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.
But coal, and those utilities that use it, are the likely losers in such a plan. Rep. John Dingell, chair of the House committee with jurisdiction over a climate change bill, tells U.S. News that Democrats from coal country "are very wary of what this bill is going to do and how it is going to impact their districts." How will credits be doled out when or if a cap-and-trade policy is implemented? Most utilities argue that the companies that use the most carbon-heavy energy sources deserve the most credits. But environmentalists fear that would spark a construction boom of coal-fired power plants before the plan is implemented. They want clean sources of energy, like wind, to be rewarded, which could spur emitters to action quicker. Another complication is whether the credits should be distributed free by the government or auctioned off at hefty prices.
Such challenges are daunting. Coal is the cheapest, most plentiful source of energy in America, literally powering the economy. Any cost borne by the coal industry will be passed along. Not only is that bad for the GDP; it's bad for the poor, a fact that has many free-market conservatives sounding like fire-breathing populists. Republican Sen. James Inhofe, who famously called global warming a hoax, is touting a Congressional Budget Office analysis that says energy price increases would "impose a fairly large burden" on the poor. That's why, in part, most insiders believe this is a battle industry will win. Most credits will go to heavy polluters, but Congress will most likely try to stop a coal boom by barring any power plants built after a certain date-if it gets to that. Though Republicans like Olympia Snowe, McCain, and Lamar Alexander have all authored their own aggressive cap-and-trade programs, the GOP leadership is digging in its heels.
Policy brawl. Bush isn't ruling out a veto of climate change legislation. And when Speaker Nancy Pelosi announced the creation of a special committee to investigate the science and solutions of global warming, House GOP leaders stocked their side with fervent opponents of any legislation. Democrats did just the opposite. The result has been nearly every committee hearing breaking into a policy brawl. That will very likely only intensify after the news last week that the U.N.'s latest report on climate change determined that acting now would cost 0.12 percent of the annual global GDP. The damage from unchecked warming? As much as 20 percent annually. The report also showed that China and India, which are not obligated by Kyoto, dramatically curtailed their emissions growth anyway-providing possible ammunition for both sides. For some, it's another sign that the United States must join international efforts. For others, it's an argument that voluntary measures, such as those favored by Bush, can work. These growing nations reined in their emissions largely by accident while fighting air pollution, steps the United States took decades ago. And China is still on track to surpass the United States in the next year or two as the world's top emitter.
Despite Pelosi's goal of readying legislation for a vote by Independence Day, nearly no one on Capitol Hill believes it will happen because of the politics and complexities of the issues. While the House can muster enough votes to pass a bill, the Senate is still far from reaching the 60 votes needed to override a filibuster, which the GOP would probably invoke. Still, lobbyists are already counting heads. And the climate in Washington is changing.
This story appears in the May 14, 2007 print edition of U.S. News & World Report.