Tuesday, Nov. 4, could well be a wake up call for facility executives. Regardless of the party chosen, the next president will be the first who has committed, with detailed plans, to aggressively reduce greenhouse gas emissions in the United States.
While John McCain and Barack Obama may belong to different parties and different generations, their plans to cut greenhouse gas emissions share remarkable similarities, particularly when viewed against President George W. Bush. For years, the Bush Administration has opposed the idea of regulating carbon dioxide — one of six greenhouse gases scientists list as a contributor to global warming.
“From what I’ve seen they both have a track record on climate change,” says Karen Penafiel, vice president of advocacy for the Building Owners and Managers Association (BOMA) International. “Our take is that either one would be fairly aggressive on the issue, and certainly more aggressive than the Bush Administration had been.”
Part of the reason for the change is that perceptions have shifted since Bush took office. A national survey of adults done by Gallup in March found that 61 percent of respondents believe that global warming is already happening. The number is a record since the poll began tracking the issue in 1997.
While the McCain and Obama camps are fiercely contesting each other on issues such as national security and the economy, that battle won’t be fought over climate change. The two have agreed on some key details about how to tackle the issue. Both candidates have proposed using a cap and trade plan to cut emissions, for example.
Under a cap and trade plan, an emissions budget is set for whatever source is being regulated. A common example is a power plant. The cap is typically based on a source’s past emissions and is lowered over time.
The source being regulated has to buy allowances to cover its emissions. Allowances are typically measured in dollars per metric ton of carbon dioxide. If the source emits less than the cap, it can sell surplus allowances on the open market. If it emits more, it has to buy offsets to cover the difference. Offsets are also measured in dollars per ton of carbon dioxide. Over time, the emissions cap is lowered, which requires companies to either become more efficient or buy additional offsets.
The upshot for facility executives is that under cap and trade, energy management will become even more important because energy prices are likely to increase. Price increases are meant to be a signal to reduce energy consumption, says Manik Roy, director of congressional affairs for the Pew Center on Global Climate Change.
While both candidates favor using cap and trade, there are some differences worth noting. McCain’s plan calls for reducing greenhouse gas emissions to 60 percent below 1990 levels by 2050. Obama’s calls for reducing emissions to 80 percent below 1990 levels by 2050.
But even that difference isn’t as big as it seems, Roy says. For one thing, most major environmental laws are renewed periodically. So while a long-term goal is a good indicator of where a candidate stands, it shouldn’t be viewed as an iron-clad pledge. There are a number of uncertainties, such as how other nations respond, that could cause the long-term target to shift. What’s more important are the short-term goals, Roy says. And in that case, the candidates agree: Both support reducing emissions to 1990 levels by 2030.
The other difference is how allowances will be allocated. Obama’s plan requires 100 percent of the allowances to be auctioned. McCain says that some industries should get allowances for free, and transition later to a system that requires allowances to be purchased. McCain’s bill, introduced as the McCain-Lieberman Climate Stewardship and Innovation Act, allows some allowances to be auctioned, and some to be given away. It doesn’t set a definite split.
Allowances raise some thorny issues. Among the likely questions: Should allowances be given away or auctioned off? Which industries (if any) get free allowances? How long would free allowances be available? Is the revenue from the auctions used to promote energy efficiency? Or is it used to subsidize low-income ratepayers? Or both?
“Cap and trade is going to lead to all kinds of tugs of war,” says David Kreutzer, senior policy analyst for energy, economics and the environment for the Heritage Foundation. “The government sets up allowances. They have a value in exchange, but not any real value to the economy. But if you have them, you are richer.”
How allowances are handled will determine who bears the pain of reducing greenhouse gases.
“I kind of look at it as the buildings industry against the utilities against the auto industry,” says Penafiel. “Those are big sectors being looked at.”
And yet, for all the fighting the issue is likely to cause, the way allowances are allocated won’t have a serious impact on reducing greenhouse gas emissions, say experts. The biggest factor is the size of the cap and how quickly it shrinks
“There are a lot of moving parts to a cap and trade bill,” says Roy. “In our perspective, the most important thing is how fast we can get greenhouse gas reductions. That’s the only part the environment cares about.”
Just how much pain a cap and trade plan would cause the economy is a matter of intense debate. An analysis by the conservative Heritage Foundation estimated that cutting carbon dioxide could cost up to 30 percent of the gross domestic product (GDP) by 2030.
Roy disputes such gloom-and-doom projections.
“Some groups, for ideological reasons, have come up with modeling that really has little to do with what the bill actually says,” Roy says.
The Heritage Foundation model, for example, doesn’t take into account revenue generated from auctioning off allowances, Kreutzer says. He says that’s because not all the bills require the revenue to be used that way, or the language is vague in those bills that call for revenue from the auctions to offset the costs. But both Obama and McCain call for revenue from the auctions to be used to improve energy efficiency, improve research on alternative energy, and mitigate transition costs.
