Correction to This Article
Earlier versions of this story gave an incorrect committee title for Rep. Henry A. Waxman (D-Calif.). He is chairman of the House Energy and Commerce Committee. This version has been corrected.
High-Stakes Quest for Permission to Pollute
Interest Groups Press Congress for Cap-and-Trade Allowances in Climate-Change Legislation

By Steven Mufson
Washington Post Staff Writer
Friday, June 5, 2009 9:52 AM

During the final days of the drafting of a 946-page climate bill, Rep. Gene Green (D-Tex.) won support for an amendment that deleted a single word and inserted two others. The words could be worth millions of dollars to U.S. oil refiners.

The Green amendment deleted the word "sources" and inserted "emission points." In the arcane world of climate legislation, that tiny bit of editing might one day give petroleum refiners valuable rights to emit carbon dioxide when it otherwise might not have been allowed. Refiners could get the extra allowances in return for cutting carbon emissions by 50 percent at a single point of a vast refinery complex instead of slashing emissions by 50 percent for the entire facility.

The tweak was just one of many in a complex cap-and-trade bill designed to limit U.S. emissions of greenhouse gases that contribute to climate change. Last month, the bill cleared its first hurdle, winning approval by the House Energy and Commerce Committee. The measure now goes to the Ways and Means and Agriculture committees and then to the full House for consideration as early as July. Passing a Senate version will be much tougher.

But as the legislation's chances improve, corporations, environmentalists and other interest groups have worked to put their imprint on the bill. The Center for Public Integrity said its review of Senate disclosure records showed that more than 880 businesses and interest groups have registered to lobby on climate change in the first quarter of 2009 -- up more than 14 percent over the same time last year.

The groups include coal companies, investment banks, wind and solar firms, state governments, auditing firms and technology companies that might be part of the proposed trading system for carbon. An item inserted at the behest of Rep. John D. Dingell (D-Mich.) would give the auto industry $1.4 billion worth of extra allowances starting in 2012 when the cap-and-trade system takes effect, according to an estimate by the Union of Concerned Scientists.

Supporters of the bill say its key component is an iron-clad cap on the nation's emissions that drops over time. They said it doesn't matter how allowances are distributed.

"The environmental goals depend on having a strong cap and a time horizon to encourage innovation," said Nathanial Keohane, an economist at the Environmental Defense Fund. "That's what we see in the bill."

But to individual companies, states and regions, the way the allowances are handed out can matter a great deal. "From an environmental point of view, it doesn't matter what you do with the allowances," said Ralph Izzo, chief executive of Public Service Enterprise Group, a New Jersey-based utility. "From an economic point of view it sure as hell matters." (Izzo supports the bill.)

Point Carbon, a market analysis firm, estimates that the current House draft earmarks $254 billion in allowances -- one sixth of the estimated total value of allowances from 2012 through 2030 -- and gives them to industries most sensitive to carbon pricing, including coal-based electric power generators, energy-intensive manufacturers vulnerable to foreign competition, oil refineries and the automobile industry.

In President Obama's original cap-and-trade proposal, all allowances, or permits to emit greenhouse gases, would have been auctioned off by the government. The revenue would have been funneled into direct assistance for the poor and an extension of a tax credit for lower- and middle-income workers.

Critics complained that the cost of buying the allowances would be passed onto consumers, being a de facto tax. So House Energy and Commerce Committee Chairman Henry A. Waxman (D-Calif.) and Rep. Edward J. Markey (D-Mass.) fashioned a bill that gives away allowances in an attempt to limit cost increases to consumers and industries -- and which is tailored to meet the concerns of key members of the committee.

The biggest chunk of free allowances, worth $500 billion, would go to local electricity and natural gas distribution companies, with strings to make sure the firms use them to shield consumers from higher costs.

Other industries also benefited. The allowances Dingell won for the auto industry would be worth $12 billion over six years, according to Point Carbon.

Rep. Rick Boucher (D-Va.) led the effort to protect coal-fired utilities and mining firms. He persuaded Waxman and Markey to accept a more modest reduction in emissions overall and to set aside 35 percent of allowances to help residential and industrial consumers of coal-fired power. He also won agreement for extra allowances and money -- about $1 billion a year -- to develop carbon capture-and-storage projects that will eventually be needed to cut carbon emissions of coal plants.

Industry executives chipped in. In the final two weeks of drafting the legislation, Duke Energy chief executive James E. Rogers consulted with Waxman, Markey and Boucher, talked with Obama's energy and climate czar Carol M. Browner, and addressed a private meeting of the Blue Dog Coalition, a group of fiscally conservative House Democrats, to ease their concerns.

Lobbying was waged by so-called clean energy companies, too. American Superconductor is a Massachusetts-based company that has 80 percent of the world market for the material that goes into superconductor cables, which carry 150 times as much electricity as a conventional copper line. Superconductor lines, which would be buried, also lose only 3 percent of electricity in transmission compared with 9 percent for conventional high-voltage overhead lines. That, American Superconductor says, could make the difference between needing or not needing a new coal plant.

Greg Yurek, the company's chief executive, met with House Majority Leader Steny H. Hoyer (D-Md.), Waxman and Markey to press the case for federal incentives. And in the final week of committee work, Rep. Jay Inslee (D-Wash.) inserted an amendment that provides incentives for hundreds of miles of cable. It was good news for American Superconductor, whose expensive lines have only been used in short distances; it currently can only produce three to four miles of lines a year.

Yurek said the company hopes the subsidies will help it expand operations. "The companies that would install superconductivity lines would get a subsidy for the first few hundred miles," he said. That would create demand and bring down costs, he said. "That would be good for the country, good for American Superconductor -- and good for whoever puts the lines in."

View all comments that have been posted about this article.

© 2009 The Washington Post Company