John Kemp, a former commodities analyst and now columnist at Reuters, believes the defeat of the US administration’s attempt to fast-track the introduction of a carbon cap-and-trade scheme means it won’t be enacted until at least 2012 or 2013. This would be uncomfortable for the government, which has factored in $79bn in revenue from cap-and-trade in 2012.
As Kemp explains, the administration attempted to get cap and trade through congress faster by attaching it to the budget, for which there are special provisions. That fact that 26 Democratic senators chose to vote with the Republicans to exempt the climate change legislation from these exemptions exposes a big rift in the party along state lines.
The extent of the Democratic Party’s divisions was on display in last week’s vote line up:
* Voting for the amendment (and therefore against using reconciliation) were 26 Democrats from Midwestern and industrial states (10) plus Democrats from conservative states and those in the heartland (16).
* Voting against the amendment (in favor of using reconciliation) were 31 Democrats from the west and east coasts (23), plus senators from grain states that would benefit from any move away from fossil fuels (2), the party’s floor leaders (2), and only a handful of others representing the interior (4).
The vote illustrates the fault line within the Democratic Party between legislators from coastal and liberal states who favor cap and trade, and those from industrial and conservative areas in the Midwest and rest of the country worried about a popular backlash in response to higher energy prices and the implications for local industry.
The administration will need to buy off many of these Midwestern and conservative senators to have any chance of enacting a program.
President Barack Obama foreshadowed this effort when he told reporters recently the administration would probably have to give permits away free to some industries in the early stages to build support. It will also have to mount a major public relations campaign to build popular support.
But given the crowded congressional agenda and the competing demands on the president’s time, it will almost certainly be impossible to mount a major lobbying effort and get cap-and- trade enacted in 2009, which puts the effective date of any scheme back until at least 2012 or 2013.
Democratic divisions stall cap and trade (Reuters)
The new US cap and trade bill explained (FT Energy Source)
Senate blow to climate change laws (FT.com)
Budget outline: Cap-and-trade timeline ‘optimistic’; no permit giveaways (FT Energy Source)