Kerry-Boxer: Its Bite is Worse than its Bark

By Marlo Lewis -- October 27, 2009

Today, the Senate Environment and Public Works Committee will hold the first of three hearings on S. 1733, the Clean Energy Jobs and American Power Act,” also known as Kerry-Boxer, after its co-sponsors Senators John Kerry (D-MA) and Barbara Boxer (D-CA). Kerry-Boxer is the Senate companion bill to H.R. 2454, the American Clean Energy and Security Act (ACESA), also known as Waxman-Markey, after its co-sponsors Reps. Henry Waxman (D-CA) and Ed Markey (D-MA).

For those worried about the economic impacts of these bills, I bring unwelcome news: their bite is worse than their bark. Escalator clauses common to both bills, ignored in most previous analyses, are the setup for dramatic increases in regulatory stringency well beyond the bills’ explicit emission reduction targets. Similarly, “findings” presenting the “scientific” rationale for cap-and-trade are not mere rhetorical fluff but precedents for litigation targeting emission sources considerably smaller than those explicitly identified as “covered entities.”

The Economic Debate So Far

Much of the economic debate on Waxman-Markey and Kerry-Lieberman has been about the likely impacts of the specific emission-reduction targets proposed in these bills. The Heritage Foundation, National Black Chamber of Commerce, and American Council on Capital Formation/National Association of Manufacturers project substantial GPD and job losses. In contrast, the Environmental Protection Agency and Congressional Budget Office project much smaller costs.

EPA says Waxman-Markey would cost the average household only $140 annually. CBO puts the figure at about $175. Citing these estimates, proponents say cap-and-trade is cheap, costing only a postage stamp per person per day.

Heritage Foundation scholar Dr. David Kreutzer points out that EPA improperly used a technique called “discounting” to make the costs of cap-and-trade seem tiny: $140 is what a household would have to invest today, with compound interest, to pay the costs of Waxman-Markey in 2050. But according to EPA’s own numbers, in 2050 the cost to a family of four would be $2,700.

Kreutzer and his colleagues also note that the CBO analysis does not estimate the GDP loss from higher energy prices, only the cost of the energy ration coupons, 85% of which are to be distributed free-of-charge in the initial years of the program.

A Breakthrough Institute analysis suggests that Waxman-Markey may cost pennies on the dollar because the bill’s “offset” provisions could allow “covered entities” to increase their emissions at business-as-usual rates through 2030. An offset is a credit earned for investments in projects — either in developing countries or in U.S. economic sectors outside the cap, such as agriculture and forestry — that reduce, avoid, or sequester emissions. The bill allows capped sources to utilize up to 2 billion tons’ worth of domestic and international offset credits each year in lieu of reducing their own emissions. If the offsets option is “fully utilized,” says Breakthrough, “Emissions in sectors of the economy supposedly ‘capped’ by ACESA could continue to grow at BAU rates until as late as 2037.”

This assessment is not a realistic projection of what is likely to happen. Environmental pressure groups would not sit still if offset provisions were to make a mockery of the bill’s requirement that covered entities reduce their emissions 43% below 2005 levels by 2030. Moreover, nothing could be clearer than the sponsors’ intent that offset credits shall be awarded only for reductions that are “permanent, additional, verifiable, and enforceable.” Finding 2 billion tons’ worth of projects annually that meet those criteria seems highly unlikely.

The section dealing with offsets in Kerry-Boxer (Title VII, Part D) is 91 pages long, much of it designed to deter creative accounting and fraud, including:

• An Office of Offsets Integrity
• Reporting and verification requirements
• Random audits
• Third party verification
• Standards for accreditation of third-party verifiers
• Mandatory five-year program review
• Environmental restrictions (e.g. offset credits may not be awarded for projects that convert “native” eco-systems)
• Anti-“leakage” rules (credits may not be awarded for off-shoring U.S. industrial activity)
• Rules limiting the eligibility of developing countries to those with the requisite technical and institutional capacities
• Provisions for cancellation of failed (“reversed”) offsets
• Provisions for citizen petitions to challenge offsets as reversed

In addition, under both bills, the President — not the EPA Administrator –is responsible for developing and enforcing the rules and regulations of the offsets program. The integrity of the offsets program is clearly a top priority of the bills’ sponsors.

The Heritage Foundation’s Waxman-Markey analysis assumes that only 15% of annual reductions will come from offsets. That seems quite reasonable.

Not-So-Hidden Fangs

Now we venture into territory not explored in most discussions of Waxman-Markey and Kerry-Boxer.  The modeling studies address the explicit emission reduction targets and obligations. However, Title VII, Part A of both bills allows — indeed encourages — more aggressive efforts to reduce emissions.

Language in this section could (1) unleash a torrent of lawsuits against tens of thousands of relatively small emitters of carbon dioxide (CO2), and (2) put pressure on future presidents and congresses to adopt substantially tougher emission reduction targets.

Section 701 Findings: Setup for CO2 Tort Litigation

Under the Kerry-Boxer and Waxman-Markey bills, business entities would be subject to the cap-and-trade program only if they emit at least 25,000 metric tons per year of carbon dioxide-equivalent (CO2-e) greenhouse gas (GHG) emissions. So on superficial inspection, if you are small manufacturer or just about any type of non-industrial establishment, you would have no emission reduction obligations. That perception helps the bills’ proponents divide-and-conquer the business community.

