As momentum behind federal climate change legislation builds in Washington, D.C., the possibility of a cap-and-trade program for greenhouse gases grows ever more likely.

On February 26, 2009, the Obama administration offered a clearer view into its thinking on federal legislation on climate change when it released an outline of its budget plan for Fiscal Year 2010. For the first time, the Office of Management and Budget (OMB) placed a dollar value on the right to emit greenhouse gases, and used this value as the basis for a $645.7 billion assumption about a new and sustained source of government revenue generated from the auctioning of carbon emissions allowances.

According to the Obama plan, the new emissions allowances will be created under a federal, economy-wide, cap-and-trade system for greenhouse gases modeled on the acid rain program launched following the 1990 amendments to the Clean Air Act. Under the acid rain program, most emissions allowances were distributed at little or no cost to regulated industries according to one of several formulas that considered, among other things, each facility’s historic emissions. In contrast, the Obama cap-and-trade plan for greenhouse gases calls for 100 percent of the emissions allowances to be sold at auction to the highest bidders. The Obama plan states that an auction, as opposed to a free allocation of emissions allowances, is necessary “to ensure that the biggest polluters do not enjoy windfall profits.” Further, OMB estimates that these auctions could raise more than half a trillion dollars over 10 years starting in fiscal year 2012, all paid by the electricity generators and fuel producers that will be subject to the regulatory cap. This new source of revenue could be used to fund the investments in renewable and low-carbon emission energy technologies that were included in other parts of the budget plan.

By treating auction proceeds from a carbon cap-and-trade program as a revenue generator, the Obama plan indicates that the White House believes that the time is right to move ahead with this monumental legislation. Recent statements by leaders in both the House of Representatives and the Senate are consistent with the Administration’s view.

In the Senate, Sen. Barbara Boxer (D-CA) released a set of “principles” on February 3, 2009, to serve as a guide for any federal climate change legislation that is drafted or reviewed by the Environment and Public Works Committee. These principles build on the Senate’s recent experience with the cap-and-trade program proposed in the Boxer Substitute to the Lieberman-Warner Climate Security Act of 2008 which was briefly debated in June 2008.

In the House, Rep. Henry Waxman (D-CA), the Chairman of the Energy and Commerce Committee, announced an even more ambitious agenda for climate change legislation when he vowed to have a climate change bill voted out of that Committee by Memorial Day 2009. No new legislation has been released by the Committee or Chairman Waxman—yet. However, Chairman Waxman is a very formidable, experienced legislator who will take a markedly different approach on these issues than his predecessor as chairman, Rep. John Dingell (D-MI). Climate change legislation is also a priority for Speaker Nancy Pelosi (D-CA), and in Chairman Waxman, she will have a strong ally in moving a bill through the House.

The Obama budget plan is, however, only the outline of a proposal. The final budget will ultimately be drafted and negotiated by Congress in committees where significant opposition is likely, particularly from Members who represent the large industrial energy consumers and coal producing states who will be affected most acutely by the cap-and-trade program. Nevertheless, momentum behind federal climate change legislation is building in Washington, D.C., and now that the White House has shown its hand, it is likely that a strong and serious legislative debate in which all interested stakeholders will have to participate will soon begin.