GLOBAL CLIMATE DEBATE

Susan McGinnis: Hello and welcome to Clean Skies Sunday, a weekly half hour look at energy issues facing Washington and America. I'm Susan McGinnis.

Today on Clean Skies Sunday, the president calls an energy summit of sorts with key senators, cabinet members, and authors of forthcoming legislation. Several lawmakers want stimulus funds to stop going to foreign wind companies. So why is the American Wind Industry defending the grants? And the premier Energy Conference of the year wraps up in Houston will have highlights from CERAWeek 2010.

First, President Obama is taking a more active role in advancing climate legislation. Last week, he hosted in Energy Summit, a closed door discussion with 14 key senators and members of the White House Green Team. Cleans Skies' Tyler Suiters talked with some of those senators that were invited to the meeting, and Tyler, they sound encouraged.

Tyler Suiters: Well, the ones that I talked to Susan, do sound more encouraged at the very least. Each of them at the meeting had a few minutes on the floor to talk about their concerns regarding this climate legislation. After the White House meeting, I talked to one of the bill's co-authors, that is Joe Lieberman. And he told me that President Obama had a very clear point here that is that he wants a single bill that combines clean energy and climate issues.

Joe Lieberman: The president very clearly at the beginning of the meeting expressed his support, urgent support for us to adopt comprehensive legislation to make America energy-independent and to reduce air pollution including carbon pollution. That was very important.

Tyler Suiters: Now, did you hear that the delineation there?  The tri-partisan co-authors, Lieberman, John Kerry and Lindsey Graham, they're focusing on the ladder there, reducing air pollutions, as Lieberman put it. That means limiting US carbon emissions.

Now the other part he mentioned, reducing US dependence on foreign oil. That is becoming something of a catch-all for clean energy. And I talked with one of the co-authors of the ACELA Clean Energy Bill. This is a bill that is already passed out of the energy committee. Lisa Murkowski was at the White House meeting. And she tells me her point to the president was to pass what can be passed without delay as soon as possible.

Lisa Murkowski: That it was a good bill, a fair bill, and it had the support of both Republicans and Democrats. And if we wanted to advance good energy policy, it was ready.

Tyler Suiters: Any reaction from the president to that?

Lisa Murkowski: Well, he remains committed I think to what he considers a comprehensive bill. If a comprehensive bill by definition is cap-and-trade, then I think that's problematic.

Tyler Suiters: Now you heard Senator Murkowski used the term 'cap-and-trade'. That's the system included in the House Climate Bill. But the term is becoming toxic in Capitol Hill right now. So instead, democrats are using language like you heard Joe Lieberman used earlier referring to carbon pollution reduction. And Susan, there are indications that this draft bill on the senate side will include a cap-and-trade plan but only as part of an overall system to reduce carbon emissions.

Susan McGinnis: Okay. So Tyler any clues now about the timing of the bill?

Tyler Suiters: Well, I asked Joe Lieberman about that because the final work day of the month is now less than two weeks away.

Would you say March 26 is an accurate deadline for the draft or is that a false deadline?

Joe Lieberman: Well, it's a hopeful deadline and I think we can do it. I mean we hope to have soon, as early as early next week, a kind of narrative with some detail on it of what our goals or in other words, an outline with some details but legislative draft language which by March 26 is our goal and our staff thinks they can get it done.

Tyler Suiters: Now the senate calendar officially calls this a state work period, two weeks beginning on March 29th so that 26th the Friday that would be the final work day on Capitol Hill. And Susan, you have to wonder if this draft legislation doesn't come out until after that two-week break, any momentum built up by this past week's White House meeting maybe lost all together.

Susan McGinnis: All right. And we have lots of hopes on that coming up before then. Tyler Suiters, thanks.

Tyler Suiters: Thank you.

Susan McGinnis: And joining me now for some more perspective on this meeting and what the bill might hold when it does come out is Christine Tezak. She's a Senior Research Analyst at Robert W. Baird & Co. Christine, good to see you again.

Christine Tezak: Good to see you Susan.

Susan McGinnis: So what is your take on this meeting?  Apparently, a great little consensus that it was productive -- brought together, cabinet members, senators, the co-authors of the bill.

Christine Tezak: Well, I think the biggest part of this meeting was the active involvement of the President. President Obama has been routinely criticized for not being involved enough in healthcare and in climate change, and I think what this White House meeting did was of course send the message that he is absolutely focused on this agenda and he wants to see it moved forward. And so I think it deflects some of that criticism that he's not involved and that is not a priority issue.

