WASHINGTON - Democrats in the U.S. House of Representatives on Tuesday unveiled draft climate change legislation to slash America's greenhouse gas emissions by 20 per cent by 2020, setting the stage for a protracted and intense political debate in Washington that has potentially major consequences for Canada's energy industry.
The 648-page draft bill would establish a carbon cap-and-trade system to help industry achieve the greenhouse gas reductions, but sidesteps the politically explosive issue of how new emissions credits would be distributed to U.S. companies.
The legislation would also impose low-carbon standards for gasoline and other transportation fuels, rules that could make it more difficult for U.S. refineries to sell fuel produced from Alberta's carbon-intensive oilsands.
"This is not a ban on tarsands oil. But it is definitely a disincentive, because it has higher emissions," said Susan Casey-Lefkowitz, Canadian program director at the Natural Resources Defense Council.
U.S. President Barack Obama has asked Congress to pass climate-and-energy legislation for his signature by the end of the year, with a revenue-generating cap-and-trade system at the heart of his long-term deficit reduction goals.
In his recent budget, Obama proposed requiring companies to buy 100 per cent of their carbon allowances - in the form of tradable credits - as a way of raising $650 billion over the next decade.
But the idea has already triggered a wave of resistance - particularly among congressional Republicans who say cap-and-trade is a de facto tax hike on American business.
The draft climate bill does not specify how many credits would be auctioned off and how many would be provided free to companies, leaving the major details of cap-and-trade for negotiation.
"This legislation will create millions of clean energy jobs, put America on the path to energy independence and cut global warming pollution," said Representative Henry Waxman, the California Democrat who chairs the House energy committee and crafted the bill.
Environmentalists, meanwhile, praised the proposal to set low-carbon fuel standards - calling it a direct threat to Alberta's oilsands which produce large quantities of greenhouse gas in their production phase.
The so-called "wells-to-wheels" provision is modelled after California's low-carbon fuel rules, and would set a baseline standard for the amount of carbon produced during production of transportation fuel throughout its life cycle.
Under the draft bill, refineries would be required to reduce annual life cycle emissions from their fuel to 2005 levels between 2014 and 2022, then cut them by at least another five per cent between 2023 and 2030.
Oil produced from Alberta's oilsands emit between three and five times more greenhouse gases than conventional oil.
"What we're going to see is a market-based incentive for refineries - the fuel providers - to seek lower carbon fuel," said Casey-Lefkowitz.
Rob Renner, Alberta's environment minister, said Tuesday he had not yet seen full details of the U.S. climate bill. But Renner said the province has significant concerns about how the standards for what constitutes low-carbon fuels are calculated.
"It's not that we are particularly opposed to a low-carbon fuel standard. It's more that we are concerned the application will not be fair," said Renner, who was in Washington and New York this week defending Alberta's environmental record.
Matthew Bramley, director of the climate change program at the Alberta-based Pembina Institute, praised the U.S. draft legislation.
The low-carbon fuel standard "reinforces the message that business-as-usual levels of pollution from Alberta's oilsands cannot continue," Bramley said.
The likelihood of a prolonged battle on Capitol Hill over climate legislation leaves the Canadian government, at least for now, on the sidelines.
The Conservative government has proposed a target to cut emissions to 20 per cent below 2006 levels by 2020, roughly in line with the targets set out Tuesday in the U.S. bill.
But Ottawa has not imposed regulation on industry since unveiling the goals in 2007.
"With this proposed legislation, the U.S. has taken another leap forward in addressing climate change while the government of Canada continues to stand still," said Bramley.
The Harper government has been seeking a North American climate pact, with Environment Minister Jim Prentice proposing an integrated cap-and-trade system.
But the Obama administration has so far shown little interest in negotiating a North American climate deal, agreeing so far only to work together on developing clean-energy technology.
The U.S. climate bill includes potentially controversial protection for U.S. companies that cannot compete internationally because of the greenhouse gas targets. The bill offers those companies "rebates" to stay competitive and gives Obama the power to require foreign manufacturers to "pay for and hold special allowances" to account for carbon included into products exported to the U.S.
The "border-adjustment" program is likely to be viewed as a trade sanction against foreign companies competing against American manufacturers, potentially putting the U.S. in violation of international agreements.
The House bill sets a slightly more aggressive greenhouse gas reduction target - Obama had proposed a 14 per cent cut from 2005 emissions levels by 2020. It proposed cutting overall emissions by 83 per cent by the year 2050.