Despite Trump's Withdrawal from Paris Agreement, Carbon-cutting Efforts Still Simmer

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Breaking with President Donald Trump's stance on energy and environmental regulation, cities, states and former Cabinet secretaries, aided by some members of the Fortune 500, have launched various efforts to reduce U.S. carbon dioxide (CO2) emissions and pursue the goals of the Paris Agreement on climate change, from which the president has withdrawn.

Earlier this year, Virginia announced it would regulate CO2 emissions from fossil-fueled power plants. California recently extended its "cap and trade" program to reduce greenhouse gas emissions. A group of Republican senior statesmen, working with blue chip companies like BP plc (NYSE:BP) (London, England), Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas), General Motors Company (NYSE:GM) (Detroit, Michigan) and Royal Dutch Shell plc (NYSE:RDS.A) (Gravenhage, Netherlands), is trying to build support at the federal level for a carbon tax. Cities, states, investors and academic institutions have come together in an effort to preserve the CO2 reduction goals of the Paris Agreement. And a separate initiative, spearheaded by former New York Mayor Michael Bloomberg, seeks to replace the U.S. as a signatory to that agreement.

Some of these moves appear to be the reflexive response of those opposed to the president or his energy and environmental plans. But some of these steps are substantive moves that could actually affect energy and environmental markets. And for some, it may be too early to tell.

This past May, after Trump decided to revise the Clean Power Plan but before he pulled out of the Paris Agreement, Virginia Governor Terry McAuliffe (D) announced plans to regulate fossil-fueled power plant emissions of CO2. The draft regulations are due by the end of this year.

The state currently has 10 operating coal-fired power plants with aggregate generating capacity of about 5,843 megawatts (MW), according to Industrial Info's North American Project Platform. Some of the larger plants date from the 1940s and 1950s. Virginia also has about 12,000 MW of power plants that use natural gas as their primary fuel. Companies owning power plants in Virginia have been closing coal-fired plants and constructing gas-fired ones in recent years. For more on that, see May 11, 2016, article - Dominion Virginia Power Gets Approval for Next Billion-Dollar NGCC.

Eleven of these gas-fired plants began operating in the 21st century, while the rest were built in the 1990s or earlier in the 20th century, according to Industrial Info's Project Platform. Units of Dominion Energy Incorporated (NYSE:D) (Richmond, Virginia) own or operate a dozen gas-fired power plants in the state.

It is not clear what CO2 emission rate the Virginia regulation seeks to set. An article in The Washington Post said McAuliffe's goal was to set an emission limit similar to states in the Regional Greenhouse Gas Initiative (RGGI), a regional cap and trade program operating in Northeastern and Mid-Atlantic states. The state's attorney general issued a legal opinion saying the state's Air Pollution Control Board had the authority to set a statewide emissions cap on new and existing power plants.

RGGI's CO2 cap represents a regional cap for CO2 emissions from the power sector in nine states, the organization's website says. In 2014, the RGGI cap for power plants in those states was 91 million short tons of CO2, a figure that declines 2.5% percent each year from 2015 to 2020. Prior to 2014, the CO2 budget was significantly higher: 188 million short tons for a 10-state region from 2009-2011 and 165 million short tons per year for a nine-state bloc in 2012-2013.

Power plants in the region are able to operate by buying CO2 allowances in an auction. A CO2 allowance represents a limited authorization to emit one short ton of CO2 from a regulated source. The nine RGGI states are Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island and Vermont. The most recent RGGI allowance auction, in June 2017, produced a clearing price of $2.53 per CO2 allowance.

Across the country, California state lawmakers on July 17 voted to extend the state's five-year-old cap and trade law until 2030. The proposal drew bipartisan support and was seen as a victory for Governor Jerry Brown (D). The current cap-and-trade program is an evolution of a law signed in 2006 by California's then-governor Arnold Schwarzenegger (R). It requires companies to buy permits to release greenhouse gases into the atmosphere. Gov. Brown has made climate change a signature issue. In addition to funding climate change-management efforts, a portion of the funds collected under the law will be directed to the effort to create a "bullet train" service between Los Angeles and San Francisco.

"Republicans and Democrats set aside their differences, came together and took courageous action," the governor said in a statement after the measure passed. "That's what good government looks like."

A report in The Los Angeles Times quoted Mark Baldassare, president of the Public Policy Institute of California, as saying there is a "broad consensus" among California voters that global warming merits a response from Sacramento. "While Democrats are more supportive of climate change policy than Republican voters overall, there's a substantial number of Republican voters [who say] climate change is real and the state should be acting," he said.

