The document discusses the climate change agenda in 2009, including cap and trade legislation in the US and the Copenhagen conference. It summarizes that Obama has committed to reducing US emissions significantly by 2020 and 2050, and that cap and trade is favored but passage may not occur until 2010 due to complexity. It also notes major issues for the Copenhagen conference include emissions commitments from developed and developing countries and funding for adaptation.

1. The Climate ChangeThe Climate Change
Agenda in 2009Agenda in 2009
December 17, 2008
Kevin M. Dempsey

2. 2
Two Track Agenda on Climate ChangeTwo Track Agenda on Climate Change
• Cap and Trade Legislation
 Obama commitment: reduce emissions to 1990 levels by
2020 and 80% below 1990 levels by 2050
 U.S. emissions in 2007 were 16.7% above 1990 levels
 Appointments of energy/climate czar and Energy Secretary
show priority of climate change agenda
 EPA rulemaking under Clean Air Act remains underway
• Copenhagen Conference in December 2009
 Treaty to replace Kyoto Protocol in 2013
 Major issues unresolved at Poznan conference
 World waiting for new U.S. Administration

3. 3
U.S. Climate Change LegislationU.S. Climate Change Legislation
• Cap and Trade vs. Carbon Tax
 Cap and trade approach most favored on the Hill
 Waxman, Dingell, Markey, Boxer, Lieberman, Bingaman
 CBO and many economists favor carbon tax as more
economically efficient
• Advantages of Cap and Trade Approach
 Environmental certainty on level of emissions
 Easier to grant subsidies through free allowances
 Linkage with rest of world
 Kyoto Protocol endorsed emissions trading
 EU, Australia, New Zealand pursuing cap and trade

4. 4
History of Cap and Trade: Acid RainHistory of Cap and Trade: Acid Rain
• Adopted in 1990 after Decade of Debate
 Capped SO2 emissions from coal-fired power plants
 Allowances allocated based on historical data
• Technological Solutions Well-Established
 Scrubbers, low-sulfur coal
• Main Goal: Regional Cost-Sharing
 Burden focused on Appalachia and Mid-West
 Bonus allowances for retrofitting scrubbers
 Many companies banked allowances for later use
 Regulators kept electricity prices under control

5. 5
EU Cap and Trade ExperienceEU Cap and Trade Experience
• Emissions Trading System – Phases I and II
 Over-allocation of allowances led to price collapse
 Windfall profits for electricity producers
 Criticism of Clean Development Mechanism credits
• Updated Scheme for Post-2012
 2020 goals: 20% emissions reduction, 20% renewable
energy, 20% increase in energy efficiency
 Begin auctioning allowances in 2013, full phase-in by 2027
 Sectors exposed to risk of carbon leakage and eastern
utilities will get free allowances for transition period
 Increased ability to use international offset credits

6. 6
Major Issues in Cap and Trade LegislationMajor Issues in Cap and Trade Legislation
• Allocation of Allowances
 Free vs. auctions
 Significant energy price impact expected
• Offsets
 Additionality/potential for abuse
• Carbon Leakage/Competitiveness
 Border measures and/or free allowances
• Technology Alternatives
 No silver bullets – need more research and development
 Tech industry role could be key

7. 7
Timing of U.S. Climate Change LegislationTiming of U.S. Climate Change Legislation
• Pressure to Move Legislation before Copenhagen
• Difficult to Enact Final Bill by End of 2009
 Bills to date have been extremely complex
 Clean Air Act Amendments of 1990 took two years to enact
 Senate dry-run on cap and trade in June 2008 failed after
only 48 Senators voted to end debate (6 supporters absent)
• Action in Committees and/or in House Possible in 2009
 New Chairman Waxman – committed to move quickly
• Key Question: Path to Senate Passage?
 Letter from 10 Democratic Senators

8. 8
International NegotiationsInternational Negotiations
• Kyoto Protocol
 Negotiated in 2007; took effect in 2005
 Developed countries to reduce emissions by 5.2% on
average below 1990 levels by 2012
• Bali Roadmap in December 2007
 New treaty for post-2012 to be negotiated by December
2009 in Copenhagen
 Developing countries agreed to “nationally appropriate”
mitigation if given technology and adaptation funding
• Poznan Conference
 Officially launched Adaptation Fund, but no agreement on
source of funding or on technology transfer

9. 9
What Must Be Agreed in CopenhagenWhat Must Be Agreed in Copenhagen
• Emissions Reductions Goals for Developed Countries
 Binding obligation to reduce 80% by 2050, goal for 2020?
• Commitments by Developing Countries
 Environmental imperative: China now largest emitter
 Political imperative: Essential for U.S. ratification
(remember 1997 Byrd/Hagel Resolution)
• Adaptation Fund
 Estimates as high as $50-100 billion needed per year
 Source of funds?
• Technology Transfer
 Risk of compulsory licensing?

10. 10
ConclusionsConclusions
• Legislation More Likely in 2010 than 2009
 Will require significant compromises, especially in Senate
 Filibuster threat will be real
 Opportunity for tech industry to position itself as part of the
clean energy solution
• Adoption of New Treaty a Serious Challenge
 Developing countries must make measurable commitments
 Treaty needs 67 votes in Senate for ratification
 Where to get funding for developing country adaptation?
 Technology transfer pressure a risk to tech industry

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Thank youThank you
For additional information, please contact:
Kevin M. Dempsey
Dewey & LeBoeuf LLP
kdempsey@dl.com
(202) 346-7997