On the heels of a contentious debate and vote on health care reform, is Congress ready to take up another piece of controversial legislation? During today's OnPoint, Kevin Book, managing director of research at ClearView Energy Partners, discusses the prospects for passing climate and energy legislation in the Senate ahead of the midterm elections.

Transcript

Monica Trauzzi: Welcome to the show. I'm Monica Trauzzi. Joining me today is Kevin Book, managing director of research at ClearView Energy Partners. Kevin, thanks so much for coming back on the show.

Kevin Book: Monica, thanks for having us back.

Monica Trauzzi: Kevin, coming off of a very contentious debate and vote on health care reform, one of the big questions facing the Senate right now is whether Democrats should push another piece of controversial legislation ahead of the midterm elections. Does the process used on health care make climate and energy any more difficult?

Kevin Book: Well, the process could make everything difficult if it brings a Republican shut down. We see three outcomes; Republicans play nice, Republicans pick up their toys and go home, or probably the most likely outcome is there is a period of unrest, possibly rebellion or even retaliation, we're seeing some of that now, followed by getting back to work because it's a long time until the election. But the question is premised on the idea that this is a contentious, controversial piece of legislation. Increasingly it's becoming a bill that more and more members may want to pass. And so, if we're in either of the outcomes that there's cooperation, it's not entirely unlikely and it's still got a chance.

Monica Trauzzi: Senator Graham, who is working on a bipartisan climate and energy bill said recently that it's going to make it very difficult to do anything complicated and controversial and he sort of seems to be stepping back a bit from the big push on climate and energy and the likelihood of it. Does that signal anything to you about this bipartisan approach and whether it might just go all towards the Dems at this point?

Kevin Book: Well, there is no bill if it's only Democrats, not just because of the numbers, but because, of course, that's not going to work in this environment. Senator Graham has been somewhat sphinx like. He's our first decision gate. Is he in or is he out? And he's still in, but the fuse on the conflict bomb has been lit and it hasn't gone off yet. Until reconciliation has been put to bed and all of the procedural aftershocks, amendments, and associated discontent have played out we can't know whether this is going to happen or not.

Monica Trauzzi: So, on the flip side we have 22 Democratic senators who have signed a letter calling for climate legislation within the year. So, we're really hearing two very strong and different messages from the two parties on climate. Will that push from the 22 Democrats have an impact?

Kevin Book: Yeah, that's the second most important decision gate as far as we're concerned. The Democrats, yesterday in their caucus lunch, had a chance to hear some of the tenants and there were discussions thereafter in the afternoon. Again, some Republicans were reported to have declined the invitation to participate in those discussions yesterday, but the Democrats who are on board are a surprising number of the folks that last year we would have classified on economic bases as being in Neverland, as in we'll never vote for this bill. And what does that tell us? It tells us that the economic fundamentals that make possible legislation of this sort haven't gone away. There's still a potential demand opportunity for extractive and fossil energy intensive industries, as well as manufacturing, and this bill could be that catalyst.

Monica Trauzzi: OK, so how do you see things playing out from now until November and how far does this actually go on climate and energy?

Kevin Book: Well, let's start with this week. Tomorrow there's another stakeholders meeting, so Thursday of this week there's a stakeholders meeting and the discussion will be really a question of are you still on board industry? Again, this is the third decision gate. If this doesn't happen, it's done. On the other hand, it looks like it's still continuing, then drafting language and getting it to EPA and CBO also critical to have a bill that gets to the floor before nothing can possibly happen. Our contention is that Plan B is less palatable than Plan A. The idea of all the energy goodies is starting to produce some opposition from the left in the Senate, but that's nothing compared to what we expect in the House where if they didn't have any stomach for a centrist health care bill, now that they've gotten that one under their belts, they have no reason to compromise on anything that doesn't have environmental responsibility with all the energy goodies. So what do we expect? We expect that the timeframe between now and May is essentially the window of where compromise will either devolve totally, in which case we'll know in a couple of weeks, or cruise along. And, quite frankly, we're still at a point where we see slightly better than 50-50 second-quarter odds for Senate progress. The reason has a lot to do with the momentum that's already been built and we're absolutely aware that the short term and potentially enduring risks of Republican rebellion are there.

Monica Trauzzi: Is this an issue that the White House is going to pick up and really make a major push behind like they did on health care?

Kevin Book: Not first. The White House has kept its distance for a number of months, for all the best reasons. First, politically they had one objective and that was domestic victory. They won. The second is they have domestic imperative, which is financial services. That probably has to happen too. But in our discussions with folks over there it's clear that they're very engaged, very engaged and continuing to be so. As EPA continues to regulate, the catalyst for action on the Hill doesn't go away. There is no alternative to inaction and, of course, the White House doesn't necessarily control the EPA or EPA's actions, but the policy guidance is clearly trying to promote action from behind the scenes.

Monica Trauzzi: You mentioned that this is a bill that many senators may actually want to vote for. The plan itself is getting some concerns from environmentalists because they feel that it's been watered down to a point where it's not really effective from an environmental standpoint. What's your take on that and what the legislation at this point actually says and does?

Kevin Book: Well, if you can chart the course of where we're going, in 2007 we were at the idealistic level of legislation. It was a carbon price and it was an explicit cap. And then last year I think you and I discussed sort of the disappointment that environmentalists had with Waxman-Markey. It wasn't deep enough, it wasn't soon enough. That was sort of an opportunistic bill driven by the government's opportunity to step in. Now we're at the pragmatic. The question is can you get there through incremental gains? The environmentalists who opposed this because of what it does other than climate caps have potentially something that is contrary to their objectives, but if it includes a carbon cap, it still achieving perhaps the one most fundamental thing that they've sought for a long time. So, it's hard to see them saying no in the final analysis. They might scream a lot along the way though.

Monica Trauzzi: So, is the U.S. ready for a bill of this magnitude and of this nature?

Kevin Book: Yes, I think the U.S. is ready for it in a sense because, again, it's happening. Whether or not the U.S. public or voters truly care, no poll in five years has shown anything like dominating concern from climate or energy. But the issues that underlie this discussion are issues that are a result not just of climate momentum, but what happens when we actually saw a behavior changing price of carbon. That was in the summer of 2008. It changed a lot of behavior and no one was happy about it. I think there's still a lot of appetite for solutions on energy efficiency. There's clearly a catalyst for jobs. And for the industries that are seeing massive declines in demand, fossil energy industries like coal and natural gas, this is an opportunity to at least preserve demand from falling away on the downside, CCS for coal, and also potentially drive new demand for natural gas.

Monica Trauzzi: OK, we're going to end it there. Thank you for coming on the show, nice to see you.

Kevin Book: Thanks for having me.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

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