In reality, the Findings clearly imply that even small emitters are responsible for destabilizing the climate and causing “injuries” to life and property.  This is especially worrisome, because state attorneys general and environmental groups are already suing energy companies under tort law for emitting CO2. In what follows, page numbers refer to the text of the latest draft of Kerry-Boxer.

The Findings say that “each increment of emission … causes or contributes … to the acceleration and extent of global warming and its adverse effects,” and “accordingly, controlling emissions in small as well as large quantities is essential” to reduce “threats” and “injuries,” including disease, death, property damage, bad weather, business losses; harm to forests, plants, wildlife, water resources, and air quality; and — as if that list weren’t inclusive enough — “other harm.” [pp. 423-424] Under the common law, however, if there is an injury, there must be a remedy.

The Findings go on equate risk of harm with actual harm: “the fact that some of the adverse and potentially catastrophic effects of global warming are at risk of occurring and not a certainty does not negate the harm persons suffer from actions that increase the likelihood, extent, and severity of future impacts.” [p. 424] Get that? All plaintiffs will need is some remote, speculative possibility of catastrophic impacts — and of course that’s what the global warming scare is all about — and voilà, harm has been done, injuries cry out for redress.

If the language in the Findings becomes the law of the land, there will be no stopping the flood of common law nuisance suits. Any increment of emissions, no matter how small, will be deemed to cause or contribute to global warming and its harmful effects. And even if no harm can be proved, the risk of harm will count as actual injury.

Bottom line: Although entities subject to the cap must emit at least 25,000 tons of CO2-e per year, the Findings implicitly authorize litigation targeting vast numbers of smaller entities.

Section 705 Review and Program Recommendations: Setup for Moving Goal Posts

There’s a lot of mischief in this section, too. To begin with, Sec. 705 requires the EPA Administrator, every four years, to address “existing scientific information and reports, considering, to the greatest extent possible, the most recent assessment report of the Intergovernmental Panel on Climate Change, reports by the United States Global Change Research Program … ” [p. 429] This provision will turn EPA into an even more uncritical rubber stamp for the IPCC and USGCRP than it already is. More than ever, the IPCC and USGCRP will write their reports to influence U.S. policy (i.e. they will become even more politicized) and their influence will increase. Cheer if you like agenda-driven science!

Sec. 705 also requires EPA to report on annual emissions and annual per-capita emissions by country. [p. 430] Not a word, though, about tracking emissions intensity (greenhouse gas emissions per dollar of output) by country. In other words, the metrics have been selected to paint the United States in the worst possible light.

Also, as you’d expect, the Administrator is required to assess the impacts of climate change on everything under the Sun — populations, health, livelihoods, tribal culture, weather, fresh water, ecosystems, agriculture, etc. [pp. 432-433]. However, there is no requirement to assess the impacts of climate policy on anything. This despite a requirement that the Administrator use a “risk management framework.”

Similarly, the Administrator is supposed to assess the potential non-linear, abrupt, or essentially irreversible changes in the climate system. [p. 433] There is no corresponding obligation to assess factors that might stabilize the climate and counteract the forcing effects of greenhouse gases.

Now here’s where it gets serious. The Administrator is also required to assess what terrible things won’t be prevented by limiting CO2-equivalent emissions to 450 ppm or global warming to 2°C (3.6°F) above pre-industrial temperatures. [p. 434] This sets up the Administrator to advocate 350 as the new 450. Indeed, the text requires the Administrator to identify “alternative thresholds or targets that may more effectively limit the risks” of climate change.

Similarly, the Administrator must assess whether the Kerry-Boxer bill, taking into account international actions and commitments, is sufficient to limit GHG concentrations to 450 ppm and global warming to 2°C above pre-industrial temperatures, or whether “other temperature or greenhouse gas thresholds” would be more protective. [p. 436]

So the U.S. Climate Action Partnership gang are naive if they think the Kerry-Boxer and Waxman-Markey emission reduction targets, once enacted, would be set in stone. These bills are just the framework for more aggressive emission-reduction requirements to come. Regulatory certainty is an illusion.

Perhaps because some people just don’t trust EPA — imagine that! — Kerry-Boxer requires the National Academy of Science (NAS) to undertake a similar four-year review of climate science and policy. If the NAS concludes that the United States will not meet the Kerry-Boxer targets, or that 450 ppm and 2°C are not sufficiently protective, the President “shall” submit a plan to Congress identifying the domestic and international actions that will achieve the additional reductions. [pp. 442-443] This language implicitly makes the president a handmaid of the National Academy. Once Jim Hansen and his NAS buddies decide that 350 is the new 450, the president “shall” submit a plan explaining how we get there.

Conclusion

Much of the debate on Kerry-Boxer and Waxman-Markey has centered on the bills’ emission reduction targets. Meeting those targets would destroy millions of jobs, warn the Heritage Foundation, NBCC, and ACCF/NAM. The not-so-hidden fangs lurking in Sections 701 and 705 pose additional significant threats to the economy — and provide additional reasons to oppose such legislation.