President Barack Obama has called on Congress to pass climate change legislation before the next United Nations Climate Change Conference, to be held in Copenhagen in December. While many believe that it will be difficult to enact a new law by the end of 2009, especially absent a concerted push by the President or other opportunities for stakeholder compromise, Congress clearly intends to play a major role in crafting the United States’ response to climate change and is continuing the work it began last year by holding hearings, introducing bills and setting schedules for bill consideration. Concerns over balancing the impact of an economy-wide cap-and-trade program against the potential stimulus benefits, coupled with a number of procedural hurdles, signal that Congress will face significant challenges in securing the votes this year to pass climate change legislation. However, Congress may feel more compelled to resolve these issues and to pass a bill given that the Environmental Protection Agency (EPA) has issued an endangerment finding for greenhouse gases (GHGs) that allows the agency to regulate GHGs as a pollutant under existing Clean Air Act authority. President Obama has said that Congress will have just over one year to act before he will turn to EPA to exercise its authority.

Climate change in the House gained momentum with the release of a sweeping climate and energy bill at the end of March. It is therefore crystallizing, among other things, who will be a covered entity, the cap level, how allowances will be distributed, and what offset programs will qualify. Stakeholders are also recognizing the importance of educating Congress about their business realities while ensuring that their plans to comply with a new regulatory program are compatible with any legislation being considered. Thus, stakeholders also are taking more proactive steps to assess their carbon risk management strategies in anticipation of a federal cap-and-trade regime.

Cap-and-Trade vs. Carbon Tax

Cap-and-trade continues to be the main focus of the climate change debate. Although some advocates are still pushing for a carbon tax as a possible vehicle to address climate change, it appears that a carbon tax is a non-starter this year—not necessarily as a substantive matter but rather as a political matter. Taxes of any sort are difficult for lawmakers to propose, and in the energy arena the Clinton Administration’s attempt to pass a Btu tax in the early 1990s proved that difficulty to be true. Some high-ranking members of the Obama Administration were part of the Btu effort and are understandably unwilling to push a tax solution at this time—regardless of the merits.

Jurisdictional issues also play a role in determining which carbon-reduction fix is pursued. Shifting the debate away from a cap-and-trade debate to a carbon-tax debate would necessarily shift the jurisdiction to tax committees—the House Ways and Means Committee and the Senate Finance Committee. The powerful House and Senate Chairmen, Rep. Henry Waxman (D-CA) and Sen. Barbara Boxer (D-CA), who currently control the cap-and-trade debate in other committees, are not likely to support any effort that would effectively strip them of the power to address climate change.

House of Representatives

This week the House Energy and Commerce Committee will begin an aggressive schedule of hearings focusing on Chairman Waxman's draft of comprehensive energy and climate change legislation that would create an economy-wide cap-and-trade program aimed at reducing emissions of GHGs by 83% from 2005 levels by 2050. The proposed bill also would create a renewable portfolio standard (RPS) and a low-carbon fuel standard. Chairman Waxman’s stated goal is to have the bill out of Committee by the end of May, with Speaker Nancy Pelosi promising House floor consideration before the August recess.  

The debate in the Energy Committee should provide a bellwether for further debate on the House floor as well as the Senate deliberations. The Committee includes several Democrats who are Blue Dogs or hail from manufacturing, coal or oil states and their interests illustrate the fact that a climate change bill is not merely a partisan issue, although it remains to be seen how their disparate interests will be accommodated by the Democratic leadership. For example, the previous Chairman of the Committee (and still current Committee member) is John Dingell (D-MI), whose Michigan district is being hit hard by the current economic downturn and would likely have a difficult time achieving a turnaround if both a cap-and-trade program and a low-carbon fuel standard were adopted. Other Members presumably will have strong interests in ensuring the continued viability of industries native to their home states and will press to secure the allocation of allowances for these industries, adequate phase-in times for caps, and reliable access to proven technologies such as carbon capture and sequestration, among other issues.

Given the rules of the House, where a simple majority is needed for passage and amendments can be limited, there is little doubt that Mr. Waxman’s bill will be passed—but here again, the process will be instructive. Will any of the contentious issues be resolved to the satisfaction of “moderate” members? Or, will the more liberal members of the Democratic caucus be successful in keeping the bill aggressive?  

Senate

The Senate appears to be taking a wait-and-see approach on climate change, waiting to determine its direction after observing how the debate unfolds in the House. Senator Jeff Bingaman (D-NM), Chairman of the Senate Energy and Natural Resources Committee, is already working on the broader energy bill, which he hopes will include an RPS. Mr. Bingaman has expressed his preference to move the RPS bill and other bills addressing electricity transmission siting and efficiency issues separately from a climate bill. However, at this time, Majority Leader Harry Reid appears to favor the House approach of one comprehensive energy/climate bill. This so-called “one bill strategy” would eliminate the need for Mr. Reid to secure floor time for multiple energy and climate bills—a major consideration given that floor time is a scarce commodity in the Senate. As in the House, however, the Senate has many members who hail from states that believe a cap-and-trade bill, or an aggressive RPS requirement, will stifle economic recovery and lead to more lost jobs. For example, senators from heavy manufacturing states, such as Michigan and Ohio, will be hard-pressed to convince voters that higher energy costs for consumers and new compliance obligations for industry are necessary and advisable at this time.

All of these factors, plus other priorities on the Senate calendar (appropriations, health care, and economic recovery) and stricter Senate rules that generally require 60 out of 100 votes to secure passage, mean that moving a climate change bill (especially if coupled with an energy bill) successfully out of the Senate and through a Conference with the House will require a fairly quick resolution of many contentious issues. As in the House, these issues—such as early action credit, offset allowances, and oversight of a new carbon market—are being examined and middle ground is being sought. If the debate on climate change stalls, it is feasible that stand-alone energy bills (e.g., RPS, low-carbon fuel standard, transmission siting) may be brought up for consideration later in the year or in 2010.

Resolution of these issues will take time and a good deal of debate. But, while it may be doubtful that the United States will go to Copenhagen with a new cap-and-trade law in hand, continued congressional activity on climate change is ensured. President Obama may not have sufficient commitment to get an omnibus climate change law in place by December 2009, but debate over some of the specifics of the future federal cap-and-trade program may be resolved by what happens this year in Congress.