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Correction to This Article
This article misstated the year in which President Obama's cap-and-trade proposal would take effect. It would begin in 2012, not 2011.
Push to Reduce Greenhouse Gases Would Put a Price on Emitting Pollution

By Steven Mufson
Washington Post Staff Writer
Friday, March 13, 2009

President Obama's endorsement of climate legislation to clamp down on greenhouse gases has set off a lobbying rush in Congress and made the air thick with rival proposals.

Coal companies, utilities, economists and environmentalists are vying to shape legislation that could rechannel hundreds of billions of dollars from one part of the economy to others. The sense of urgency has been heightened by House Energy and Commerce Committee Chairman Henry A. Waxman's push to have a bill ready by the end of May; the California Democrat plans to circulate a draft in about two weeks.

Because of regional differences in energy sources, the political lines are blurred, potentially uniting Democrats and Republicans from states heavily dependent on coal plants against other parts of the nation looking for alternatives.

Most lawmakers and climate activists embrace an approach to limiting greenhouse gas emissions known as cap-and-trade, which would set and gradually lower a limit on nationwide emissions while letting companies buy and sell rationing allowances. But some economists have lined up with big oil companies such as Exxon Mobil, which has endorsed a carbon tax instead. Seven House Democrats, including House Democratic Caucus Chairman John B. Larson (Conn.), introduced a carbon tax measure this week.

Either way, climate legislation will aim to reduce emissions by putting a price on carbon, raising the cost of everything from gasoline to plastics to electricity.

Opposing sides are striving to either frighten or woo voters with talk of whether climate legislation should be viewed as a big ill-timed tax or whether it will unlock new industries and technologies to make the economy more efficient and less dependent on foreign oil. On Tuesday, White House spokesman Robert Gibbs called it "a market-based solution that will drive us to energy independence and create . . . an even more robust market for alternative fuels." Earlier, House Minority Leader John A. Boehner (Ohio) said " 'cap-and-trade' is code for increasing taxes, killing American jobs and raising energy costs for consumers."

Even companies are divided. The owners of nuclear power generators, which don't emit carbon dioxide, are at odds with utilities that rely on coal. And the emerging wind and solar industries are gaining a powerful voice as well.

"There's no end of the political fault lines and there's going to be a heavy burden for the White House," said Philip Sharp, president of Resources for the Future and a former House member.

The Obama administration's budget includes an outline of a relatively simple plan that, starting in 2011, would establish a cap on the quantity of emissions and auction off the right to emit pollutants. It would give the bulk of the money back to lower- and middle-income Americans through a means-tested tax credit. It would set aside a portion of auction revenue for aiding households and industries in regions hurt most by higher costs. It would also reserve a modest portion for research and development. The administration says it wants the program to be revenue-neutral.

At the center of the political battle in Congress are Democratic lawmakers like Sens. Sherrod Brown (Ohio), whose state relies on coal-fired plants for 86 percent of its electricity; Evan Bayh (Ind.), whose state gets 94 percent of its electricity from coal; and Byron L. Dorgan (N.D.), whose state both relies on and exports coal-fired electricity and also has large wind potential. Republican lawmakers in the thick of the battle include Maine's Sens. Susan Collins and Olympia J. Snowe.

"I believe there's something happening in respect to our climate, and we ought to address that," said Dorgan, who chairs the Senate Appropriations subcommittee on energy. "The Congress is intent on doing something, but how quickly and how much, I don't think is clear yet."

Plans vary widely. Senate Energy and Natural Resources Committee Chairman Jeff Bingaman (D-N.M.) favors a mechanism to put a ceiling on carbon prices to protect consumers.

Some cap-and-trade advocates believe the program should be designed as a "cap-and-dividend," giving every household a check for its share of the money raised through auctions. Supporters believe that would generate popular support for the legislation, much as Social Security checks generated support for Social Security taxes. Rep. Chris Van Hollen (D-Md.) is planning to introduce a version of the cap-and-dividend idea next week.

At the other end of the spectrum are companies and environmentalists who believe that any plan must initially give away allowances to utilities in coal-intensive areas so that consumers there are not hit by suddenly higher electricity bills. Over time, the free allowances could be phased out and replaced by auctions. The 25-member U.S. Climate Action Partnership, that includes major corporations and a handful of environmental groups, has its own plan that would give away 40 percent of allowances to local coal-intensive utilities that would then keep rates low. How fast those allowances would be phased out is something on which the group cannot agree.

"I think you have to have at least a transition period of many years, a decade or so," said Fred Krupp, head of the Environmental Defense Fund and a key member of the group. "The question is: 'Is it fair?' Think about the customers in one of these coal-burning states. Their utility would be retooling to retrofit or generate low carbon energy in some other way. So what's fair is to have a transition period where carbon does go down, but there isn't a price shock in any region of the country."

That approach has the support of Sen. Joseph I. Lieberman (I-Conn.), co-sponsor of three earlier cap-and-trade bills that failed to win Senate approval. Lieberman plans to form a bipartisan group of senators with Sen. John McCain (R-Ariz.), who co-sponsored two of those earlier measures.

"I see myself as a coalition builder," Lieberman said. "I don't think you can have a 100 percent auction. For fairness and the political viability of a proposal, we have to give assistance to the industries most affected by the major change we're proposing."

Sources familiar with the administration's thinking say the White House would be prepared to agree to a transition period, but that it wants to avoid a repeat of what happened to a bill last year that became laden with add-ons. "At some point, you've given away too much," said a person familiar with administration thinking.

"We think a well-designed cap-and-trade program will not have an adverse short-term impact on energy prices," said a White House official who spoke on the condition of anonymity. "But if we're completely eliminating the price signal, then we're removing the incentives for investments in energy efficiency."

"The ideological lines are being drawn," Van Hollen said. "There are a lot of interests arrayed to try to defeat this or water it down. What we have to do is to make sure we keep the public's interest in mind and make sure that we don't have a bill at end of the day that is so riddled with loopholes that it doesn't accomplish the purpose."

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