Susan McGinnis: But does it overcome the biggest sticking points with this bill?  I mean what are the biggest issues holding it up?  Is it the price on carbon and possible cap-and-trade?  Is the president still in favor of cap-and-trade?  But from what we're hearing, for all intents and purposes, it's dead.

Christine Tezak: Well, I think it's always easy to say something's dead in Washington. That's definitely the easy call to make. I think the biggest sticking points are, can there be a lot of deviation from what passed in the House and will that still allow a bill to get done this year?  What is being discussed in the Kerry-Graham-Lieberman context, this new context is perhaps the trading program for some parts of the economy and perhaps a fee or tax on transportation fuels.

Susan McGinnis: Right. They want it sort of a sector-by-sector approach.

Christine Tezak: Right. And that would be a significant departure from the House Bills. So when you make a big change between a house piece of legislation and something in the senate, you have to reconcile those differences. And when they're very different then of course, you're going to see one bill or the other sort of move forward. So one of the big challenges will be to change how that carbon price would be formed.

Susan McGinnis: Okay. So let's just briefly go over what most likely they will be presenting which is a different sort of carbon price or carbon trading mechanism for utilities, transportation and industry.

Christine Tezak: Industry, right. What you're going to see first is a cap-and-trade program for utilities. And one of the reasons that there is interesting moving forward for utilities is that they're familiar with the cap-and-trade construct. We use that to control other pollution from power plants like sulfur dioxide, better known as acid rain, or nitrogen oxide. So it's something that's familiar to them and it allows them to manage their portfolios usually in a way that's a bit more efficient for customers because cost won't go up as much.

For the transportation sector especially the way the Waxman-Markey Bill was crafted, they would get almost no allocations. And what that would mean is that they would be very exposed to carbon prices. And that could move into the fuel complex very fast and be very disruptive, both to customers and to companies. So the thought there is maybe take an approach where there'd be a stage fee that would go up periodically. Some people will call it a tax, others call it a fee. But the point is it would be something more consistent. It would be rolled into the price of the commodity. And it wouldn't create so much risk for the operations of refiners here in the US that provides our gasoline and then industrial--

Susan McGinnis: They'd be exempt -- the industry will be exempt for a while.

Christine Tezak: For a little while. And they will come in later even under Waxman-Markey. So it's consistent with that. And I think it speaks to the fact that there are a lot of US industries (that) are concerned about being at a competitive disadvantage.

Susan McGinnis: So what do you say -- what about republicans like Lisa Murkowski who say the president and the senator should give up on capping greenhouse gases, focus on renewables, focus on domestic drilling and they're looking for an energy-only bill. You know the president is looking for a comprehensive bill which means incorporating energy plus climate change.

Christine Tezak: Well, I think the challenge when you're looking at pushing for an 'energy-only bill' is you're not addressing the fact that we've made a commitment as a country in the wake of the Copenhagen Meeting to set a target on our greenhouse gas emissions. And nobody ever reconciles that when they talk about an energy bill only. And that they're just going to, 'Oh well, we're just going to take care of it.'  And we've got pressure that we're trying to exert on China to make that commitment. And then we won't do it ourselves. And so I think the biggest flaw in the argument of folks who want to push an 'energy-only bill' is that they've left out off the table this target or this commitment that we are officially through the state department and through other international organizations, pushing others to make.

And I think that that is where and why the administration struggles to make that concession for energy only is that we're out there with this commitment saying, 'We'll find our own target too'.

Susan McGinnis: Okay. We've heard a little bit from Senator Kerry about the nuclear component of the legislation. We've heard that there could be coming incentives out of the White House for fuel switching for older coal plants. What do you think we might see when it comes to nuclear and natural gas?

Christine Tezak: Well, one of the few areas of detail that has actually sort of emerged was a draft out of Senator Graham's office for a clean energy standard instead of a renewable energy standard. And in that, we would start to capture the carbon-free nature of nuclear power plants. And that is certainly one of the big areas where there would be a new push for nuclear capacity. That would compliment what President Obama has proposed in his own Fiscal 2011 Budget, to expand along guarantees to help facilitate that first round of plants.

For fuel switching, what's been talked about is, it seems to be building on an idea that came out last fall in the Kerry-Boxer discussion which was to give incentives to coal-fired utilities to convert those plants to natural gas. And what you actually do is you drop the coal plant, you build a new natural gas plant in the same place but use all of the existing infrastructure. So you don't fill a new plant and a new place. You build a cleaner plant where a dirty plant used to be.

Susan McGinnis: So we'll be hearing more about that.

