Senate Climate Bill: Apply Big Revenue to Energy Innovation

Should Senate Democrats really try to pass an energy and climate bill this summer? Should offshore oil drilling be included? Who knows? Since nobody’s seen the details, I don’t know whether Senate Democrats should pursue a possible “comprehensive” energy and climate deal this year.

Doubts abound, for sure, the BP oil spill has complicated things, and Brad Plumer over at the New Republic’s blog, The Vine, has noted a ton of problems with earlier bill outlines. So we’ll just have to see what gets released, supposedly on Wednesday. For now nothing’s very clear.

What is clear, though, is this: To get to a good bill senators need to deal properly with the revenue—whether from offshore oil drilling or pollution allowance auctions or whatever else is in the bill. And to do that they need to make sure a huge chunk of it gets applied to clean-energy research and development. Get that right and much else needn’t be perfect.  Blow that, and the bill is likely not worth it.

Now: How’s that again? Why do senators need to follow the money so closely? The bottom line is this: Putting a price on carbon, or regulating emissions, as we have written here on the Avenue and in this major report that was recently cited by New York Times columnist David Brooks, while absolutely necessary, will not be sufficient to address the nation’s climate problem and will, importantly, not put the U.S. in the position to seize the extraordinary opportunities that will come with rebuilding to global energy economy. Also necessary, as we keep saying, will be a major drive to promote large-scale technology breakthroughs. No matter how you measure it, U.S. government investment in clean energy R&D remains grossly inadequate. Right now clean energy R&D accounts for only around $3 billion a year. But if we’re going to see real progress in de-carbonizing the present economy and creating the next one this number should be closer to $15 billion and probably as much as $25 billion per year.

So that’s the target: $15 to $25 billion a year is “the number”—the critical investment threshold for federal clean energy investment that must become a core benchmark for evaluating any and all federal climate, energy, or indeed appropriations deal making.

So how, then, does the anticipated climate and energy bill from Sens. Kerry and Lieberman look by this standard? Even given the lack of a public bill text, the drift of discussions about revenue items that seem to be under consideration doesn’t reassure. First, that two-thirds of the revenues generated by auctioning off pollution allowances for utilities might be returned to consumers through local distribution companies raises concerns about giving away the store. Sure, this is a way to get something through the Senate by evening out the geographical disparities of energy use and bill impact, but it may not be fair to efficient places and, at any rate, it’s the slippery slope to blowing the revenue without taking care of essentials like clean energy investment.

As to the current bugbear of drilling, it might conceivably be worthwhile as a way to reduce energy dependence a little, raise revenue, and buy fossil fuel interests’ support for emissions limits or renewables standards. However, the price of drilling’s inclusion should clearly be not just strict new drilling safeguards, but a hard link of drilling to clean technology innovation as well. That is, Senate dealmakers should in effect embrace the outline of a recent GOP plan to put hundreds of billions of new oil and gas royalties into a fund to accelerate clean energy innovation that would help make clean energy cheap and truly help wean America from its carbon dependency.

Yet this too looks fraught this week, as discussions about where the revenue from taxing any new offshore drilling should go are if anything drifting more toward revenue sharing than R&D. Brad Plumer notes, for example, that Louisiana’s Mary Landrieu is now insisting that some of the money from drilling should go to the states that approve it and points out a story quoting her as saying: “There is not going to be and drilling unless there is revenue sharing.”

In short, all of this sounds problematic. Once again, virtually every interest imaginable—the utilities, the drillers, the anti-drillers, the deficit hawks, the states, the regions, the environmentalists—is having its say but there’s little focus on applying adequate revenue to truly remaking the U.S. energy system. So: We’ll see.