Five Hot Spots in Congress's Upcoming Climate Change Debate

A preview of the debate over proposals for a cap-and-trade program to limit greenhouse gas emissions.

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When Rep. Henry Waxman of California and Rep. Ed Markey of Massachusetts released a draft of a much-anticipated global warming bill last week, it effectively marked the start of this year's debate over regulating greenhouse gas emissions. But even with a Democratic majority in Congress and a sympathetic Obama administration, it's going to be a long, tough fight.

The debate centers on a proposal to create a cap-and-trade program, which, if passed, would set national limits on greenhouse gas emissions and require big polluters to get credits, or permits, for their emissions, which could then be traded between cleaner and dirtier companies.

Among the questions that remain to be answered: how to design a cap-and-trade program that not only works but also protects average Americans from potentially higher energy costs and how to spend the hundreds of billions of dollars the program is expected to raise.

As things look now, the House and the Senate could start debating the bill within the next few months. And yet, particularly in the Senate, supporters face major obstacles stemming from uncertainties and warnings about the economic impact of climate change policies. The recession has only served to fuel opposition from many Republicans, as well as a growing number of moderate Democrats.

Politically, these concerns could derail the whole effort. At least five major hot spots deserve watching:

1. Should polluters get credits free, or should they have to buy them?

The choice is far from trivial. In the Senate, there are many moderate Democrats who tend to support action on global warming but are worried that forcing companies to buy credits would be a major blow to their state's industries. "Think of West Virginia, which has two Democratic senators. Think of Michigan," says Bryan Mignone, a research director on energy at the Brookings Institution. "They are members of coal states and manufacturing states. They want to be for something, but it's a hard sell."

While campaigning for president, Barack Obama said that he supported a "100 percent auction" that would require all companies covered by the cap to buy credits. That approach would generate huge revenues for the government and more quickly impose a cost on carbon dioxide pollution. But as New Mexico Democratic Sen. Jeff Bingaman told reporters last month, "I think it's unlikely we will pass a cap-and-trade bill with 100 percent auction."

Instead, Democratic moderates are asking that industries like coal-burning power companies get free credits. As Mignone says, "Basically, it's a form of compensation and protection from against foreign competition."

Opponents of this approach—including liberal environmentalists—say it would allow dirty polluters to avoid making pollution-cutting investments and slow down efforts to fight climate change.

The Waxman-Markey bill is largely silent on these points, leaving them to future debates, although it does include a proposal to set aside some permits for industries that might be highly vulnerable to foreign competition. There's also talk about exempting certain sectors, such as agriculture, from emissions requirements.

2. What would be done with all the money the government would make?

"It's going to be one of the big sources of contention over who gets the revenues, over whether it's solar manufacturers, whether it's rebated, whether it's pumped into the federal budget," says Ken Green, a scholar at the American Enterprise Institute.

Under Obama's budget, a cap-and-trade plan from 2012 to 2019 would raise about $650 billion. The administration says it should be spent in two ways: on developing alternative energy and on helping poorer citizens deal with higher electricity bills that (according to most estimates) would be associated with the new system.

Of course, there are other ideas. Republican Sen. Bob Corker of Tennessee has suggested sending all the money back to the American people. Others have proposed using a portion to help states and cities cope with the effects of climate change. For example, money could be offered to California to deal with wildfires. Others cite the need to boost spending on technologies to capture CO2 emissions from coal-burning power plants. "You need to transform technology to meet this program's requirements," says Melissa Lavinson, a director at PG&E, one of the country's largest utilities and a member of the U.S. Climate Action Partnership. Different members of Congress have different priorities, and experts say it's partly this feeding frenzy that has helped defeat past attempts at passing global warming legislation.