Economic Slowdown Could Complicate ‘Cap and Trade’ Plans, Policy Analysts Say

Kevin Mooney | December 10, 2008 | 5:42pm EST
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Phoenix, Ariz. (AP Photo)

( - Environmental activists who want new regulations to curb carbon dioxide (CO2) emissions in the United States claim the evidence for man-made global warming is “compelling” and that investments in “green technology” will stimulate economic growth and create new jobs.
But the current economic recession could slow government attempts to impose “green” regulations, say critics, who also contend that the evidence for man-made global warming is not as definitive as some analysts contend.
A federal “cap and trade” law to reduce emissions could pass the U.S. Senate in 2010 after a period of negotiation and debate, Eileen Claussen, president of the Pew Center on Global Climate Change, said last week at the Johns Hopkins University Paul Nitze School of Advanced International Studies in Washington, D.C.
Under cap and trade, companies would be limited in the amount of CO2 they could release into the air. Companies that emitted more than their limit would have to buy “carbon allowances” in a government-contrived system from companies that had carbon credits. The credits would come largely from “green technology” firms.   
Simply, companies could compensate for their CO2 emissions by putting money into green businesses that theoretically produce less CO2.
Claussen anticipates that U.S. legislation might then be followed by an international treaty in 2011. The United Nations Climate Change Conference scheduled for 2009 in Copenhagen, Denmark could help to establish the framework for a future agreement, she said.
The Kyoto Protocol on climate change was agreed to in December 1997 and has been ratified by 183 countries. Kyoto calls for its signatories to reduce their greenhouse gas emissions by about 5.2 percent below 1990 levels by the year 2012. It came into force in 2005 and is set to expire in 2013.
President Bill Clinton signed the protocol but never sent it to the Senate for ratification. The Senate preempted him in 1997 by voting 95-0 to oppose any international agreements that could harm the economy. President Bush also declined to seek ratification and called the treaty “fatally flawed.”
“We will not repeat the mistake of Kyoto in negotiating internationally first and then hoping to move domestically,” Claussen said. “I believe the U.S. is much more likely to enact or come very close to enacting climate change legislation nationally, and then commit to an international agreement.”
The prospects for federal “cap and trade” legislation will be stronger in 2009-2010 thanks in part to new presidential leadership, as well as a “thawing on Capitol Hill,” activity on the state level and a “real shift” in the views of business leaders, said Claussen.
Claussen also said that Sen. John McCain (R-Ariz.) could be a force for bipartisanship on the question of climate change. McCain has in the past co-sponsored his own cap and trade legislation with Sen. Joe Lieberman (I-Conn.) and repeated his support for new anti-emissions regulations during the campaign.
There are now 24 states developing their own cap-and-trade programs, Claussen noted. (See Related Story). She also said a significant portion of the business community now views cap-and-trade as a desirable objective.
The formation of the U.S. Climate Action Partnership (U.S. CAP), which includes companies and environmental groups, should also be viewed as a positive sign and could help spur movement on Capitol Hill, Claussen said.
But Myron Ebell, director of energy and global warming policy at the Competitive Enterprise Institute (CEI), told that the Democratic leadership is not well-equipped to navigate new regulations through the House and Senate in light of recent history.
The global warming bill (S.2191) co-sponsored by Sen. John Warner (R-Va.) and Lieberman “crashed and burned” without ever getting launched this past June, Ebell said.
The institutional difficulties Senate Majority Leader Harry Reid (D-Nev.) and House Speaker Nancy Pelosi (D-Calif.) experienced last year are still evident, despite Democratic pick ups in the 2008 election, he said.
Moreover, several of the Republicans who will not be returning to Congress next year had supported cap-and-trade legislation, including Warner himself who is retiring, Ebell said.
He also said that Sen. Jeff Bingaman (D-N.M.), chairman of the committee on energy and natural resources, will be “cautious and careful” in his approach toward any new regulatory proposals. Bingaman will be more inclined to push modest bills that are less harmful to industry rather than grandiose plans, Ebell said.
New Mexico, Bingaman’s state, “would not exist without the oil industry,” said Ebell.
Over on the House side, the decision to replace Rep. John Dingell (D-Mich.) with Henry Waxman (D-Calif.) as chairman of the Energy and Commerce Committee will most likely backfire when it comes time to take up a cap and trade bill, said Ebell.
Dingell was a competent, adept legislator who was responsible for crafting complex regulatory schemes in the past, he said. By contrast, Waxman is “very far left” and will have more difficulty marshalling support for specific proposals, said Ebell.  
The solution to climate change challenges and economic hardship is interlinked, according to environmental activists who participated in conference calls at the end of November.
“What we need now is to dig out of the financial hole we are in with a green shovel by investing in emission reductions and by investing in the adaptation of the natural world in the face of climate change,” Larry Schweiger, president of the National Wildlife Federation (NWF) said.
“It will not be sufficient to only focus on reducing carbon in the atmosphere – we have to act now to restore our natural resources and to keep them resilient in the face of climate change,” said Schweiger. “America’s quality of life and robust economy depend on a healthy natural resources system that provides numerous public benefits.”
These investments could help to spur job creation beyond the scope of traditional energy sources, he said.
Tom Borelli, a fund manager with the Free Enterprise Action Fund, is not sure these new jobs will materialize and cautions against enacting new regulations at a time when the United States is entering a recessionary period.
“They’re [the environmentalists] getting desperate, because they realize the economic clock is ticking, and the reality now is that we are faced with higher energy costs, meaning any additional burdens on the economy are a no go,” Borelli said.
“So they have to quickly cobble together some story to say, ‘Well, really, this will create jobs and grow the economy,’ when virtually every economic study shows that cap-and-trade is going to increase energy prices and decrease economic growth,” he added.

Sen. James Inhofe (R-Okla.) (Photo courtesy of Inhofe's Web site)

Sen. James Inhofe (R-Okla.), a leading critic of global warming legislation, told that the financial pressure Americans are now facing will make it difficult to justify a climate change bill. 
“I believe the current financial crisis will only reinforce the public’s concerns about any climate bill that attempts to increase the costs of energy and jeopardize jobs in the near term,” he wrote.
“Financial realities will make it much more difficult for the new administration or Congress to put forth a very aggressive economy-wide climate bill. President-elect Obama will face a tough sell in the years ahead, with economic concerns remaining front and center,” Inhofe added.
Inhofe has also called attention to scientific studies that show natural variability – as opposed to human activity – is primarily responsible for warming and cooling periods throughout the earth’s history.
A report issued through Inhofe’s staff on the U.S. Senate Environment and Public Works Committee last year included a list of more than 400 scientists from over two dozen countries who now say there is no consensus on the notion of man-made global warming and that there is good cause for skepticism.
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