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Waxman-Markey House vote today

The House is set to vote today on H.R. 2454, the American Clean Energy and Security Act of 2009, colloquially known as Waxman-Markey.
The bill will also have to pass the Senate before becoming law. But one way or the other, we’ll soon have much greater clarity on what is going to happen to Canadian oilsands exports to the U.S.; whether further protectionist barriers are likely to go up against Canadian exports of “high carbon” goods; and to what extent this Congress is willing to put teeth to the green legislation it has been bandying about since March.
In recent weeks, the Administration has been trying to make out as though there’s a juggernaut of support for this bill. However, according to Hill sources, it’s still unclear as to whether it will actually pass. The Dems need 218 hard yeses to get this bill through. Given there’s 254 Dems in the House, you’d think it’d be no issue, but there are holdouts, given frenzied opposition from, among other lobbies, shale oil and coal-producing states, farm states, and the Department of Defense.
In the latest horse-trading on Tuesday, bill sponsor Henry Waxman (D-CA) bought Agriculture committee chair Collin Peterson (D-Minn)’s vote after they reached a deal by agreeing that the Dept. of Agriculture will oversee the definition of a carbon offset, rather than the Environmental Protection Agency. (Cue another round of spiking food prices.)
In light of that deal, many undecided Democrats are now expected to back Waxman-Markey, and the New York Timeshas been reporting the vote as though it’s going to pass. However, the extra support from farm producers still doesn’t indicate everyone is on board. There are a handful of Democrats displaying outright opposition to the bill, including Mike Ross (Ark.), who was one of four Democrats to vote against itin committee. Ross issued a press release on Wednesday referring to the House bill as an energy tax and touting an alternative bill, the American-Made Energy Act of 2009, that he released this week.
The heart of the deal is a cap-and-trade on carbon produced by industrial emitters. The goal is to reduce carbon emissions by 17% by 2020 and 83% by 2050. Other major concessions include giving 85% of pollution permits to large industrial emitters such as coal producers away for free, rather than auctioning them off. (Originally the plan was to use those funds to pay for health care.) But despite frenzied lobbying from Alberta and Canada, what’s still in the bill doesn’t bode well either for Canadian oilsands producers or for Canadian manufacturers as a whole.

Aldyen Donnelly of Energy Probe, a Canadian consumer and environmental research group, has been tracking changes in the bill on his very informative blog here . He posted this morning on what the current version of the bill implies for oilsands producers.

In his May 18 summary of the amendments to the Waxman-Markey climate change bill (“ACES”), David Doniger at the Natural Resources Defence Council (“NRDC”) accurately reports that the federal Low carbon fuel standard. (“LCFS”) that was incorporated in the March 31 draft has been dropped from the bill. Doniger goes on to suggest that the LCFS would have limited US oil companies’ consumption of feedstock originating in Alberta’s oilsands.

Those who think that means oilsands are off the hook under Waxman-Markey, think again:

One of the reasons the US House dropped the federal LCFS from the bill is that it is reasonable to conclude that the cap and trade provisions of the bill are sufficiently (I would suggest excessively) discriminatory against oilsands-based feedstock and refined product exports into the US.

This is because of the way the proposed cap and trade system is likely to work, with a quota allocation and rules for high-carbon suppliers that explicitly favour U.S. producers over foreign sources. (More on this below.) In an earlier post, Donnelly explains:

Given the choice between the demonstrably more efficient, lower cost mandatory measures with credit trading provisions that will support free trade in equally GHG-intensive goods and services, and the cap and trade optionwhich protects US industry at the expense of foreign suppliers and resulting in higher costs for American consumersthe US regulators are revealing a consensus that favours the higher cost protectionist strategy over the lower cost free market strategy.

Over and above the discriminatory elements that remain in the ACES draft legislation, President Obama has indicated that the US EPA will issue waivers allowing US states to adopt the California LCFS if they so wish. To date, 15 US states including most of the major northeastern states have indicated their intention to do so. This has major implications for Ontario, Quebec, Nova Scotia and New Brunswick refineries, because:

  • Ontario refineries increasingly rely on feedstock from Alberta’s oilsands and
  • other eastern refineries rely heavily on feedstocks from Venezuela.

The California low carbon fuel standard, which is being used to define GHG quotas, assigns the same default GHG factor to products derived from Venezuelan feedstocks that is assigned to those derived from Alberta’s oilsands.
Meanwhile, Donnelly notes, the low carbon fuel standard assigns disproportionately favourable greenhouse gas factors to products derived from California heavy oil and Nigerian conventional crude oil. Canadian producers should be able to get U.S. courts to strike down bogus American low-carbon quotas, but will only be able to do so by tracking, auditing and publicly disclosing actual Canadian wellhead-to-refinery gate greenhouse gas content. And this will require upgrading facilities and refineries with tracking technologies that are much more comprehensive than is currently the case.
All this aside, what’s also still included in Waxman-Markey is even more worrying in its implications for cross-border trade: new, game-changing grants designed to shore up U.S. industries fearful of becoming uncompetitive as a result of new carbon costs, and new tariffs in the bill slapping extra costs on to foreign manufacturers and energy producers whose products are deemed to be excessively carbon-intensive, from regimes “without equivalent climate policies.” There’s also a requirement to make untried-at-required-scale and brutally expensive carbon capture and storage technologies mandatory at all new coal-fired plants. If Canada has to follow suit, well, electricity just got a whole lot more expensive.
Make no mistake: this is a sweeping piece of legislation. If passed, it will fundamentally redefine the rules of north-south trade on this continentwith minimal to no input from Canada. It all makes Buy American, which only applies to stimulus-related funds, and then only for the two years stimulus is designated to flow, look like a proverbial walk in the park.
But now that I’ve spooked you all, there remains a chance the bill won’t pass. More later this weekend.