2 Steel Manufacturers Association Environment & Energy -- Climate Change Update: US Climate Action Partnership (USCAP) May 19, 2009 Tom Dower, Vice President Lighthouse Consulting Group USCAP Political Outreach Coordinators

3 Diverse Voices Represented Member Organizations:

4 About our Coalition Launched in January 2007 with the Call for Action Consensus-based, with 25 corporations and five environmental groups Created to articulate the need for prompt enactment of strong federal climate legislation A more detailed Blueprint for Legislative Action released in January 2009 Advocating enactment of legislation consistent with Blueprint and Call for Action

5 The Scientific Case for Action Science is sufficiently clear to justify prompt enactment of legislation Each year we delay action increases the risk of unavoidable and potentially costlier consequences “Warming of the climate system is unequivocal, as is now evident from observations of increases in global average air and ocean temperatures, widespread melting of snow and ice and rising global average sea level.” Intergovernmental Panel on Climate Change, Climate Change 2007: Synthesis Report

6 The Economic Case for Action Unchecked GHG emissions will limit economic growth, strain public budgets Legislation to harness market forces to reduce GHG emissions can reduce the economic cost of achieving desired reductions and spur investment in 21 st century technologies which in turn can generate jobs, economic growth U.S. needs to be positioned to succeed in the new low-carbon, global economy

7 Why Do We Need Legislation? Well-crafted federal legislation can:  Create an enforceable mechanism to slow, stop and reverse greenhouse gas emissions  Enable the marketplace to identify opportunities for increased investment and provide the foundation for a low-carbon economy  Reduce the economic cost of uncertainty  Avoid/minimize use of command and control approach  Spur innovations in new technologies  Enhance energy security

8 A BLUEPRINT FOR LEGISLATIVE ACTION

9 What is the Blueprint? Detailed framework for a possible path forward on climate legislation An approach to achieve aggressive environmental goals in a responsible and economically sustainable manner A consensus of diverse organizations

10 USCAP’s Climate Approach Economy-wide cap-and-trade program Clear linkages with emissions offsets, cost containment measures Allocation of allowance value to transform economy, modernize energy infrastructure, smooth transition for consumers and adapt to the impacts of global warming Complementary measures to spur transformation to low-carbon economy U.S. leadership on international stage

11 Core Blueprint Components Climate Protection 80% GHG Reduction by 2050 Cap & Trade Targets & Timetables Scope of Coverage

12 Core Blueprint Components Economic Protection Allocation of Allowance Value Offsets Cost Containment Climate Protection 80% GHG Reduction by 2050 Cap & Trade Targets & Timetables Scope of Coverage

13 Core Blueprint Components International Principles Technology Transformation Coal Technology Credit for Early Action Buildings/ Energy Efficiency Climate Protection 80% GHG Reduction by 2050 Cap & Trade Allocation of Allowance Value Offsets Cost Containment Targets & Timetables Scope of Coverage Economic Protection Transportation

14 Cap-and-Trade Program Federal cap-and-trade program coupled with cost containment measures and complementary policies ensures environmental integrity, economic stability Declining, economy-wide emission reduction targets Provides incentives to transition to new technologies while ensuring GHG emissions reductions

15 Targets and Timetable Aggressive emission reduction targets for capped sectors as well as total U.S. emissions:  97% - 102% of 2005 levels by 2012  80% - 86% of 2005 levels by 2020  58% of 2005 levels by 2030  20% of 2005 levels by 2050 USCAP recommends program to provide credit for early action

16 Scope of Coverage Goal to cover as much of economy as politically and administratively possible within a cap-and-trade program Point of regulation:  Large stationary sources regulated at point of emission  Transportation fuels regulated at refinery gate or point of importation  Natural gas use could be covered by regulation of local distribution companies (LDCs)

17 OFFSETS AND COST CONTAINMENT MEASURES

18 Adequate Offsets Critical Offsets reduce greenhouse gas emissions not otherwise included in cap Offsets must be:  Environmentally additional  Verifiable  Permanent  Measureable  Enforceable

19 Offset Administration Congress to establish Carbon Market Board that sets overall annual upper limit for offsets within a range  Upper limit starts at 2 billion metric tons  Authority to increase to 3 billion metric tons  Domestic and international offsets each limited to no more than 1.5 billion metric tons in given year Additional offsets contained in strategic offset and allowance reserve pool No “firm-level borrowing”

20 Strategic Offset and Allowance Reserve Pool Mechanism to limit extreme volatility and spike in allowance prices, especially in the early years of program Includes program-based and other governmentally certified offsets and, as a last resort, allowances borrowed from future compliance period at system level Carbon Market Board charged with releasing offsets and/or allowances from the Strategic Reserve Pool at a CMB-specified threshold price

21 DISTRIBUTION OF ALLOWANCE VALUE

22 Our Approach to Distribution “Allowance value” is either the value of a freely- distributed allowance or revenue generated by a government auction of allowances Distribution of allowance value should facilitate transition to low-carbon economy A significant portion should be initially distributed free to capped sectors, including economic sectors particularly disadvantaged by secondary price effects of a cap, to help protect consumers Free distribution of allowances to be phased out over time

23 Allowance Value Over Time

24 Fair and Equitable Distribution Blueprint identifies principles to guide fair and equitable allocation of allowance value to:  End-use consumers of electricity, natural gas, transportation fuels  Energy intensive industries facing international competition  Trade-exposed commodity products  Competitive power generators and other non-utility large stationary sources  Low-income consumers and workers in transition  Programs to achieve technology transformation  Adaptation needs of vulnerable people and ecosystems at home and abroad

25 COMPLEMENTARY MEASURES

26 Complementary Measures and Policies Intended to spur rapid technology transformation and to support the transition to a market based approach to reducing GHG emissions May be mandatory or incentive-based When applied to sectors under the cap, intended to overcome market barriers imperfections that may prevent price signal from achieving actual reductions in emissions in those sectors

27 Technology Transformation Robust program to produce substantial investment in new technologies Federal support for pre-commercial and higher-risk phases of technology research, as well as early demonstration and deployment of new technologies Funding should be transparent, predictable, and accountable; not subject to annual appropriations; and leverage private investment

28 Coal Technology Incentives to facilitate and accelerate early deployment of carbon capture and storage (CCS) technology Address financial and regulatory barriers Coupled with these provisions, USCAP recommends new standards:  CO 2 emissions standards for coal plants initially permitted after January 1, 2015  Retrofit requirements for coal plants permitted after January 1, 2009, and prior to January 1, 2015

29 Transportation Economy-wide emission reduction targets require systematic approach involving:  Fuel providers  Vehicle and equipment manufacturers  Consumers and other end users  Public transportation, infrastructure and land use officials Recommendations include improving vehicle efficiency, reducing fuel carbon content and increasing the efficiency of transportation system

30 Buildings/Energy Efficiency Policies and measures that improve energy efficiency are an immediate step Congress can take Emissions reduction programs include:  State- or utility-sponsored conservation programs  Tightened building codes and standards  Appliance efficiency standards

31 The Need for Action “The scale of the undertaking to address climate change is enormous, and should not be underestimated. For this issue to be successfully addressed – and failure is not an option – the way we produce and use energy must fundamentally change, both nationally and globally.” – USCAP Call for Action, January 2007

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