Loopholes in the Climate Bill

One of the potential problems with the energy and climate bill now working its way through Congress is its size. It’s bound to be full of hidden loopholes that could help various interest groups, probably making doing something to slow climate change more expensive.

Economists have already pointed out at least one subtle problem that could lead to higher costs. Certain industries, such as the steel industry, will be awarded allocations for emitting greenhouse gases according to how much they produce in the first place, and these allocations will be updated periodically, as their output changes. This gives them the perverse incentive (as economists like to put it) to generate more emissions so that they can reap more of the potentially valuable allocations, which they can sell on a carbon market. The overall carbon emissions for the United States won’t increase–the overall cap doesn’t change. But giving more allowances to steel manufacturers means that other industries won’t get as many. That could drive up the cost of electricity, for example.

The solution, says Gilbert Metcalf, a professor of economics at Tufts University, is to change from output-based updating of allocations to setting allocations based on emissions before the law goes into place.

Today, the Washington Post uncovers another subtle detail of the bill that it says could be worth millions of dollars to oil refiners.

During the final days of the drafting of a 946-page climate bill, Rep. Gene Green (D-Tex.) won support for an amendment that deleted a single word and inserted two others. The words could be worth millions of dollars to U.S. oil refiners.

The Green amendment deleted the word “sources” and inserted “emission points.” In the arcane world of climate legislation, that tiny bit of editing might one day give petroleum refiners valuable rights to emit carbon dioxide when it otherwise might not have been allowed. Refiners could get the extra allowances in return for cutting carbon emissions by 50 percent at a single point of a vast refinery complex instead of slashing emissions by 50 percent for the entire facility.

The article goes on to mention a couple more loopholes, and surely in this long and convoluted bill there are more that aren’t obvious. Some more may simply be the result of unclear wording. Again, they won’t change the total emissions as long as the overall cap stays in place, so the bill still has some teeth. Indeed, Robert Stavins, director of the Environmental Economics Program at Harvard University, says that the political wheeling and dealing could be a good thing: it could get more people behind the bill, which could make it more likely to pass.

That said, some of the worst polluting industries–as long as they have strong lobbyists–might get away with doing little to change their ways, passing on the burden to others.