HR 2454 is what was the Cap and Trade Bill. Except now it is not cap and trade, it is allowances and offsets. We will try and give a simple explanation on how this works. We will try, since it is some 932 pages long and it is one of the most convolved bills ever written. But I believe what it says is really scary.
First it established a decreasing cap on emissions. This is shown below. It takes 2005 as a base year and then starting in 2010 it gets to 17% of 2005 by 2050. The chart shows a slight increase as the program kicks in and then drops linearly.
Then it also throws into the total mix all other emissions and not just energy. The weights on these are in the following Table. This Table is a real concern since it shows that we will have possibly a significant amount taken from the cap from sources which may be hidden all over the industrial landscape from cement manufacturing to cattle and dairy farmers. Just look at methane, which is weight 25 times that of CO2. Cows generate massive amounts of methane as do garbage dumps.Will they fall within the cap! The Bill seems to state that clearly.
The process works as we show in the following Table. Let us describe each step.
1. First there are the Limits. The limits are set for each year and each generator of CO2 or other emissions must get an allowance for their CO2 or equivalent production. An allowance is equal to 1 mTn of CO2. If one generate 2000 mTn then one needs 2000 allowances.
2. Then there are allowances which are set out to the original generators and to other entities or beneficiaries. We will explain this in detail shortly. An allowance equals 1 mTn CO2.
3. Then allowances are auctioned off, some are outright given, but the majority are auctioned, with the Government being the holder of these allowances which the Government then chooses how to distribute them to its selected recipients in a set of pools which we shall define shortly. The auction process is described in the Bill in one place as a highest bid auction. In other places it is something else. In this model we have 40% of the cap being "given" to the existing suppliers and they must then nid for the remaining 60%. The bidding is done by some auction process run by the Government with the Government then allocating the proceeds in some manner to the beneficiaries as defined in the bill. As we have stated befoe based upon evidence from FCC auctions, this process may have a great number of problems.
4. One can trade these allowances. It is not clear what trading really means since an allowance is an allowance. The allowances are fungible.
6. Or one can bank them for a latter time,
7. Or one can borrow them from others to be returned at a latter time and some form of interest charged.
8. There are offsets of between 2B mTn and 3.5 mTn which the Government in some manner will allocate if there are problems. This seems to mean if the industry just cannot meet the obligations the Government can use the offsets in some manner, also be auctioned off but now the Government is the beneficiary.
9. The Government controls all of this process. The Government sets the limits, allocates the allowances, controls the offsets, collects the funds via the auctions and then determines who the beneficiaries are. The Government does of this via a new and expansive organization with a new and powerful czar.
Now the pools of allowances are shown below. They each have a percentage of the total for the year in which they are allocated. The primary energy companies, electric, gas and heating oil get about 40% of them and they then need to buy more from the pool which is controlled by the Government which in turn redistributes the money to the beneficiaries of the specific pool from which they were bought.
Note in this collection of allowances that the beneficiary of an allowance pool is as specified. Thus the electric utilities have 30%. However there are state beneficiaries, electric car beneficiaries, R&D beneficiaries, low income beneficiaries. The list goes on. This is a true collection of pork redistribution because it is the Government who decides who these beneficiaries are.
For example there is also an added tax for electricity to do the following:
"Section 114, Carbon Capture and Sequestration Demonstration and Early Deployment Program: Establishes a program for the demonstration and early deployment of carbon capture and sequestration technologies. Authorizes fossil-based electricity distribution utilities to hold a referendum on the establishment of a Carbon Storage Research Corporation. If approved by entities representing two-thirds of the nation’s fossil fuel-based delivered electricity, the Corporation would be established and would be authorized to collect assessments from retail customers of fossil-based electricity. The Corporation would be operated as a division of the Electric Power Research Institute and would assess fees totaling approximately $1 billion annually, to be used by the Corporation to fund the large-scale demonstration of CCS technologies in order to accelerate the commercial availability of the technologies."
That means $1 Billion per year ad infinitum for EPRI to "study" carbon issues! You cannot make this up. EPRI is the same group which brought you the blackouts and the grid we have today! Why choose EPRI? One wonders who is being "paid off" by this selection. This is not a free market process, it is not entrepreneurial, in fact it is about as far from the way things should be done as one would ever think! Remember that the electrical power industry has been the intellectual backwater of electrical engineering for over fifty years!
The details of the pool allocation and beneficiaries are shown in the Figure below. This is a very key Figure in interpreting the Waxman-Markey plan. Remember it was Markey who brought us the 1996 Telecom Act. Now look at the telecom market! The beneficiaries are Government handouts to who they want to influence. Take the electric car. DoE has been spending billions on electric cars since the 1970s! Do we have anything? No. It is DoE! You cannot make this stuff up!
It is necessary to reduce this proposal to simple pictures. The words in the Bill are incomprehensible to mere mortals. Having gone through hundreds of these before I have a somewhat better glimpse but there are thousands of little traps in the Bill played there by hundreds of lobbyists. The conflicts will eventually play out in our courts and the result will be dramatic destruction of our economy!