Extending California's cap and trade program follows the state's increase in its renewable portfolio standard (RPS), which sets the amount of electricity in the state that must be generated by renewable resources. California's prior RPS was 33% of electricity coming from renewables by 2020. Brown announced a commitment to expand that to 50% by 2030 in an early 2015 move that was subsequently endorsed by the state legislature. For more on that, see January 25, 2015, article - California Governor: 50% of Electricity from Renewables by 2030.

Although California's cap and trade system is the only one of its kind in the U.S., other states, including Washington and New York, are investigating ways to lower CO2 emissions from fossil-fueled power plants.

The Times article quoted Bob Inglis, a former U.S. Representative from South Carolina as saying, "There's an important signal coming from California Republicans' willingness to engage in the conversation." Inglis leads republicEn, an advocacy organization dedicated to persuading conservatives to back climate policies, the Times article added.

Another Republican-based initiative to fight climate change has been advanced by a group called the Climate Leadership Council (CLC), led by former Secretary of State George Shultz, former Treasury Secretary and Secretary of State James A. Baker III and former Treasury Secretary Hank Paulson, Jr.

The CLC plan calls for imposing a carbon tax of $40 per ton across the economy, levied at the first point where hydrocarbons enter the economy. The tax would rise gradually over time. All of the funds collected, estimated to be $200 billion to $300 billion per year, would be rebated to consumers. Founding corporate members of the CLC include BP plc, Exxon Mobil Corporation, General Motors Company, Johnson & Johnson (NYSE:JNJ) (New Brunswick, New Jersey), Procter & Gamble Company (NYSE:PG) (Cincinnati, Ohio), PepsiCo Incorporated (NYSE:PEP) (Purchase, New York), Royal Dutch Shell plc, Total SA (NYSE:TOT) (Courbevoie, France) and Unilever plc (NYSE:UL) (London).

Earlier this year, packaging the CLC's plan as "a conservative climate solution," Baker met with senior officials in the Trump administration, apparently to little avail. A few weeks after the Baker meeting, President Trump signed an executive order instructing the U.S. Environmental Protection Agency (EPA) (Washington, D.C.) to revise President Obama's Clean Power Plan. For more on that, see March 29, 2017, article - Trump Begins Process of Undoing Obama's Climate Change Measures. A few weeks after that, in early June, the president decided to withdraw from the Paris Accord. For more on that, see June 2, 2017, article - IIR Energy BREAKERS: Trump Withdraws U.S. from Climate Accord.

Recently, separate initiatives to lower CO2 emissions have garnered a lot of media attention. A grassroots initiative, "We Are Still In," commits the signatories (mayors, governors, university presidents, business leaders and investors) to continue supporting climate actions to meet the Paris Agreement. A separate effort, "America's Pledge," is led by billionaire and former New York Mayor Michael Bloomberg. That would have cities, states, colleges and companies band together and become a signatory to the Paris Agreement. Legal scholars doubt the Bloomberg-led initiative will pass constitutional muster.

The Bloomberg-led group reportedly includes 30 mayors, three governors, more than 80 university presidents and more than 100 businesses. It plans to submit a commitment to the United Nations to meets the U.S. CO2-reduction targets agreed to by President Obama in that accord. In effect, this group wants to fill the place vacated by the U.S. when President Trump withdrew from that climate agreement.

In an interview with The New York Times, Bloomberg said that cities, states and corporations, if they redoubled their efforts, could meet or beat President Obama's commitment to lower U.S. CO2 emissions by 26% by 2025 compared to a 2005 baseline. Widespread substitution of gas for coal among power generators, and an economy that uses energy more efficiently, has gotten the U.S. about halfway to the goal it committed to in Paris.

But a research report from the Congressional Research Service (CRS) said that the U.S. Constitution casts strong doubt about states' abilities to enter into legally binding international agreements. The CRS report, released June 27, noted the constitutional limits on the power of states to make legally binding treaties and compacts with foreign nations. It also said there were "numerous" Supreme Court opinions holding that the federal government has superior power over cities and states in the field of foreign affairs.

The CRS cited two clauses in Article I, Section 10 of the U.S. Constitution that likely will hamstring efforts by non-federal actors to sign international agreements. The first clause in that section provides that "No State shall enter into any Treaty, Alliance, or Confederation;" and Clause 3 (commonly known as the "Compact Clause") provides that "No State shall, without the Consent of Congress . . . enter into any Agreement or Compact with another State, or with a foreign Power."

If the Bloomberg-led group continues to press its petition to the U.N., the Trump administration likely will intervene to block it. The CRS report suggests the federal government will win that legal spat. While the group may not win in the courts, their efforts, and the efforts of the CLC, cities, states, investors and businesses, signal that U.S. climate-change policy remains as unsettled as it is contentious.

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