As a weekly allowance can teach a child the value of money, so emissions allowances are the highly prized training wheels to help the energy industry adapt to a new price on carbon. (image: timeinc.net)

Under the cap on carbon emissions provided for by Sen. Kerry and Sen. Lieberman’s American Power Act, nearly a quarter of emissions permits would initially be auctioned and the rest would be distributed as free emissions allowances. Electricity providers would receive the bulk of emissions allowances but some allowances would also be allocated to petroleum refiners and home heating oil consumers to help them weather the transition to putting a price on carbon emissions, reported ClimateWire (via the New York Times) on Monday.

The Senate bill, unlike the Waxman-Markey bill passed by the House, does not envision an economy-wide cap and trade system. Instead, it proposes different programs for different sectors of the economy. The bill targets the coal and natural gas industries that provide electricity through a cap on carbon emissions, while a fee on transportation fuels affects the petroleum industry. However, the Kerry-Lieberman bill allocates emissions allowances to a number of other carbon-heavy industries, and allowances will be distributed to cover emissions from refineries and from home heating oil and propane.

Industries lobbied hard to receive greater proportions of the allowances, since free allowances delay or mitigate the costs of reducing carbon emissions. Electricity providers came out as the big winners with 51 percent of the allowances given in 2013, the first year the emissions cap would take effect. Refiners would receive 4.3 percent of allowances, and 1.9 percent will be allocated to home heating oil and propane. Those seem like relatively paltry sums, but since refiners only have to account for their direct emissions—not the emissions of the finished oil products they turn out—and the amount of emissions produced by home heating oil and propane is paltry when compared to the emissions of coal-fired power plants, those allowances could go a long way to keep home heating fuels affordable while the industry works to reduce emissions.

Exactly how the allowances will be administered remains unclear. The allowances for home heating oil and propane will be distributed to the states, and though ClimateWire says the allowances go to “energy consumers using home heating oil and propane,” the impracticality of measuring emissions from individual households means that producers or distributors of heating fuels will be held accountable for reducing emissions. The bill (the full 987-page pdf is available at Sen. Kerry’s website) does refer to “home heating oil and propane consumers,” but it also refers to “natural gas consumers” who heat their homes with natural gas and specifies that allowances will go to local distribution companies. Similarly, allowances for heating oil emissions will probably end up in the hands of wholesale or retail heating oil suppliers.

Because heating oil suppliers are not personally responsible for large-scale emissions as are coal-fired power plants, for example, the bill specifies that allowances for home heating oil be used in a different manner. A coal plant could reduce emissions, and thereby reduce the cost of paying for carbon emissions, by improving how coal is processed and converted into electricity. A heating oil supplier, on the other hand, could only cut emissions by improving the energy-efficiency of heating oil users. To encourage this, the bill calls for all allowances to be used to help consumers through a combination of energy-efficiency and heating assistance programs. Greater efficiency will help cut emissions and lower heating bills, and to the extent that the price on carbon emissions gets passed on to consumers, a well-funded heating assistance program will help keep consumer costs down.

How much money the allowances will be worth is also unclear, but analysis of earlier climate bills estimated that 1 percent of allowances was worth $600 million to $1 billion. If that holds true, the 1.9 percent of allowances granted to home heating oil and propane would amount to roughly $1.2–2 billion. Since states are supposed to administer the program and ensure that the money saved by allowances is used to fund energy-efficiency and heating assistance programs, this $1.2–2 billion would help consumers, not industry.

Will that be enough to keep heating oil users from spending more as a result of the climate bill? Perhaps, if everything works as Kerry and Lieberman plan, but the best-case scenario is likely that rising prices will be mitigated by refunds aimed at helping consumers, keeping price hikes from being painful even if they are noticeable. With individual states in charge of heating oil and propane allowances, there could also be a wide divergence in heating oil prices as states take different approaches to administering the allowances.

Of course, this assumes that the climate bill passes the Senate at all, which is far from guaranteed. Even the absence of a climate bill, though, does not ensure affordable home heating oil.

Despite being unveiled in the wake of the devastating oil spill in the Gulf of Mexico—which left the above oil slick—the Kerry-Lieberman energy and climate bill contained few surprises. (image: AP via huffingtonpost.com)

After months of talks and weeks of promises to reveal the details, Sen. John Kerry (D-MA) and Sen. Joe Lieberman (I-CT) held a press conference on Wednesday to unveil their energy and climate bill titled the American Power Act, reports the Washington Post. The substance of the bill is familiar to those who have followed its progress—its key elements have been known since early March—but the oil spill in the Gulf of Mexico and the departure of Sen. Lindsey Graham from the front lines of the debate have altered offshore drilling provisions as well as the political calculus in the Senate.

