The Senate version of the U.S. emissions reduction legislation has been announced. The House version was known as the Waxman-Markey Bill. It has been drafted by Senators Barbara Boxer and John Kerry and is known as the “Clean Energy Jobs and American Power Act”. The emissions reductions by 2020 have been increased from 17 percent to 20 percent (below 2005 levels). This is an improvement, but more would be needed for the United States to play its proportionate part in reducing global greenhouse gas emissions and the risk of dangerous climate change. How can this be done without making the passage of this bill any less likely?

The most feasible opportunity is almost certainly to push for the expansion of the amount of permits that go into “Market Stability Reserve” (formerly the “Strategic Reserve” in the Waxman-Markey Bill). The Market Stability Reserve, together with the price floor, constitute what is known as a “modified price collar”, which provides some certainty about the future carbon price.

Permits that go into the Market Stability Reserve will not get auctioned if the carbon price stays below the reserve price. When permits don’t get auctioned that means less emissions. The reserve price will be initially US$28, and initially increases by 5% above the C.P.I. per year, and later by 7% above the C.P.I. per year. Given the recent fall in U.S. emissions, it is quite possible that the carbon price will stay below this level for a long time.

The amount of permits put into the Market Stability Reserve should be significantly higher than 1% per year (which is what was proposed initial years in the house bill). It is not yet specified in the Senate Bill, so is something that will be bargained over. Increasing the portion of permits that go into the reserve would also reduce the likelihood of the carbon price going above the reserve price, which is supposed to act like a price ceiling. For these reasons the goal of increasing the amount of permits that go into the Reserve is achievable.