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Obama's Budget Expects Limits on Greenhouse Gases to Produce Revenue

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By Juliet Eilperin and Steven Mufson
Washington Post Staff Writers
Thursday, February 26, 2009

A mandatory cap on the nation's greenhouse gas emissions, which President Obama embraced on Tuesday as central to his domestic agenda, would be designed to generate badly needed revenue for the government while addressing arguably the world's most pressing environmental issue.

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Today, the White House will unveil a budget that assumes there will be revenue from an emissions trading system by 2012.

Sources familiar with the document said it would direct $15 billion of that revenue to clean-energy projects, $60 billion to tax credits for lower- and middle-income working families, and additional money to offsetting higher energy costs for families, small businesses and communities.

In testimony to Congress in September, Peter Orszag -- then director of the Congressional Budget Office and now Obama's budget director -- estimated that revenue from a cap-and-trade bill that died on the Senate floor last year would have reached $112 billion by 2012 and would have kept rising afterward. By 2020, Orszag estimated, a cap-and-trade program might generate $50 billion to $300 billion a year.

But only hours after Obama's speech Tuesday to Congress, the cap-and-trade proposal triggered a heated exchange among senators on a key committee, underscoring that efforts to come up with a system that limits emissions, puts a price on carbon and allows industries to trade pollution allowances will be a difficult sell on Capitol Hill, especially in the current economic crisis.

A federal cap-and-trade program, which many scientific and policy experts see as key to curbing dangerous levels of global warming, would create a new commodity -- in the form of the allowances permitting industries to discharge specified amounts of carbon dioxide into the atmosphere -- and a market for that commodity that would be worth tens or perhaps hundreds of billions of dollars, along with a complex new regulatory system.

The political battle on the Hill is largely divided along regional, rather than party, lines: Although lawmakers from coastal states see a carbon cap as a critical goal whose public and long-term economic benefits would outweigh its costs, most Republicans and some Democrats from the middle of the country fear that it would hurt their states' economies, dependent as they are on fossil fuels and manufacturing.

At a Senate Environment and Public Works Committee hearing on climate science yesterday, Sen. Christopher S. Bond (R-Mo.) called any cap-and-trade system "a huge unfair tax" that "would devastate the Midwest." Sen. John Barrasso (R-Wyo.) referred to it as "a trillion-dollar climate bailout."

But the panel's chairman, Sen. Barbara Boxer (D-Calif.), countered that a cap-and-trade system "isn't a bailout. It's revenues coming into the government."

"We think it will be a boon for our economy," she added. "To say the people in this room don't care about jobs -- that's ludicrous."

The extent to which states rely on coal-fired utilities, which produce about 40 percent of the nation's greenhouse gas emissions, helps influence how their elected officials view the prospect of curbs on carbon. In Indiana, 94 percent of power comes from coal-fired plants, while in Florida -- which relies more on nuclear plants that do not emit greenhouse gases -- 30 percent of electricity comes from coal. In California and Rhode Island, 1 percent of electricity comes from coal; in Vermont, none.

Most analysts predict that over time, placing a price on carbon will spur technological innovation and ease American dependence on foreign oil, while probably driving up energy prices in the short term.


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