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Saturday, November 13, 2010; 6:36 PM

WHERE CAN President Obama and ascendant House Republicans find compromise? The president has signaled one possibility: energy policy. "Whether it's natural gas or energy efficiency or building electric cars, we have to move forward," he declared this month.

Taking this up now might seem like a strange choice, since the battle over how - or, indeed, whether - to address climate change inspired months of extreme partisan disagreement over the past year. But everyone admits that cap-and-trade, that much-demagogued strategy to reduce the use of fossil fuels, is dead, at least for the moment. Instead of the grand, comprehensive approach the Democrats took this year, Washington is reverting to a more familiar mode of energy policymaking, in which dozens of smaller-bore government interventions prod the energy sector in directions lawmakers favor.

The piecemeal approach has produced policy failures, such as the government's counterproductive support for corn ethanol. It's more expensive for society - and it's certainly costlier for the federal government - than simply putting a price on the emission of carbon.

Still, some policy analysts insist, the next two years don't have to be a total waste. The president mapped out the contours of a possible compromise - a program of government support for natural gas, nuclear plants, clean transportation technologies, renewable sources of energy and efficiency. This echoes the "all-of-the-above" energy proposal that House Republicans endorsed last year in their American Energy Act. Other bills from the current Congress will feature in discussions next year, particularly an energy-efficiency proposal championed by Sen. Richard G. Lugar (R-Ind.) that would tighten national building efficiency codes and a bill that investor T. Boone Pickens is pushing that would encourage America's heavy trucks to run on natural gas. All of these would further distort American energy markets, but nearly all have at least the potential, in varying degrees, to cut carbon emissions.

The American Energy Innovation Council, a group of business leaders that includes Bill Gates, hopes that the parties might yet be able to agree on a more ambitious and cohesive policy. It recommends a $16 billion annual investment in clean energy innovation, including research and support for getting new technologies to market. An ideologically diverse group of think tankers from the Breakthrough Institute, the American Enterprise Institute and the Brookings Institution agrees and argues that Congress should supplement that investment with subsidies that lower the price of new energy sources. They would also nurture the relationship between the Defense Department, which will increasingly demand clean-energy technologies, and clean-tech researchers. Even if cap-and-trade had passed, the logic goes, the government would still have had to invest in scientific research to make green energy affordable; might as well make those investments, anyway.

As with many of the other energy policy ideas that have floated around the Capitol over the past few years, this sort of proposal suffers from at least one large problem: How do you pay for it? One of the many advantages of cap-and-trade was that the comprehensive policy paid for itself. Now, this question will be all the more critical in the midst of large deficits and understandable public discomfort with the nation's fiscal position. The think tankers propose thoroughly overhauling other energy subsidies and taking revenue from offshore drilling leases.

Even if all these initiatives go forward, they won't add up to a response to climate change robust enough to match the severity of the warnings climate scientists are giving the public. But incremental action is better than none.


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