POLICY:

Obama speech to business group leaves greenhouse gas issues up in the air

A speech by President Obama to top CEOs yesterday left some climate experts and energy industry lobbyists searching for stronger clues about White House policy preferences as members of the Senate struggle to come up with a fresh proposal for cutting greenhouse gas emissions.

"If we decide now that we're putting a price on this pollution in a few years, it will give businesses the certainty of knowing they have time to plan and transition," Obama told corporate executives at a Business Roundtable meeting in Washington.

The president has repeated this argument for putting a price on heat-trapping carbon emissions in recent public speeches. Still, many are reading the tea leaves carefully for specific White House policy and political prescriptions that would set Congress on a path to secure passage of legislation this year. Among the sought-after policies are ones that would satisfy emissions-cutting goals, control costs and ensure that a lower-carbon mix of U.S. energy sources can meet future energy demand.

In his speech to the executives, Obama emphasized the need for U.S. companies to stay globally competitive, which is an issue that business leaders coming in and out of meetings with Obama, White House budget chief Peter Orszag, Sen. John Thune (R-S.D.) and House Republican leader John Boehner (Ohio) said has a strong tie-in with energy and climate policy.

James Rogers, president and CEO of Eastman Chemical Co., based in Kingston, Tenn., said the impact of cap-and-trade climate legislation topped his list of concerns. Rogers said he hoped to better gauge the degree of sensitivity that federal officials have to potential costs and economic disadvantages that accompany a climate regime requiring steep emissions cuts.

Competitive worries on all sides

Rogers said there need to be mechanisms in a climate bill to ensure U.S. companies can operate on a level playing field as they compete with foreign companies. Further, he said, any climate bill should recognize the track record of industries that have increased energy efficiency dramatically in recent years, including the chemical industry.

A cap on emissions, as it has been envisioned so far, might blow a hole in an economy that continues to rely so much on coal. "It's very inefficient if we're trying to put a price on carbon," Rogers added. "I'm not sure what additional regulations we need in the U.S."

Obama said he is "sympathetic to those companies that face significant transition costs."

The policy choices under consideration include a spectrum, according to sources. Obama and his policymaking partners in the Senate could continue to push for an economywide cap-and-trade bill that creates a mechanism for imposing a price on industrial carbon dioxide emissions, or press for a mandatory cap on utility-sector emissions only and a phased-in approach to limiting industrial emissions across the economy.

"I'm not sure they've decided if it's economywide, or if it's phased in, or if it's utilities only," said Eileen Claussen, head of the Pew Center on Global Climate Change. "He's absolutely right that one of the things you need is a price on carbon."

But if Obama abandons his push for a market-based approach to price carbon, sources have said the White House and three bipartisan senators at the heart of ongoing discussions might pursue an aggressive energy bill that concentrates on increasing energy efficiency and mandates that utilities meet a clean-energy standard.

Search for 'sweeteners' continues

There is a push to craft legislation that can pass the Senate and be presented to the full Congress this year, before the election season swings into full gear and any potential for political risk-taking or policy deals is lost to partisan jockeying.

Obama, his top aides and the bipartisan trio piecing together an energy and climate package, Sens. John Kerry (D-Mass.), Lindsey Graham (R-S.C.) and Joe Lieberman (I-Conn), are in search of the right mix of "sweeteners" to help corners of the energy industry that matter to Republicans and fence-sitting Democrats reluctant to sign on to a high-priced climate bill that could land them in hot water in their home states.

Nuclear power incentives and the additional $36 billion Obama set aside in his 2011 budget for nuclear loan guarantees could bring some Republicans along, analysts say. But the bigger challenge is to address the concerns of lawmakers from states with a big dependence on coal for electricity generation, or where job losses hit the manufacturing sector hard, and concern continues to boil about international competition.

Obama earlier this month created an interagency task force designed to jump-start the development of five to 10 commercial-scale carbon capture and storage projects. Utilities and coal industry groups have sought greater federal support for the high-cost, large-scale development of technology that can strip carbon emissions from coal-burning coal plants and bury it underground.

"We've announced loan guarantees to break ground on America's first new nuclear plant in nearly three decades," Obama pointed out. "We are supporting three of the largest solar plants in the world. And I've said we're willing to make tough decisions about opening new offshore areas for oil and gas development."

Senators from the Midwest, Republicans from the Southeast and Democrats facing tough elections, particularly in Arkansas and Indiana, have all been reluctant to spend political capital on an aggressive climate bill as the economy continues sputtering.

Meanwhile, the old energy industry dogfights continue. Reports that the Obama administration is in search for a better mechanism to encourage utilities to burn more lower-carbon natural gas instead of high-carbon coal for baseload generation pitted the coal and gas lobbies against each other.

Gas industry hopes give coal indigestion

Utility industry sources and energy policy experts said last week that they anticipate the White House is preparing to roll out another sweetener to help piece together a coalition of climate bill supporters -- this time, for natural gas.

Kevin Book, director of research at ClearView Energy Partners, said in a report Tuesday that he anticipates that an incentive for utilities to switch to natural gas could take the form of a "bridge credit" for power generators or the transportation sector. "Building a 'sweet' coalition might require both, because different companies want different things," he wrote.

Congress has been reluctant to use federal regulatory mechanisms, tax credits, mandates or some other form of enticements to encourage electric utilities to make a large-scale switch to natural gas. The largely domestic fuel is slave to a market price that has tended to fluctuate wildly in the past decade. There are also concerns among industries such as chemical makers that using too much gas for power generation would drive prices up for companies that need natural gas as a raw material.

But that equation has changed some. Major oil and gas producers -- and their very well-financed lobbying efforts and media campaigns -- are pushing for more recognition by policymakers and the public that increasing access to vast onshore U.S. gas shale deposits has created a reliable and low-cost source for power generators. Gas-fired generation emits half as much carbon dioxide as coal.

The National Mining Association blasted out a press release late Monday calling on the administration to drop any plans to push utilities to retire old coal plants by giving more to the gas industry.

"Creation of an artificial electricity generation market for natural gas in place of affordable, abundant and reliable coal is bad public policy," NMA President Hal Quinn said in the e-mail. Quinn said a policy push in this direction would undermine the administration's economic and energy goals, and switching out coal for gas would drive up electricity prices in a difficult economy.

The creation of a "false market" for gas, Quinn said, could also dampen prospects for carbon capture and storage or other advanced clean coal technologies. "If the U.S., with the world's largest coal reserves, creates a false market for gas and does not aggressively purse CCS technology," said Quinn, "not only will we lose important export markets, we likely will doom worldwide deployment of this vital technology."

Christine Tezak, a policy analyst at Robert W. Baird & Co., said the gas industry simply wants to stay in the policy mix.

"It's not so much that they have an incentive in mind as much as they expect to see gas have a role in the energy mix going forward," Tezak said of investors' mindset. "The likelihood that there may be some financial ... incentives to substitute gas for coal is a real possibility."