Kerry and Lieberman’s bill would establish a cap on carbon emissions from utilities, a fee on transportation fuels, and offer incentives for the expansion of nuclear power and offshore oil drilling. Expanded nuclear and offshore drilling were meant to entice reluctant senators to vote for the bill, but the recent BP oil spill in the Gulf of Mexico has hardened some senators’ opposition to offshore drilling and forced a reappraisal of the bill’s offshore proposals. Kerry and Lieberman added a provision to the bill that would allow states to veto offshore drilling within 75 miles of its coast, even if the drilling occurs in a neighboring state’s waters.

With few surprises in the substance of the bill, a lot of commentary has been devoted to the political challenges the bill faces, especially since it appears to have lost its key Republican backer, Lindsey Graham. Graham, for his part, has fled what he believes to be a sinking ship. By his lights, the attempt to pass legislation on immigration this year—sure to be a hard-fought battle—has ruined any chance to pass an energy and climate bill, which is also hotly contested.

Though the language in the bill focuses on transportation fuels, not heating fuels, the added cost to oil companies that a fee on transportation fuels would impose would increase the cost of heating oil, as well. Much of the bill could still be changed as negotiations proceed in the Senate, and it may be the case that no version of the bill can secure the 60 votes needed to defeat a filibuster and be passed by the Senate.

By withdrawing his support for the climate bill he co-sponsored, Sen. Lindsey Graham could kill any chances at passing energy and climate legislation. (image: msnbc.msn.com)

The grand unveiling of the climate bill, which had been scheduled for Monday, was called off after Sen. Lindsey Graham (R-SC) threatened to walk away from the legislation. As the only Republican engaged in drafting the bill, Graham would have to play a pivotal role in the effort to win enough Republican support to avoid a filibuster on climate and energy legislation. The bill’s other sponsors, Sen. John Kerry (D-MA) and Sen. Joe Lieberman (I-CT), remained optimistic that Graham would return to the fold and the bill would move forward, but without Graham’s support the bill may have little chance of success.

Graham said on Saturday that he would abandon the climate bill if the Senate moved immigration reform ahead of climate on its legislative agenda. In a letter to environmental and business leaders that he had worked with on the bill (available on the Washington Post’s website), Graham explained his decision:

I want to bring to your attention what appears to be a decision by the Obama Administration and Senate Democratic leadership to move immigration instead of energy. Unless their plan substantially changes this weekend, I will be unable to move forward on energy independence legislation at this time. I will not allow our hard work to be rolled out in a manner that has no chance of success.

Graham called the push for immigration reform a “cynical political ploy” that was aimed at the upcoming midterm election. The logic here, expressed most bluntly by New York Times columnist Thomas Friedman, is that the Democrats are eager to secure Hispanic votes in the wake of an Arizona law that expanded police powers to combat illegal immigration. The environment and energy news service ClimateWire (published on the Times’ website) quotes Friedman speaking on CBS’s Face the Nation: “I think they’re worried that Harry Reid is going to lose in Nevada, where you have a big Hispanic vote.”

Kerry and Lieberman insist that the climate and energy bill will continue to move forward, the Washington Post reports. “This certainly is not over, and to me, we’ve got a good bill,” said Lieberman. Kerry echoed that sentiment, saying that Graham’s current resistance was a “minor hiccup.” He added, “We’re going to get this done.”

A broad coalition had been scheduled to attend the rollout of the bill on Monday, including leaders of the Christian Coalition, ConocoPhillips, and Duke Energy. Supporters of the bill are nervous that the diverse coalition cannot be held together indefinitely, and certainly not without the second half of bipartisan support that Graham provided.

If Sen. Harry Reid, the majority leader who controls the legislative agenda, gave a clear signal that energy and climate legislation would take priority over immigration, Sen. Graham would likely renew his support of the bill. However, Reid has so far indicated that the Senate will work on both bills and move forward with whichever bill is ready.

That may not be enough to entice Graham to return to a leadership role on climate and energy legislation. Without Graham, no energy and climate bill is likely to pass—or even be brought to a vote—this year. This of course means that potential sweeping changes to the energy industry that would affect consumer prices for products like heating oil are postponed indefinitely.

