Climate of Change

The propane industry needs to take a stance on greenhouse gas emissions or risk being excluded from the national debate about sweeping energy regulation changes.

National Propane Gas Association President Rick Roldan says a mandatory greenhouse gas reduction program that will raise the price of energy is virtually inevitable within the next 18 months. He says the industry needs “a full-throated debate” to determine a formal position that industry leaders can bring to legislators before that law is set.

“We have to, in a crystal-clear fashion, formulate what the position of our association is going to be when this legislation comes forward. And it is coming forward now,” he says.

House and Senate lawmakers already have introduced bills for some sort of cap-and-trade program to contribute to global efforts to address climate change. The stated goal is for the United States to cut its greenhouse gas emissions by 60 to 80 percent by 2050.

The details of those proposals will be hammered out by a Democrat-controlled Congress that is decidedly in favor of curbing carbon emissions. For the last eight years, the Republican-controlled Congress and Bush administration have resisted global pressures to regulate greenhouse gases.

The administration aggressively argued in the courts that there is no regulatory authority within the Clean Air Act to enforce such regulations. Last spring, a Supreme Court ruling effectively rejected that position and paved the way for mandatory, economy-wide regulations.

“This a title wave that is coming. It is what I view as a legislative tsunami,” Roldan says in an interview with LP Gas.

Greenhouse gases identified in the pending legislation are carbon dioxide, methane, nitrous oxide and fluorinated gases. Carbon dioxide accounts for the largest share of domestic greenhouse gas emissions (84 percent in 2005), largely due to the burning of fossil fuels.

A cap-and-trade program would provide a method for tracking emissions and factor the cost of those emissions into economic decisions. Other measures – most likely involving tax policy – are also likely. They include efficiency or other performance standards, incentives for the purchase of advance technology, and funding for research, development and deployment of advanced technology.

“In the end, my concern is that any time you regulate a commodity at this scale, you basically just raise the price of it. And I think we are at a point in our history where concern about energy prices is at the forefront of people’s thinking – mainly our customer’s,” Roldan says.

“If you put in place this over-arching legislation that is designed to discourage carbon emissions, do you create a stampede in the marketplace for lower-carbon fuels? And does that stampede bring with it cost consequences that tend to put pressure on your existing customers?”

Roldan is concerned about getting to the table to influence the debate before the details are forged into law. He knows the propane marketers that NPGA represents staunchly oppose a nationwide program to regulate the product that they sell, but he is equally worried about being stuck with a final program the industry did not help craft.

“Do we want to see ourselves marginalized by not being part of the debate? Because I guarantee you if you are not part of the debate, it will be akin to sitting on the sidelines at the Super Bowl. I think we really need to be engaged and in the mix,” he says.

In Washington, nationwide momentum for climate control has generated support for a mandatory cap-and-trade program from the chairmen of the Energy Committees in both the Senate and the House. Roldan says he discussed developments with U.S. Rep. Rick Boucher, D-Va., chairman of the Energy Subcommittee in the House, at a recent conference.

“He looked at me and said, ‘You know, Rick, at some point I am going to ask you if you are for us.'”

At their Oct. 30 meeting in Newport, R.I., Roldan told the NPGA board of directors that the new regulations will substantially change the domestic energy picture within five years. He asked members to spread the word to their industry colleagues back home that a consensus is needed to proceed on Capitol Hill.

NPGA’s Government Affairs Committee is expected to produce a white paper on the industry’s formal position in the next three months. Its key points are expected to be:

• Propane marketers should not be the point of regulation;
• Both alternative fuels and renewable fuels should be supported;
• The transportation sector needs to be included;
• Any R&D funding must be balanced among the various energy sources;
• There needs to be a safety valve against excessive economic dislocation;
• Developing nations need to be included in any climate change regime.

Setting the point of regulation (the parties responsible for tracking emissions and turning in allowances) is very different in a cap-and-trade program than traditional regulation. Traditionally, the regulated entity is the source that emits the pollution because it is capable of installing controls to reduce its emissions. The point of regulation in a new program could be set at one of various points along the stream of economic activity that results in emissions.

If the point of regulation for carbon dioxide emissions from fossil fuel combustion were placed upstream or midstream with fuel producers, processors or providers, the program could have broader coverage of the emissions. This approach would require fuel producers, processors or providers to turn in allowances to cover the carbon content of the fuel ultimately combusted by end users.

“First and foremost, I think our job has to be to make sure that in any kind of program the point of regulation is not our members; it has got to be upstream,” Roldan says. “I feel pretty confident this will, but we don’t want the point of regulation to be our customers either.”

Questions yet to be decided by lawmakers include:

• Are there administrative reasons related to the type of sources generating emissions that would make it impractical to include them in a cap-and-trade program?
• Even if the sector generally should be included, are there administrative reasons some sources within the sector or below certain thresholds should not be included in the program?
• What is the appropriate point of regulation (i.e., where should the obligation be placed to turn in allowances to cover the sector’s emissions)?

“We have to look at the political consequence of this, too,” Roldan says. “My personal view is that this Congress – both chambers – is going to be in Democratic hands for at least six years. So this is the environment that I have got to live in. Whatever I think of it, I have got to live it.

“I think we are at a point where we have to do a reality check and try to find a way to reconcile our interest with the reality in which we live. That’s really the process we are going through.”