Christine Tezak: We'll be hearing more about that. It could take different forms. In the Kerry-Boxer Bill you would have got extra carbon credits for doing that. There's talk of having cash for coal clunkers proposal or some other bridge credit or tax advantage for making those decisions in the next 5 to 10 years.

Susan McGinnis: Okay. So do you think we'll see an outline within the next couple of weeks?  Do you think we'll see a bill by the November mid-terms?

Christine Tezak: Oh my God, I hope we will see a bill by then. Latest, I heard the next sort of date we're all watching for is the week of March 22. So we'd be looking for it then.

Susan McGinnis: I mean for it to pass, do you see something this year before Cancun World Climate talks?

Christine Tezak: I think a lot of it is going to depend on how well the healthcare reconciliation process goes. There are certainly folks in Washington who think once that happens, business is over. We're all going to lower our golf handicaps. And we're all going to basically take the summer off. The expectation is if they do healthcare in that fashion, it could cause us the Climate Bill pick because attitudes would sour so dramatically. Other folks say well, maybe the healthcare bill isn't as bad as people think. Once it gets out there and that's done, there will be the bandwidth to take this up. And that's when we'll see. So we'll know when we're done with healthcare.

Susan McGinnis: Right. Okay. We'll wait for that. Christine Tezak, Robert W. Baird & Co. Thank you.

Christine Tezak: Thank you Susan.

Susan McGinnis: And still to come on Clean Skies Sunday, the administration has handed out more than $2 billion to clean energy projects. But now some democratic senators are complaining about who's getting the vast majority of that money. And natural gas took center stage at CERAWeek 2010. (We'll look at) why some business leaders (are) calling it the fuel of the future when Clean Skies Sunday comes back.

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Susan McGinnis: Welcome back to Clean Skies Sunday. I'm Susan McGinnis. President Obama calls the Recovery Act the biggest clean energy bill ever. But now some members of his own party are questioning whether more of the dollars should go to US companies. Clean Skies Tyler Suiters reports on this clean energy controversy.

Tyler Suiters: The latest salvo comes from ACORE, the American Council on Renewable Energy. In a letter to treasury secretary Tim Geithner, the group contends that the reason the US needs foreign wind companies is because of inconsistent renewable energy policy by Congress itself. And at their heart, ACORE says that green jobs really are red, white and blue jobs.

President Obama: Because of Recovery Act, we have finally jump-started the clean energy industry in America and made possible 200,000 jobs in the clean energy and construction sectors.

Tyler Suiters: His message in short, money from American taxpayers is now creating American jobs in America's clean energy sector, but at what price?  In October, an American university report said that of the first $1.05 billion in stimulus clean energy grants, almost 85% went to foreign owned wind companies.

Rob Gramlich: Guilty as charged if the claim is that we've been going abroad to get investment here into the US. That's what we have been doing. It's what the government's been trying to do. That's been what our industry has been trying to do, bring these experts in wind production to this country.

Sen. Charles Schumer: I'm all for clean energy but we should be investing in the US not China. What makes matters worse is that the Chinese are involved in predatory trade practices when it comes to clean energy. They don't allow us to sell turbines and other things made here into China.

Tyler Suiters: And in the follow up last month, AU reported that overall of the $2.1 billion in Clean Energy Recovery Act funds so far, almost 80% went to foreign companies. So Schumer and three other democratic senators now want a more stringent 'Buy American' Clause for clean energy grants. They're insisting that clean energy projects use only materials manufactured in the US.

William Yeatman: My primary complaint is how much support to these Wind Energy companies ultimately need to be viable on the free market. Every year, we hear 'Just extend our tax credits. Just extend our taxpayer giveaways another five years, another 10 years, because we need to get solid market footing' Well, they've been saying that for decades.

Tyler Suiters: But ideals aside the reality is that foreign companies are very much part of the US Wind Industry. AWEA reports that four of the five companies that installed the most US wind capacity in 2008 are foreign though they combine for less than half of American-owned GE Energy's total. And AWEA says, if the senator's proposal became lobbed, the US would lose half of the 85,000 wind industry jobs preserved by Recovery Act funding.

Rob Gramlich: The Recovery Act is required to go to only US project and the author of the AU study that's had many stories written about it, acknowledged that on CNBC the other day, he said, 'Yes, it's true. All of the projects are here in the US employing US workers.'

Tyler Suiters: With that in mind, Energy Secretary, Steven Chu is promising to explain to lawmakers what he calls the subtleties of the global wind energy market. He says even if one third of the hardware involved as manufactured outside the country, there's no sense stalling US Wind projects. So it seems the Obama administration and DoE planned to stand tall on their clean energy policy even though the political winds may shift.

