Federal and State Efforts on Carbon Regulation Follow Parallel Tracks
Draft bills have been introduced in Congress in the past few weeks to begin efforts at implementing federal carbon regulation. One bill, authored by House Energy and Commerce Committee Chair Henry Waxman of California and Ed Markey of Massachusetts, proposes a cap-and-trade system to reduce carbon emissions by 20% by 2020.
On the other hand, Rep. Chris Van Hollen of Maryland and others have introduced a competing draft bill called "cap and dividend" which effectively is a straight carbon tax, with no accompanying trading scheme.
The notable difference in the Van Hollen proposal is that it identifies who pays – revenues from the sale of emission permits would be distributed to taxpayers. The Waxman/Markey bill, in contrast, leaves open the question of whether initial emission credits would be auctioned or given away.
Similar competing approaches have been proposed in Oregon. Governor Kulongoski's proposal, SB 80, would authorize a cap-and-trade scheme similar to the Waxman/Markey bill, and in accordance with the carbon regulation scheme being developed by the Western Climate Initiative. State Senator Vicki Waker, on the other hand, is leading a team of legislators who have made an alternative proposal for a carbon tax, with the revenues slated for renewable energy, conservation, energy efficiency and similar projects.
Each system has its advantages and disadvantages. The cap and trade system would rely on the market to set the cost of carbon emissions, but could be vulnerable to manipulation and would be inherently more complex. A carbon tax has the benefit of simplicity, but requires more governmental involvement in setting the price of emissions and can trigger more instinctual opposition from anti-tax advocates. It will be interesting which direction the state and the feds follow, and whether or not their efforts will continue to move in parallel.
Post authored by David Petersen, partner practicing in the Sustainability and Real Estate and Land Use Groups.
