Two proposals for mandatory programs on greenhouse gases have recently been discussed in the Senate. Their targets and likely effects are discussed here along with projections for the Kyoto Protocol and the existing Bush Administration Climate Change Plan, two commonly discussed alternative approaches. Senator Bingaman has offered a proposal based on recommendations made by the National Commission on Energy Policy. (See Summary of Bingaman Climate and Economy Insurance Act of 2005 [1].) Senators McCain and Lieberman reintroduced a modified version of their Climate Stewardship Act. (See Summary of McCain-Lieberman Climate Stewardship and Innovation Act of 2005 [2].) A cornerstone of both proposals is an economy-wide tradeable permits system, which imposes mandatory targets for large emitters and a market based system for meeting those targets. Such a system was used by the Clean Air Act to deal with acid rain, and is central to the Kyoto Protocol. It is, however, not part of President Bush’s Climate Initiative, which relies on voluntary action and nonbinding targets.

Senator Bingaman’s proposal differs from previous proposals that sought to impose mandatory targets in two distinct areas. First, absolute emission reduction targets are set based on emissions intensity – emissions per million dollars of GDP. Initially the goal is to reduce emissions intensity by 2.4% per year until 2019, after which the target becomes more stringent and increases to 2.8%. Despite this reduction in intensity, absolute emissions would actually grow. The Climate Initiative proposed by President Bush also set an intensity target but did not translate this target into an absolute level of mandatory reductions. (See Analysis of President Bush's Climate Change Plan [3].) The McCain-Lieberman proposal, in contrast, has sought to stabilize emissions at a specific level – as such it requires a greater scale of reduction as our economy continues to grow. The second significantly different element in the Bingaman proposal is a “safety value”, or price cap on the cost of greenhouse gas permits. A cost (or price) cap ensures that large emitters with targets will not have to pay more than some specified price for permits. Bingaman’s proposal sets the price cap at $7/TCO₂ initially but increases this cap by 5% nominally each year (assuming a 2% rate of inflation, this implies that the price would only rise by 3% in real terms). As a point of reference, permits in the European greenhouse gas market have been trading during the summer of 2005 for over $25 USD/TCO_2. A price cap gives emitters with targets some assurance about the cost of compliance but like a tax, does not ensure any specific level of reduction will occur. The EIA projects that allowance prices would reach the safety valve by 2016, causing emissions to exceed the cap after this time.

Balancing the cost of a new policy while ensuring that sufficient reductions occur to address the issue is crucial for the selection of the appropriate climate policy approach for the U.S.. The various climate policy proposals that have come forward to date have a wide range in cost, but also considerable differences in the resulting emissions reductions. The following table compares and contrasts the significant elements of current proposals that include targets - the Climate and Economy Insurance Act (proposed by Bingaman), the Climate Stewardship and Innovation Act (proposed by McCain and Lieberman), the Bush Climate Initiative, and the Kyoto Protocol. More detailed descriptions of these proposals as well as economic modeling cost projections are available on our website.

Climate Policy Proposal Comparison