President Obama: They'll be doing the work that America needs done to stay competitive in a global economy. In no area is this more important than in energy.

Tyler Suiters: And in the midst of this criticism, AWEA is now pushing back at Congress saying, if lawmakers really do want 100% of wind components manufactured here in the US, the industry needs a strong renewable electricity standard enacted by Congress. In Washington, I'm Tyler Suiters, Clean Skies News.

Susan McGinnis: Joining us now for more perspective on this ?Buy American? proposal is Dr. Margo Thorning. She is Chief Economist at the American Council for Capital Formation. Margo, thanks so much for being here.

Dr. Margo Thorning: My pleasure.

Susan McGinnis: Now this is not only about wind. This could impact other industries, the solar and other renewable industries as well.

Dr. Margo Thorning: That's right. It could impact all sorts of reconstruction projects, infrastructure projects. So the proposal that the senators introduce to require even private sector projects to 'Buy American,' I think we need to think very carefully about because there are already provisions and last year's stimulus bill requiring us to Buy American.

And remember that when we put tariff barriers up against our competitors? products, they put barriers up against ours. Exports are a big part of the American economy and have been responsible for helping the recession not be any worse than it has been. So when we go down that path of Buy American, I think we have to think about what are the unintended consequences.

Susan McGinnis: Well, others would say, how does it help the US taxpayer to actually fund jobs overseas?  What's the upside for the US taxpayer?

Dr. Margo Thorning: Well, the question is, if for example a wind project is unable to get parts from a domestic manufacturer because they're not -- they can't meet the production or they don't have the technical skills then that project for Wind or for some other projects simply won't go forward. And so you won't get the jobs created anyway. Furthermore, if the cost of the product from the imported country is much cheaper than what we can provide here, think about the fact that we will have the taxpayer dollars will get less bang for the buck. We could get more if we allow ourselves to purchase say the blades from another country.

Susan McGinnis: But if this happens, isn't it the US building up industries in another countries?

Dr. Margo Thorning: Well, the US in general is responsible for a large part of world trade and to the extent we close our borders to imports from our trading partners like China, India and South Korea, we're going to narrow our own markets. So I think many jobs here in the US are in the export sector for example Boeing is a huge exporter and the movie industry is another example. So I think we want to be careful that because all the economic studies over the last 30 years have shown that countries with open borders and low tariffs, tend to experience faster productivity growth and grow faster.

Susan McGinnis: Well, this proposal isn't trying to stop the other projects. They're just saying if it's a project that involves with the foreign manufacturers, if they're valuable, they should go forward. They just shouldn't get stimulus funds.

Dr. Margo Thorning: Well, I think it would be a good -- good to slow down this process toward 'Buy American' because it isn't clear that the overall job growth will be faster, if we end up not able to fund as many wind farm projects for example because the cost of the blades or the delay, because we're relying only an American suppliers, that's not going to stimulate job growth here.

Susan McGinnis: But you actually believe it will hurt it.

Dr. Margo Thorning: I believe it could slow it because other countries are already retaliating against the 'Buy American' provisions that were in the economic stimulus bill that passed last year. So that means our goods go out and face higher tariff barriers in other countries. There're going to be fewer jobs in the export industries here because other countries are asleep at the switch.

Susan McGinnis: So that will slow the US industry.

Dr. Margo Thorning: That will slow the US industry in general. I think it's like, you have to think of the whole picture, not just a small piece of it.

Susan McGinnis: And what about an impact on prices?

Dr. Margo Thorning: Well, I think certainly, requiring the purchase of US made goods will tend to increase the prices. And that means you can buy fewer, you can buy less steel. You can buy fewer turbines or blades. So if we're really interested in accelerating renewable energy as well as infrastructure projects, we ought to be open to getting the lowest cost materials.

Susan McGinnis: So you believe that AWEA, the American Wind Energy Association has a point that even though the domestic manufacturers want more of this stimulus funds, this is good for the foreign companies and good for America.

Dr. Margo Thorning: Yes. And I think general economic analysis over the last several decades backs that up.

Susan McGinnis: So these senators want the president to suspend the stimulus clean energy program. What's the likelihood that these democratic leaders can actually block renewable energy funds from going overseas?

Dr. Margo Thorning: If I had to bet, I would guess not, because there are so many other senators whose states depend on exports. And so, I think there will be a very thoughtful discussion in the senate about the wisdom of that proposal.

Susan McGinnis: All right. Well, we see where it goes. Dr. Margo Thorning. Thank you so much for joining us from the American Council for Capital Formation. We appreciate your insight.

Dr. Margo Thorning: Thank you.