On Monday, Sens. Kerry, Graham, and Lieberman will finally reveal their climate bill. (image: son.jhmi.edu)

After months of deliberation and negotiation, Sens. John Kerry (D-MA), Lindsey Graham (R-SC), and Joe Lieberman (I-CT) will outline their proposed climate bill on Monday. Though the bill’s central features are already known—a cap on emissions from utilities, a fee of some kind on transportation fuels, and expanded offshore drilling and nuclear power—there is still uncertainty over how it will be implemented and whether it can gain the 60 votes needed to overcome a filibuster.

While there is some debate over the nature of the emissions cap—Dow Jones Newswires (via DownstreamToday.com) says emissions trading might not be permitted at all under the bill, but Bloomberg simply refers to a “cap-and-trade program”—the fee on transportation fuels is shaping up to be the main battleground. The central question: Is a fee the same thing as a gas tax?

“There is no gas tax, there was no gas tax and there will never be a gas tax,” said Kerry on Tuesday, but he has not been able to convince skeptics. The proposed fee would be linked to the price of carbon emissions to equitably distribute costs between the oil industry—responsible for transportation fuels—and the natural gas and coal industries—the main providers of fuel for electricity generation who would be hit by a cap on emissions from utilities.

However, Bloomberg reports that the fee has been abandoned altogether in the face of opposition from Senators, such as Mary Landreiu (D-LA), who want to steer clear of anything that could be labeled a “gas tax” during an election year. Here’s the latest development in how the climate bill would treat the oil industry, according to Bloomberg:

The latest proposal being considered would give the oil industry free pollution allowances that would expire by a certain date, after which allowances would have to be purchased. The Congressional Budget Office would be called upon to certify the mechanism wasn’t a tax.

Such a mechanism would bring the oil industry under the emissions cap already slated for the coal and natural gas industries, which would make the proposed bill closer to the House bill that was passed last summer but gained little traction in the Senate.

The potential fee, or gas tax, or “mechanism” will be a contentious issue, but it is not the only one. Some Democrats, fearful that the climate bill will weaken existing environmental protections, are threatening to vote against it if it dismantles the EPA’s authority or existing legislation in some states.

Lindsey Graham, one of the architects of the proposal, is concerned that a change in the Senate’s schedule would derail energy and climate legislation, reports Politico. For Congress to take up an immigration bill, as the Democratic leadership has publicly pondered, “destroys the ability to do something on energy and climate,” according to Graham. Between financial regulation and immigration, the Senate might not have time to take action on a climate bill. “This comes out of left field,” said Graham.

Obstacles to passing a climate bill are substantial and plentiful. Beyond scheduling the Senate’s workload and allaying the fears of Senators who face re-election, there is the complicated and vexing task of crafting legislation that creates jobs, fosters energy independence, and protects the environment without crippling the energy industry. One indication that the bill has a chance at passage is that the oil industry—which would have been hit especially hard by the House climate bill and would be most directly affected by any fee or tax on transportation fuels—has previously voiced support for a carbon tax, the most controversial piece of the proposed legislation.

If it’s satisfactory to Exxon Mobil, Conoco Phillips, and BP America, maybe 60 senators will get on board as well.

Prices climb for heating oil users fighting off Maine’s spring chills. (pablo.sanchez via flickr.com)

The heating season is winding down, but that hasn’t translated into lower prices for heating oil consumers in Maine, where the heating season can last longer than in other parts of the country. Heating oil prices in Maine increased by four cents last week, the Governor’s Office of Energy Independence and Security (OEIS) told the AP.

While Maine’s heating oil users were hit by the recent climb in the price of crude and heating oil on the NYMEX, the slight dip in heating oil futures on Thursday and Friday “wasn’t enough for consumers to notice a difference in this week’s retail prices,” said John Kerry, the director of the OEIS.

Spring is here but, in Maine and elsewhere, it’s still the heating season. (image: reemac640 via flickr.com)

As spring arrived in Maine, the state’s residents got only a small break on their home heating oil prices. John Kerry of the Governor’s Office of Energy Independence and Security told the AP on Monday that the average price was $2.68 a gallon, one cent less than the average price last week. The disparity between prices in the northern and the southern regions of the state remained, with residents of northern Maine paying as much as 50 cents more than their southern counterparts.

Kerry advised Mainers that weatherization and other efforts at energy conservation should be part of their spring cleaning.