Putting a Price on Pollution
Climate change laws seem inevitable, but their economic impact is unknown
Vikki Rawe, a conservative fur trapper from Campbell County, Ky., didn't worry much about global warming until the local "old-timers" started saying Mother Nature was going haywire. After discovering newborn opossums in January-an untimely month-Rawe went to Washington, D.C., in March to meet with other hunters and anglers. Organized by the National Wildlife Federation, the group stormed 200 congressional offices to plead for action against global warming. Rawe met with all six Republican members of Kentucky's delegation. "Some were onboard more than others," she says.
The group's offensive is one example of the pressure on Washington to enact the first federal limits on greenhouse gases-an idea President Bush opposes. But he and other Republican leaders are scrambling for allies. For many, the scientific debate ended after a U.N. report this year declared with 90 percent certainty that mankind is cooking the planet. Industry wants national standards, and states such as New Jersey and Illinois are threatening to join California by enacting their own plans to cut greenhouse gases, creating a federal regulatory nightmare. Rank-and-file Republicans, meanwhile, find themselves in a Congress controlled by Democrats, arguing what kind of global warming bill should pass. "It's believed to be inevitable at this point," says lawyer Linda Stuntz, who works on behalf of utility companies.
Congress is considering no fewer than seven proposals-varying in their time frames and emission targets-that would set up an economywide program for companies to buy and sell shares of the right to emit. Four more of these so-called cap-and-trade proposals affect just power plants-including one endorsed by six utility companies. But passing such a measure is a complicated task rife with economic challenges. Green groups, Wall Street, manufacturers, Big Oil, Big Coal, and bigwigs in general are all fighting for their own interests. A bill may be inevitable, but it certainly won't be quick.
Kyoto. Attempts to address the problem have been around for years, but so has fear of hurting the economy. In 1997, the Senate rejected the Kyoto Protocol by a vote of 95-0 because it would have given an edge to unregulated rivals China and India. Eight years later, opponents trounced a bipartisan bill by Sens. John McCain and Joe Lieberman that proposed a national cap-and-trade program like Kyoto's. In the aftermath, a slim majority signed a resolution that stated that the chamber should do something to fight global warming. But what? To date, the government has mandated more biofuels, such as ethanol, and funneled cash to technology development, like capturing carbon dioxide from power plants and pushing it deep into the earth. Democrats want to reverse the climbing rate of U.S. emissions. The trick to doing so is getting the GOP and industry onboard. That means minimizing damage to the economy.
Some say a simple carbon tax is the most equitable solution, but that won't necessarily reduce emissions. And taxes are a political nonstarter. A cap-and-trade system, with fixes learned from Europe's inauspicious start (box), is the crowd favorite. Activists like it because it sets a ceiling on emissions, which gets lowered over time. Wall Street firms, such as Goldman Sachs, stand to profit from an emissions trading market that could be worth $50 billion to $300 billion by 2020. Utilities with low-emission power sources like nuclear energy and wind could make money by selling credits to coal-burning power plants. A watershed event was the formation this year of the U.S. Climate Action Partnership, a marriage of environmental groups and industry heavy hitters that support cutting greenhouse gases to a level that would keep warming to 2 degrees Celsius. General Electric, DuPont, and Alcoa are members. "No one wants to be last in line to influence this legislation," says Paul Bledsoe of the National Commission on Energy Policy. "You have millions riding on the outcome." Last month, oil company ConocoPhillips joined the group.