Susan McGinnis: Thank you. And still ahead on Clean Skies Sunday, China and India sign on to the Copenhagen Accord and CERAWeek 2010 wraps up in Houston. We'll have highlights from a week of energy coming up.

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Susan McGinnis: Welcome back to Clean Skies Sunday. Add India and China to the list of countries backing the Copenhagen Accord, the Climate Change agreement made in December. The two countries are the last major emitters yet to formally endorse December's agreement. The Copenhagen Accord sets a non-binding goal of limiting global warming to two degrees Celsius above pre-industrial times and the goal of $100 billion in aid from 2020. It also lists steps by all of the top greenhouse gas submitters to either cut or curve the growth of emissions by 2020.

CERAWeek 2010 wrapped up this past week, the world's heavy hitters in the energy industry headed home from Houston. This year, CERAWeek focused heavily on natural gas. Global energy executives focused on how the new abundance of US gas is shifting world markets and their business strategies. Clean Skies News' Margaret Ryan reports on the week's highlights.

Margaret Ryan: It was innovative drilling techniques that produce the gas bonanza from US shales. A windfall, the blindside of the forecasters and it's just now heading home in a wider energy industry.

Daniel Yergin: The abundance is there. It changes the character of inner fuel competition, changes the debate on how to manage carbon, creates particular issues, we saw that the growth market is going to be in electric power.

Margaret Ryan: And the new finds have oil companies scrambling for joint ventures in the new technology.

Jean-Jacques Mosconi: It's a good way for us to enter into this new play. And of course we expect and intend to be able to translate this experiment to other areas like Europe.

Jon Jacobsen: But we also have an agreement with Chesapeake to look for global opportunities and we screened a number of areas.

Paolo Scaroni: There are countries we think particularly Northern Africa but also Russia maybe even in Europe, where it is possible to replicate the US success in shale gas.

Margaret Ryan: A growing sense that the shale gas boom is real and sustainable permeated the week's proceedings.

David Hobbs: And what you find is actually the resource space that is in that sweet spot and highly commercial area takes you out in terms of an equivalent gas price necessary to underwrite the development out pass the 900 trillion cubic feet of gas before you end up needing the gas price to move from where it is.

Richard Newell: Our estimates of the technically it will cover a resource space of shale gas in the United States has increased sixfold over the last several years. On the estimates of natural gas, proven reserves have increased significantly as well. And last year, even at the time of fall in natural gas prices, shale gas reserves grew 51%.

Margaret Ryan: Still skeptical, the customers -- both feedstock customers like Dow Chemical and power generators who make 40-year commitment to fuel choices, say they want more assurance that gas supplies are proven.

David Ratcliffe: In the fact that we found additional supplies is good news for the economy and to this nation. The remaining questions that have to be answered are how much, at what price, over what period of time.

Margaret Ryan: And then there's the question of climate change where government policy is still unclear.

Lawrence Makovich: If you're going to build gas-fired power plants particularly to displace coal-fired power plants, the problem that you have is you do start to bump up against some of the emissions limits that people are talking about over the lifetime of the plants that you would be building.

Margaret Ryan: As for the global gas markets, will CERAWeek 2012 or 2013 be equally amazed by the strategic shifts brought by shales outside North America?

Nabuo Tanaka: This has a global impact. So the global market of oil and the gas is -- LNG gas especially, is we will see the growth in the mid-term in 2015 or 2016.

Margaret Ryan: But the US technology has adapted to each new formation and translating it overseas is not an automated process.

Jean-Francois Cirelli: We don't have what you had in the US which was clearly a driving force for the uncommercial gas, these are small companies, very professional, very dynamic, very innovative that has already pushed the uncommercial gas in the US.

Margaret Ryan: Europe is densely populated and public acceptance of drilling is uncertain as is the amount of gas trapped in the shale.

Philippe Boisseau: Shale gas worldwide could represent something around 5% to 7% of the overall gas production which basically means that it is important. Nevertheless, its size at the world level is not big enough to create a paradigm shift.

Helge Lund: We have a combined team of Chesapeake and Statoil experts that are now looking into shale gas opportunities outside the US to determine potential. We are not yet in a position where we can conclude that shale gas will make the same impact outside the US.

Margaret Ryan: So worldwide more questions than answers from the new gas bounty. But certainly, it's changing the energy and future. In Houston, Margaret Ryan, Clean Skies News.

Susan McGinnis: And that does it for us for this edition of Clean Skies Sunday. I'm Susan McGinnis. Enjoy the rest of your weekend. We'll see you right here next Sunday morning. And until then, we'll see you at cleanskies.com. You can also find us on Facebook and Twitter. Have a great day.