique role America’s family farmers and ranchers can play when it comes to combating global climate change," said Roger Johnson, president of the N.F.U. "The agricultural offset program, overseen by U.S.D.A., will help mitigate the increased input costs of a cap-and-trade program, while the early actors provision recognizes those producers who already have adopted environmentally friendly practices."

This article can also be found in the digital edition of Milling and Baking News, July 14, 2009, starting on Page 1. Click here to search that archive.

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