Climate Change: Comparison and Analysis of S. 1151 and the Draft "Climate and Economy Insurance Act of 2005"

Publication Date: July 2005

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Environment

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Abstract:

Climate change is generally viewed as a global issue, but proposed responses generally require action at the national level. In 1992, the United States ratified the United Nations' Framework Convention on Climate Change (UNFCCC) which called on industrialized countries to take the lead in reducing greenhouse gases to 1990 levels by the year 2000. Over the past decade, a variety of voluntary and regulatory actions have been proposed or undertaken in the United States, but carbon dioxide emissions have continued to increase.

Several proposals designed to address greenhouse gases have been introduced in the 109th Congress. Two proposals, S. 1151, introduced by Senators McCain and Lieberman, and a draft alternative, announced by Senator Bingaman, received increased scrutiny in preparation for the Senate's debate on comprehensive energy legislation. During that debate, S. 1151, introduced as S.Amdt. 826, was defeated on a 38-60 vote. In contrast, the draft alternative remains a work-in-progress and has yet to be introduced. This report compares these two proposals.

Both proposals would establish market-based systems to limit emissions of greenhouse gases. However, the proposals differ in how those systems would work. S. 1151 would establish an absolute cap on emissions from covered entities, and would allow entities to trade emissions under that cap. The draft amendment would limit emissions intensity (greenhouse gas emissions per unit of GDP), and establish a cost-limiting safety valve to protect against high compliance costs. Each would set up a tradeable permit program to begin addressing emissions by the year 2010.

In 2004, the Energy Information Administration analyzed an earlier version of S. 1151. Under EIA's analysis, S. 1151 would achieve a 6.7% reduction in overall greenhouse gas emissions in 2010 compared with its projected business-as-usual scenario, but would not return emissions to their 2000 or 1990 levels. This contrasts with the CRS estimate that the draft amendment would reduce overall greenhouse gas emissions 2.5% in 2010 compared with EIA's business-as-usual scenario.

The two proposals represent different answers to the price-versus-quantity issue in reducing greenhouse gases. In general, market-based mechanisms to reduce CO2 emissions focus on specifying either the acceptable emissions level (quantity) or compliance costs (price) and allowing the marketplace to determine the economically efficient solution for the other variable. If one is more concerned about the possible economic cost (price) of the program, then use of a safety valve to limit costs could appear to some more appropriate, even through it introduces some uncertainty about the amount of reduction achieved (quantity). In contrast, if one is more concerned about achieving a specific emission reduction level (quantity), with costs handled efficiently, but not capped, a tradeable permit program without a safety valve may be viewed as more appropriate. In the case of these alternatives, S. 1151 leans toward the quantity (total emissions) side of the equation; the draft amendment leans more toward the price side. This report will be updated as events warrant.