With the election of Barrack Obama and increased Democratic majorities in the House and Senate in the 111th Congress, attention to a new regulatory framework on climate change is inevitable. But that framework will not necessarily take the form of a single bill. Concern with the economy is likely to push final action on comprehensive climate change legislation back until at least 2010.

It is possible, however, that Congress and the Administration may opt for a more piecemeal approach. As another article in this publication explains, it also is possible that the Environmental Protection Agency would use its power to attempt to regulate greenhouse gas (“GHG”) emissions independently of the legislative process. We review the legislative landscape below.

Prospects for Immediate Action

Before the economic downturn, many Members of Congress were telling us to expect that a climate change bill would be introduced very early in the 111th Congress, and that it was very likely that some measure would be signed into law by the new president by the middle of 2010, if not before. That scenario is more unpredictable now. The conventional (and probably correct) wisdom is that the financial crisis has doomed quick action on climate change.

Climate change legislation is likely to increase energy prices, especially for electricity and natural gas. This could in turn put pressure on manufacturers’ bottom lines, and possibly even result in large-scale lay-offs. The new President and Congress will seek to avoid these results.

There is some expectation on the part of the international community that the United States will act before the next multilateral negotiations, scheduled to take place in December 2009 in Copenhagen, Denmark. But domestic (and perhaps international) economic priorities are likely to trump these concerns. In our view, it is highly unlikely that any bill will pass before 18 months into the 111th Congress.

But this does not mean that there will be no quick action with respect to climate change,. Instead, the 111th Congress is likely to focus on the “three Es:” the economy, energy security, and the environment. The development of renewable energy sources in particular will address all three, providing an economic stimulus while acting on climate change in a manner that is politically acceptable.

Finding an alternative to reliance on foreign produced energy sources is a workable template for those on both sides of the aisle. The next Congress and the new Administration will want to move the economy away from its heavy reliance on those foreign energy sources, and to move forward on a range of energy related issues. Among other possibilities, we expect support for immediate spending on infrastructure; modernization of the electricity grid to improve both efficiency and reliability; greater federal support for mass transit; and encouragement of energy efficiency measures such as tax credits for weatherization and stricter efficiency standards for appliances and vehicles. This also may be combined with a tax credit to take old gas guzzlers out of use. There will be an emphasis on innovation and the development of clean energy technologies.

Congress eventually also may consider a carbon tax regime and a renewable portfolio standard for electricity generation. If adopted, these measures would represent a substantial step forward in dealing with global warming, without forcing resolution of the enormous challenges that a comprehensive climate change bill would be likely to raise.

Taking Advantage of the Pause

While we do not foresee immediate action on climate change, it is likely that Congress will continue to consider the issue in 2009. American manufacturers should use this period to educate Congress about the practical promises and perils of climate change legislation. The next 18 months offer a unique opportunity to educate Congress on the mechanics of a cap and trade system, so that Representatives and Senators (and their all-important staffs) can understand exactly how such a system is likely to burden American competitiveness and cost the United States millions of jobs.

Moreover, while the general (and largely unquestioned) assumption is that a cap and trade system will be the system of choice for the United States – and President-elect Obama endorsed it during the campaign – there is little understanding within Congress of how the system would actually work or its full impact on the American economy. Besides educating Congress on these matters, business and industry also will have the opportunity to recommend measures that can avoid, offset or eliminate these effects.

Moreover, to have any chance of passing, a comprehensive climate bill will have to be subject to a fuller, more inclusive process than most legislation receives. Such a bill would affect practically every aspect of the American economy. More committees will demand to be involved, since this will be the largest piece of legislation tackled by the Congress in recent memory.

With respect to actions by individual senators, Senator Boxer, Chairman of the Environment and Public Works Committee, has asked her staff to prepare a new climate change bill by February. In addition, Senator Bingaman has indicated that he will take an active leadership role in the next congress as Chairman of the Senate Energy and Natural Resources committee. Although there will be fewer Republican senators in the 111th Congress, these Republicans may decide to work with Senator Bingaman, who they consider to be more reasonable on climate change than Senator Boxer. This could help drive a compromise bill along the lines of that previously introduced by Senator Bingaman.

The New President’s Role

A major difference between the 111th Congress and the 110th is the President is almost certain to play an active role in the climate change debate. As a senator, President-elect Obama endorsed the goal of reducing U.S. GHG emissions by 80 percent from 1990 levels by 2050. This would put the United States in line with the recent G8 agreement “to consider and adopt” a target of at least a 50 percent reduction in carbon emissions by 2050. He also endorsed a cap and trade system where all allowances would be auctioned, with no free allocations, and repeated this endorsement in the campaign. But, given the immediate necessity of dealing with the recession, it is unclear when or whether an Obama administration will introduce climate change legislation.

Conclusion

The Obama Administration and the 111th Congress will certainly tackle the issue of climate change over the next two years, and it remains a top priority of leaders in Congress. At this point, we think of the emphasis in 2009 will primarily be to provide an economic stimulus through infrastructure projects, energy efficiency and renewable energy incentives. The economic costs of implementing that system make it unlikely that President-elect Obama or Congress will move rapidly to adopt a cap and trade system of emissions allowances. It will take time to sort through the consequences and benefits. American manufacturers can use time to educate Congress and the Administration regarding the likely flaws of a cap and trade system and to put forward alternatives that will bring about even greater reductions in global GHG emissions without harming American competitiveness.