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Obama defends campaign pledge on cap-and-trade bill

President Obama offered his most extensive remarks on global warming policy since taking office yesterday, saying he hoped to sign a new global warming law that struck the "right balance" amid concerns about the price tag from such a major new environmental initiative.

Speaking at a Business Roundtable meeting just blocks from the White House, the president also warned the chief executives from some of the world's biggest companies of the costs of inaction if the United States does not set a more aggressive policy to curb its greenhouse gas emissions.

"I'm not somebody who -- I've never bought into these Malthusian, woe, Chicken Little, the earth is falling -- I tend to be pretty optimistic," Obama said. "I wouldn't be here if I weren't pretty optimistic. But I think this is -- the science is overwhelming. This is a real problem. It will have severe economic consequences, as well as political and national security and environmental consequences."

Obama's climate change comments came in response to a question from Weyerhaeuser President Daniel Fulton, who insisted that companies like his are worried about the costs associated with implementing the president's energy and environmental agenda during tight economic times. Fulton challenged Obama to defend a campaign pledge that would require companies that emit greenhouse gases to comply with a cap-and-trade program's requirements by purchasing 100 percent of their emission allowances through an auction.

"I said during the campaign we were looking at a hundred percent auction," Obama said. "We are not going to be able to move this in an effective way without partnership with the business community. But we just -- we can't get it done. And for businesses like yours that are committed to the concept and the idea, we're going to work to make sure that it works for you."

A collection of investor-owned electric utility companies have been pressing Congress and Obama to give them 40 percent of the cap-and-trade system's emission credits for free, with the allowances handled by regulated, retail local distribution companies that deliver electricity to households across the country. While Obama yesterday did not directly address the position of the nearly 60 power companies represented by the Edison Electric Institute, he still sounded skeptical about the idea of handing credits over to the power companies.

"Now, the experience of a cap-and-trade system thus far is that if you're giving away carbon permits for free, then basically you're not really pricing the thing and it doesn't work, or people can game the system in so many ways that it's not creating the incentive structures that we're looking for," Obama said. "The flip side is, you're right, if it's so onerous that people can't meet it, then it defeats the purpose -- and politically we can't get it done anyway."

Obama, with Education Secretary Arne Duncan and White House energy and climate adviser Carol Browner seated at his side, also talked up the benefits of a market-based program when compared with a more rigid alternative that places specific emission limits on major source of greenhouse gases across the country.

"So we're going to have to find a structure that arrives at that right balance," Obama said. "We want to create a price structure. Keep in mind that the reason that I'm interested in a cap-and-trade approach is precisely because I think the market makes decisions about these technologies better than we do. You know, for those who are concerned about some heavy-handed command and control regulations coming down the pike, cap and trade is designed to say, you know what, here's a target, here's a price, you guys go figure it out and if you can make money on it, all the better."

The president continued, "So that's the -- that's our goal. That's what we want. And how that pricing mechanism works most effectively to actually influence incentives, but also be sufficiently realistic that industries are thriving as opposed to groaning under the weight of it, I think is going to be the trick. I'm confident that we can do it. We've done it before."

Obama noted that he met with lawmakers Tuesday who raised concerns about the potential costs of the administration's global warming proposal. He responded by citing the costs of inaction.

"I'm sure they're hearing from industries and, you know, what does this mean economically, et cetera," Obama said. "I just want to point out, you know, anybody who has been to Las Vegas recently and looked at Lake Mead; or who is familiar with what's happening in agriculture in California right now; or go down to Atlanta, which may not have any water soon, because of what's happening in terms of changing weather patterns; or talk to [Prime Minister] Kevin Rudd in Australia -- that's going to cost us money too. It's just not -- it's not priced."

Scalping Celtics tickets

Obama's defense of his climate change agenda came only hours after two key House subcommittees wrapped up simultaneous hearings on the complex details of how to divide what will be hundreds of billions of dollars worth of credits necessary for compliance with a cap-and-trade program.

In the House Energy and Environment Subcommittee, Steven Kline of PG&E Corp. explained the Edison Electric Institute's position that free emission credits would help companies compensate customers for higher energy prices that would inevitably come with a cap-and-trade system. "Critical to the success of transformative climate change policy is ensuring the longevity of the program, and this is best ensured by thoughtful and targeted consumer protection programs," Kline said.

