POLITICS:

Climate bill drifts into a Potomac fog

A day after Senate Majority Leader Harry Reid (D-Nev.) hinted that climate legislation might be postponed until 2010, some analysts wondered whether that actually could mean 2011.

Or perhaps that it wouldn't be considered in the Senate at all.

With congressional midterm elections looming next year, they say the timetable is limited for politicians to act on a major bill before partisan rancor dominates Capitol Hill. That is raising speculation that lawmakers and the Obama administration may go for a "Plan B" next year that involves passage of a general energy bill without its most complex climate elements.

"The most likely scenario is that we get a more climate-friendly version of the 2005 and 2007 energy bills," said Barry Rabe, a professor of public policy at the University of Michigan. "It would be a half-loaf approach without cap and trade."

And the further Congress delays into election season, the more likely it is that it may leave emissions limits entirely to U.S. EPA, which is already unleashing climate regulations in the absence of legislation.

"If EPA regulation gets too far down the road, then Congress will abdicate the space on policy on ... greenhouse gas regulations," said Jim Connaughton, the former lead White House environmental adviser to President George W. Bush. Connaughton now works at Baltimore-based Constellation Energy Inc. "Congress will most often just defer to the regulatory agency and duck the tough political choices."

A simpler bill could include mandates for renewable electricity and energy efficiency without the cap-and-trade system contained in legislation passed by the House in June. The House plan would set an overall limit on emissions and require companies to buy carbon allowances if they exceeded their restricted emissions.

The votes likely already are there for a watered-down version of the House bill that could pass in 2009, Rabe said. His polling research shows that public support for renewable energy mandates and energy efficiency requirements is much higher than for cap and trade, he said.

Will environmental groups bolt?

But the Plan B idea could cause one of President Obama's key constituencies, the environmental community, to bolt. Asked yesterday whether they would accept an energy bill without a cap intact, several environmentalists said they would do so only if it were a steppingstone. Others dismissed the idea altogether.

"An energy-only bill would be worse than no bill at all," said Fred Krupp, president of the Environmental Defense Fund, a strong backer of the cap-and-trade concept.

Backers of major climate legislation now are looking to EPA to prod Congress into action by moving forward with regulations under the Clean Air Act, which the agency must do under the Supreme Court decision Massachusetts v. EPA. The hope is that the prospect of ill-suited and costly "command and control" rules will push skeptical lawmakers and industries to support a cheaper, more flexible cap-and-trade plan.

EPA has been loading that ammunition.

While it has yet to formalize its so-called "endangerment finding," in recent weeks, it submitted rules for White House review that would apply to the permitting of large industrial greenhouse gas emitters.

And, on Tuesday, the agency pulled the trigger on the first of its greenhouse gas regulations -- emissions standards for new cars and light-duty trucks. Today, EPA Administrator Lisa Jackson said that limits for other forms of transportation, such as locomotives and ships, are "further down the line."

Whether EPA will publicly release more decisions before international negotiations proceed in Copenhagen in December is still an open question. "With respect to stationary sources, obviously, we are working hard on it," said Jackson yesterday at a forum hosted by The Atlantic magazine in Washington, D.C. "It's not clear yet, so I'm not able to say when that will happen."

Yet if Congress fails to pass a bill by December, EPA's moves will be increasingly important to buttress the United States' negotiating position.

Back at home, however, the prospect of EPA regulation may no longer be so potent.

Jim Rogers, CEO of Duke Energy, for example, hopes to see Congress pass climate legislation this year. But he said some in his industry may be happier with EPA stepping in where Congress fails.

A sudden love for 'command and control'

"You can see that those who don't want it to happen can take a lot of comfort in the old command and control," he said.

That comfort comes from two sources -- both of which could delay EPA rules for the industrial sector for many years. The first is that without legislation, EPA is hemmed into the text of the Clean Air Act, which limits the types of emissions controls the agency can mandate.

"They can't tell me to reduce my emissions unless there's an available technology," Rogers said, noting that carbon capture technologies won't be commercially available for many years to come.

The Natural Resources Defense Council's David Hawkins agreed. "The problem with just EPA regulation alone is not that they have to be disruptive," he said. "The problem is that they can't get enough of the job done fast enough."

Meanwhile, lawsuits will inevitably delay any rules. Air pollution rules have been held up in the courts for eight years already, noted Connaughton. "We can project the same kind of an outcome on carbon, and that does nobody any good," he said.

Groups like the U.S. Chamber of Commerce have vowed to sue if EPA finalizes its endangerment finding -- its formal decision to regulate greenhouse gases -- without further public input (E&ENews PM, Aug. 25).

Industry groups also fear that the agency will be challenged in its efforts to "tailor" regulations that apply to only large emitters, such as power plants, rather than more minor sources such as hospitals and small businesses. Most environmental groups, however, have said they do not want to force EPA to regulate small emitters.

Even lawmakers may be increasingly OK with letting EPA go it alone. In the wake of the financial meltdown, some are newly skeptical of the carbon markets that a climate bill would create and are more willing to accept EPA actions, said Jason Grumet, president of the Bipartisan Policy Center.

Despite the shroud of uncertainty, many analysts are optimistic that there is time for Congress to tackle the House bill before next year's elections.

Can cap and trade fly in an election year?

The key thing is whether lawmakers take it up before the first quarter of 2010, when they won't yet be in the thick of campaign season. Cap-and-trade legislation is complicated enough that a potential conference between House and Senate versions could take three months or more, noted Kevin Book, managing director at ClearView Energy Partners.

Similarly, Chelsea Maxwell, a former climate adviser to now-retired Sen. John Warner (R-Va.), said she won't be worried about the prospects for cap and trade until January and February of 2010.

"I don't take Reid's comments as a sign that climate change isn't a priority," she said. "It gives us more time in climate land to make sure that we're crafting a bill to get to the 60-vote threshold."

Action now would be optimal for passage in that gas prices are depressed because of the recession, making it easier to sell the concept of higher electricity rates under cap and trade, Book said.

Yesterday, White House Press Secretary Robert Gibbs said that Reid's comments are not a setback as the United States prepares for December's international climate negotiations in Copenhagen.

"We hope to continue to make progress leading up to Copenhagen, understanding that we are one part of what has to happen internationally, and understanding that we are working through years and years of an issue that hasn't been at the forefront of many different agendas here in the White House. We're seeking to change that, and we have no doubt that that will take some time," Gibbs said.

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