House passes Climate-Change bill

hand met plantjeA new climate energy bill is making its way through the U.S. House of Representatives this week. Named after its two sponsors, Henry Waxman (D-Calif.) and Ed Markey (D-Mass.), the Waxman-Markley bill sets goals for reducing the United States’ greenhouse gas emissions by encouraging companies to turn to renewable sources like solar, wind, geo-thermal and water. The bill would require the country to cut emissions 17% below 2005 levels by 2020 and 83% by 2050, steering it gradually towards a solar and smart-grid future.

President Obama yesterday said that the House took an “extraordinary first step” by passing the climate bill on Friday, adding that he hoped it will induce action by the Senate, predicting that the legislation could make renewable energy “a driver of economic growth”.   However the vote wasn’t a clear victory for the Democrats. It was passed by 219-212, signaling the tough fight ahead as the bill goes to the Senate for consideration.   Many Republicans fear the bill will be a “job killer” because it would require businesses to pay to emit. The New York Times has noted that “while some environmentalists enthusiastically supported the legislation, others, including Greenpeace and Friends of the Earth opposed it”. Friends of the Earth, an international environmental organization, announced its opposition to the Waxman-Markley bill believing it to be too weak and cited support from Shell Oil Company and Duke Energy as evidence of the bill’s shortcomings.

So what does this legislation come down to? Let’s start with the cap and trade program.  In this case the government sets a limit or cap on the amount of a pollutant that can be emitted. Companies are issued emission permits and are required to hold an equivalent number of allowances (or credits) which represent the right to emit a specific amount. The total amount of allowances and credits cannot exceed the cap, limiting total emissions to that level. Companies that want to increase their emission allowance must buy credits from those who pollute less. The transfer of allowances is referred to as a trade.  In effect, the buyer is paying a charge for polluting, while the seller is being rewarded for having reduced emissions by more than was needed. Each year, there will be a reduction in the number of permits issued. Because of this, the market value of each permit will increase, stimulating companies to look for alternate means to reduce emission.

If this bill gets passed by the Senate, the development of enough renewable energy sources has to be ensured to make up for the required reduction in fossil-fuel emissions. However, the legislation contains provisions that would encourage the use, and development of, amongst others, smart-grid technologies. Last Thursday, Energy Secretary Steven Chu announced a 3.9 billion funding in “smart grid” aimed at making power transmission around the country more flexible. With this funding, and the existence of plans for a nationwide smart-grid to be implemented in the future, methods as Combined Heat and Power (CHP) systems appear a competitive and realistic alternative that will eventually help reduce Global Warming.

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