But subcommittee Chairman Ed Markey (D-Mass.) was skeptical of the idea of free allowances. "The danger here is that if we give pollution permits for free to polluting companies, they may actually charge consumers for the market value of what they received free of charge, and pocket a huge cash windfall," Markey said.

An avid sports fan of his hometown Boston teams, Markey also offered an analogy to explain his perspective: "Imagine this," he said. "A scalper finds Celtics tickets outside the Boston Garden. Will he sell them to the next customer for free? No, he will charge the going rate."

After the hearing, Markey said he was happy that EEI members have arrived at a consensus position given the sharp split that once existed over emission allowances between companies with large coal generation and rivals that rely on natural gas and nuclear energy. "Obviously, it's not easy for them to put together a position that everyone agrees on," Markey said. "I think they've done a good job in moving in that direction."

EEI's approach has buy in from companies with large coal-fired power plant fleets, including Southern Co., American Electric Power Corp. and Duke Energy Corp., as well as utilities with significant nuclear and natural gas generation, such as FPL Corp. and PSEG. Several other large trade and environmental organizations have also expressed support for the fundamentals behind the EEI approach, including the National Association of Regulatory Utility Commissioners, Natural Resources Defense Council and Environmental Defense Fund.

Staff for Markey and House Energy and Commerce Chairman Henry Waxman (D-Calif.) are feverishly working on cap-and-trade legislation with plans to release a draft for comment before the end of the month. Neither lawmaker has been willing to reveal any details of their plan.

"Everybody is working hard," Waxman said.

Asked about EEI's stance on receiving 40 percent of the system's free allowances, the chairman replied, "We haven't made decisions. We're going to hear all the options and think that through carefully."

McDermott to pitch plan for low-income households

Also yesterday, a House Ways and Means subcommittee sifted through the debate over how to write its own version of climate legislation that takes into account the country's poorest households.

"By itself, a cap-and-trade program would lead to higher prices for energy and energy-intensive goods," Terry Dinan, a senior adviser at the Congressional Budget Office, told members of the Income Security and Family Support Subcommittee.

CBO estimates that a 15 percent cut in nationwide carbon dioxide emissions could cost the average household roughly $1,600 annually. "Those price increases would impose a larger burden on low- and moderate-income households than on higher-income households, relative to either their income or total spending," Dinan said.

Subcommittee Chairman Jim McDermott (D-Wash.) told reporters that he plans to introduce a bill before the end of the month aimed at safeguarding consumers. "Producers of energy will likely pass through much of the cost to their consumers," he said. "But the good news is that the limits on the greenhouse emissions will generate revenues that can be directly returned to consumers to offset higher energy costs."

McDermott declined to offer specifics on his legislation, though he said he favored a proposal from the Center on Budget and Policy Priorities, a liberal group that supports using the revenue from emission auctions for "climate rebates" to very low- and moderate-income households.

For the poorest Americans, the center's suggested rebates would be paid through state Electronic Benefit Transfer systems, which are already used to provide food stamps and other forms of assistance. Other low- and moderate-income families would receive a rebate in the form of a higher Earned Income Tax Credit under CBPP's program.

The center's plan could also be expanded further up the income scale by offering a refundable tax credit to people with higher incomes. But Chad Stone, chief economist at CBPP, said such a move depends on the portion of emission auction revenues that lawmakers decide to put toward offsetting energy costs. "It is indeed possible for climate change legislation to fight global warming effectively while also protecting consumers," Stone told the panel.

CBO's Dinan said rebates through both the income tax system and existing transfer programs would, in theory, do a better job of distributing funds to low-income households than relying on either program alone. But she warned that in practice, it could be difficult to avoid overlap and to ensure that economically equivalent households were receiving the same benefits.

Waxman and Ways and Means Chairman Charles Rangel (D-N.Y.) have pledged to work together when it comes to writing a climate change bill. Both powerful Democratic leaders have said they will try to mark up their legislation before lawmakers break near the end of May for the Memorial Day recess, and House Speaker Nancy Pelosi (D-Calif.) has committed to a floor vote on climate legislation this year.

In the Senate, Majority Leader Harry Reid (D-Nev.) said yesterday that he wants to have a floor debate on a comprehensive energy and climate bill before the August recess, though Reid also left open the option of pursuing cap-and-trade legislation even faster through a budget reconciliation process that requires 51 votes instead of the 60 needed to break an expected GOP filibuster (Greenwire, March 12).

Click here to read Obama's comments at the Business Roundtable meeting.

Reporter Robin Bravender contributed.

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