Last week Representatives Waxman and Markey introduced their draft energy and climate bill (The American Clean Energy and Security Act of 2009) in the House. Here is a five-page summary of the bill. There’s a lot in the bill. Highlights include a mandate to transition electricity towards renewable sources. By 2012, 6 percent of the country’s electricity must come from renewable sources such as wind, biomass, solar, and geothermal. By 2025, 25 percent of electricity must be generated through those renewable sources. The bill contemplates the continued use of coal, but through carbon capture and sequestration, a process that involves injecting carbon dioxide from burning coal into the ground rather than permitting it into the atmosphere.

There’s also provisions in the bill relating to fuel efficiency standards and building “smart grids” to measure utility peak loads and demand response applications. (No word on whether these “smart” grids can withstand hacking from foreign governments which is apparently a real possibility).

The most significant part of the bill is carbon emissions. The bill sets up a cap-and-trade program to reduce U.S. greenhouse gas emissions by 20 percent of 2005 levels by 2020, and an 83% reduction from 2005 levels by 2050 (President Obama campaigned on this promise). To ensure that industries stay below these limits, the bill establishes a system of “allowances” that companies must possess in order to emit carbon. These allowances are tradeable, i.e., they can be sold by companies with an excess, or purchased on an open market (much like the stock exchange) by companies that need them. In case carbon allowances rise in price too quickly, the government will create a strategic reserve of about 2.5 billion allowances to create a cushion (presumably to release into the market to bring prices down).

One notable absence in the bill is whether the initial allocation of allowances that each company will get is free, or whether all allowances must be purchased at auction prices. This is a critical point – if the allowances need to be purchased, it will immediately impose costs on businesses, much like a new tax would. The Republicans in Congress, de-fanged as they are, will obstruct such a model as much as they can. Pieces like this from today’s New York Times make the point that the legislation will eventually make electricity more expensive. Today, the White House indicated it was moving away from its 100 percent auction model towards more flexibility, including permitting free allowances at first.

The bill will obviously need more work before it’s ready for prime-time. Although debate will begin this spring, don’t expect a final version until after the midterm elections next year. If the Democrats continue their winning ways, the bill should contain all the elements the White House wants. If the Democrats lose ground, the White House will have to re-think what battles it can win. Working outside all of this is the Supreme Court’s 2007 decision in Massachusetts v. EPA, essentially ordering the EPA to start regulating carbon, and the White House’s commitment to the international community to curb U.S. greenhouse gas production, a commitment the rest of the world wants to see us take seriously.

There’s no such thing as a free lunch. If we are serious about tackling global warming, we have to change the way we live. This hard lesson will become very evident for all Americans as we lurch our way back on to the global stage. No one wants to pay more for energy, but it’s hard to see how we can reduce greenhouse emissions without a corresponding reduction in demand. For IT techs around the country, the lesson is simple: carbon regulation is coming. It won’t come for another 12-24 months, but when it does, we are all going to have to figure out (1) how to measure the carbon footprint of our enterprise (including data centers, client workstations, everything), and (2) what to do if that footprint is larger than what the government says it needs to be.