The Energy Information Administration provided a nonpartisan analysis of the cost to enact McCain’s plan, which was introduced in the Senate in 2007. The analysis predicts that electricity costs would be 10 percent higher in 2020 under McCain’s bill compared to the reference case, which assumed that the cap and trade plan didn’t pass Congress. The impact would vary by the type of energy being generated. Coal would cost the utilities 129 percent more. Natural gas would cost the utilities 15 percent more.
But the overall impact on the economy would be more modest as businesses became more efficient and more nuclear energy was added to the nation’s portfolio, the report predicted. Under cap and trade, GDP would be between .3 percent and .5 percent lower in 2030 than the reference case.
“Maybe a few industries will feel the cost, but overall people will not,” Roy says. “And that model doesn’t even take into account the cost of not doing anything.”
While McCain and Obama agree on climate change, there are some differences on how each approaches energy policy. Though both candidates have called for buildings to become more efficient, the methods differ.
McCain wants to increase demand for more efficient technologies by making government buildings more efficient first, driving down costs of new technology. “Our government can hardly expect citizens and private businesses to adopt or invest in low-carbon technologies when it doesn’t always hold itself to the same standard,” McCain said in a speech in Virginia in May.
McCain hasn’t set a target for making buildings more efficient. Obama’s plan calls for making all new federal buildings zero emissions buildings by 2025. Existing federal buildings would need to be 40 percent more efficient in five years under his plan.
Obama also calls for setting a goal of making all new buildings zero emissions buildings by 2030. The American Institute of Architects has a similar goal — the 2030 Challenge. Obama’s plan seeks to make existing buildings 25 percent more efficient in the next 10 years.
On the production side, McCain calls for building 45 more nuclear plants by 2030 to generate energy that doesn’t release carbon dioxide.
“It’s conceivable, but ambitious since we’ve not had even one new nuclear power plant in the last 30 years,” says Kreutzer. “It’s do-able because the rest of the world has been doing it.”
Obama hasn’t ruled out nuclear energy completely. But security and waste issues should be resolved before nuclear power is expanded, he says. “Obama isn’t as vocal as McCain. But he understands it can’t be taken off the table either,” says Roy.
While there may be differences between the two candidates on energy and climate change, one thing is clear: Regulation is coming, and it’s almost certainly coming in the form of a cap and trade plan.
“I personally haven’t seen any inconsistency on McCain’s part himself,” says Roy. “It is a bit confusing because he’s leader of a party that’s not very warm and fuzzy when it comes to greenhouse gas reductions. But McCain has stayed very strong on this for seven years, even when it didn’t make a lot of political sense.”
There are other signs pointing toward a future cap and trade plan. Interest is growing in Congress. Seven major bills were introduced in the 110th Congress to cap greenhouse gases across the economy. “There were 200 hearings in Congress in the last year and a half and more than 200 bills that included climate change in some way,” says Roy. “That’s more than we’ve ever seen before.”
Finally, the Supreme Court has weighed in favor of regulation. In 2007, the court ruled in Massachusetts vs. EPA that greenhouse gases emitted from cars are a pollutant that must be regulated under the Clean Air Act.
Though the court case only deals with transportation, the EPA published a 570-page document in July called an Advance Notice of Proposed Rulemaking hinting that the agency may also regulate stationary sources of pollution, such as power plants or buildings.
Comments in the document from other federal agencies also make clear, however, that regulation under the Clean Air Act would likely pose more challenges than a cap and trade system. “I think that’s one reason you are seeing a lot of companies motivated to get climate change legislation through,” says Roy.
Still, the road ahead isn’t perfectly clear. High gasoline prices mean a cap and trade program isn’t going to sail through Congress unchallenged. “The thing that’s preventing much motion at the moment is $4 a gallon gasoline,” Kreutzer says. It’s hard to argue that energy costs will drop under cap and trade because higher prices are meant to push businesses to become more efficient, thus reducing emissions. The conventional wisdom is that voters, feeling pinched by rising prices to heat their homes and drive to work, aren’t going to have much sympathy for legislation that can’t drive prices down.
Still, both McCain and Obama will provide leadership on the climate change issue, and the Supreme Court is a hammer that will force the issue, says Roy.
“It’s either happening at the state level, the EPA is going to be forced to do something by the Supreme Court, or it’s going to happen at the Federal level,” he says. “And that’s because climate change is real, it’s caused by humans, and it poses very dire risks.”
Cap: In a cap and trade plan, the cap represents (in millions of tons), the maximum amount of pollution across the economy that is allowed to be emitted. The cap is gradually lowered, forcing businesses and consumers to take steps to reduce pollution.
Allowance: Typically measured in tons of pollution, such as carbon dioxide. Polluters either buy allowances at auction to cover their emissions, or — if they emit less than the cap — they can sell their surplus allowances.
Offset: Like an allowance, an offset is also measured in tons of pollution. If a polluter emits more pollution than is allowed under the cap, it buys an offset to cover the differences. Revenue from offsets is intended to be used to invest in projects, such as renewable power, that wouldn’t otherwise have been created.
Allocation: Allocation is a term that refers to how a cap and trade plan distributes the allowances. Under some plans, companies must buy allowances at an auction to cover their emissions. Under others, allowances are free to begin with for certain industries.
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