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

Although so far the mechanics of a cap-and-trade system have been debated mostly by business executives and a small but growing group of policy experts, the implications could be far-reaching. It would create a new commodity and a market to trade it worth tens of billions of dollars. It would create property rights where none exist today.

"Emission allowances could be the greatest creation of property rights since the 19th-century settlement of the West," Dallas Burtraw, a senior fellow at Resources for the Future, said in a speech last week at Georgetown University.

Carl Pope, the executive director of the advocacy group Sierra Club, said he has been surprised at the extent to which Obama has made green energy a priority and has based his economic plan on the assumption that this sector will drive the nation's financial recovery. "Obama's talking about this as the economic equivalent of war," Pope said in an interview. "His administration sees that the green economy is the only train leaving the station, and they are eager to hitch onto it to pull us out of this crisis."

The cost of carbon emissions, and hence the revenue the government would receive from auctioning carbon allowances or permits, remains highly uncertain. In Europe, which has a cap-and-trade system, the price of carbon has fluctuated between about 10 and 30 euros (currently $13 to $38) a ton. With world economies in recession, European prices have slumped.

U.S. experts have varying estimates for what the allowances might cost, all based on unknowable factors, such as whether the cost of solar and wind power will fall or whether industry will come up with an economic way to capture and store carbon dioxide emissions. Such advances might make it cheaper to cut emissions than to buy allowances.

John W. Rowe, the chief executive of Exelon, the nation's biggest nuclear power producer, said one consultant estimated that carbon allowances would cost $50 a ton. "Personally, I believe they will be closer to $70 or $100 a ton," he said.

Senate Energy and Natural Resources Committee Chairman Jeff Bingaman (D-N.M.) favors a ceiling on the price of carbon allowances, but his ceiling is well below what most energy experts think will be needed to generate the investment and innovation that would achieve big reductions in emissions. Sen. Arlen Specter (R-Pa.), who co-sponsored Bingaman's bill and remains a key swing vote in the Senate, said at yesterday's climate hearing that he sees global warming as "a central issue" but could not support a bill that was based on "speculative" technological advances.

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