First it established a decreasing cap on emissions. This is shown below. It takes 2005 as a base year and then starting in 2010 it gets to 17% of 2005 by 2050. The chart shows a slight increase as the program kicks in and then drops linearly.
Then it also throws into the total mix all other emissions and not just energy. The weights on these are in the following Table. This Table is a real concern since it shows that we will have possibly a significant amount taken from the cap from sources which may be hidden all over the industrial landscape from cement manufacturing to cattle and dairy farmers. Just look at methane, which is weight 25 times that of CO2. Cows generate massive amounts of methane as do garbage dumps.Will they fall within the cap! The Bill seems to state that clearly.
The process works as we show in the following Table. Let us describe each step.
1. First there are the Limits. The limits are set for each year and each generator of CO2 or other emissions must get an allowance for their CO2 or equivalent production. An allowance is equal to 1 mTn of CO2. If one generate 2000 mTn then one needs 2000 allowances.
2. Then there are allowances which are set out to the original generators and to other entities or beneficiaries. We will explain this in detail shortly. An allowance equals 1 mTn CO2.
3. Then allowances are auctioned off, some are outright given, but the majority are auctioned, with the Government being the holder of these allowances which the Government then chooses how to distribute them to its selected recipients in a set of pools which we shall define shortly. The auction process is described in the Bill in one place as a highest bid auction. In other places it is something else. In this model we have 40% of the cap being "given" to the existing suppliers and they must then nid for the remaining 60%. The bidding is done by some auction process run by the Government with the Government then allocating the proceeds in some manner to the beneficiaries as defined in the bill. As we have stated befoe based upon evidence from FCC auctions, this process may have a great number of problems.
4. One can trade these allowances. It is not clear what trading really means since an allowance is an allowance. The allowances are fungible.
6. Or one can bank them for a latter time,
7. Or one can borrow them from others to be returned at a latter time and some form of interest charged.
8. There are offsets of between 2B mTn and 3.5 mTn which the Government in some manner will allocate if there are problems. This seems to mean if the industry just cannot meet the obligations the Government can use the offsets in some manner, also be auctioned off but now the Government is the beneficiary.
9. The Government controls all of this process. The Government sets the limits, allocates the allowances, controls the offsets, collects the funds via the auctions and then determines who the beneficiaries are. The Government does of this via a new and expansive organization with a new and powerful czar.
Now the pools of allowances are shown below. They each have a percentage of the total for the year in which they are allocated. The primary energy companies, electric, gas and heating oil get about 40% of them and they then need to buy more from the pool which is controlled by the Government which in turn redistributes the money to the beneficiaries of the specific pool from which they were bought.
Note in this collection of allowances that the beneficiary of an allowance pool is as specified. Thus the electric utilities have 30%. However there are state beneficiaries, electric car beneficiaries, R&D beneficiaries, low income beneficiaries. The list goes on. This is a true collection of pork redistribution because it is the Government who decides who these beneficiaries are.
For example there is also an added tax for electricity to do the following:
"Section 114, Carbon Capture and Sequestration Demonstration and Early Deployment Program: Establishes a program for the demonstration and early deployment of carbon capture and sequestration technologies. Authorizes fossil-based electricity distribution utilities to hold a referendum on the establishment of a Carbon Storage Research Corporation. If approved by entities representing two-thirds of the nation’s fossil fuel-based delivered electricity, the Corporation would be established and would be authorized to collect assessments from retail customers of fossil-based electricity. The Corporation would be operated as a division of the Electric Power Research Institute and would assess fees totaling approximately $1 billion annually, to be used by the Corporation to fund the large-scale demonstration of CCS technologies in order to accelerate the commercial availability of the technologies."
That means $1 Billion per year ad infinitum for EPRI to "study" carbon issues! You cannot make this up. EPRI is the same group which brought you the blackouts and the grid we have today! Why choose EPRI? One wonders who is being "paid off" by this selection. This is not a free market process, it is not entrepreneurial, in fact it is about as far from the way things should be done as one would ever think! Remember that the electrical power industry has been the intellectual backwater of electrical engineering for over fifty years!
The details of the pool allocation and beneficiaries are shown in the Figure below. This is a very key Figure in interpreting the Waxman-Markey plan. Remember it was Markey who brought us the 1996 Telecom Act. Now look at the telecom market! The beneficiaries are Government handouts to who they want to influence. Take the electric car. DoE has been spending billions on electric cars since the 1970s! Do we have anything? No. It is DoE! You cannot make this stuff up!
It is necessary to reduce this proposal to simple pictures. The words in the Bill are incomprehensible to mere mortals. Having gone through hundreds of these before I have a somewhat better glimpse but there are thousands of little traps in the Bill played there by hundreds of lobbyists. The conflicts will eventually play out in our courts and the result will be dramatic destruction of our economy!
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