A long week in the cap-and-trade debate

It’s not over yet, but this has so far been a tumultuous week for the prospects of a US cap-and-trade system, which appear to have done something of a 360° turn.

Earlier this week it looked like enough US politicians were giving up on it that pundits were binning the idea altogether, at least for this Congress.

President Obama was talking about the possibility of splitting cap-and-trade legislation out from other energy initiatives:

The most controversial aspects of the energy debate that we’ve been having — the House passed an energy bill and people complained about, well, there’s this cap and trade thing.  And you just mentioned, let’s do the fun stuff before we do the hard stuff.  The only thing I would say about it is this:  We may be able to separate these things out.  And it’s conceivable that that’s where the Senate ends up.

[The 'fun stuff' is energy efficiency investments and clean tech R&D.]

Almost a week earlier Senator Lindsey Graham, who is involved in a bipartisan collaboration on a climate bill, had said:

“Realistically, the cap-and-trade bills in the House and the Senate are going nowhere,” said Senator Lindsey Graham, Republican of South Carolina, who is trying to fashion a bipartisan package of climate and energy measures. “They’re not business-friendly enough, and they don’t lead to meaningful energy independence.”

Mr. Graham said the public was demanding that any energy legislation from Washington focus on creating jobs, whether by drilling for offshore oil or building wind turbines.

“What is dead is some massive cap-and-trade system that regulates carbon in a fashion that drives up energy costs,” he said.

Meanwhile a group of centrist Democrat senators have also been pushing to drop cap-and-trade, according to Mother Jones:

The Plan B crowd includes Democratic senators Jim Webb, Mary Landrieu, Evan Bayh, Ben Nelson, Kent Conrad, Byron Dorgan, Mark Pryor, and Blanche Lincoln. It could also potentially pick up the Republicans who voted the energy measure out of committee: senators Lisa Murkowski, Sam Brownback, Bob Corker, and Jeff Sessions.

But in just a day, everything began to change.

Graham on Wednesday:

There was this idea floating around yesterday—don’t know how serious it is—that somehow it would be wise for Congress to do an energy bill only. I don’t think that’s wise.

[Applause]

The reason I don’t think that’s wise is that “it is a kick the can down the road approach.” It’s putting off to another Congress what really needs to be done comprehensively.

I don’t think you’ll ever have energy independence the way I want it until you start dealing with carbon pollution and pricing carbon. The two are connected in my view—very much connected. The money to be made in solving the carbon pollution problem can only happen when you price carbon in my view.

So if the approach is to try to pass some half-assed energy bill and say that is moving the ball down the road, forget it with me.

Graham added a cutesy comment that the Chinese “don’t need 60 votes. I guess they just need one guy’s vote over there – and that guy has voted”.

Obama yesterday:

“One of the best ways to be on the forefront in energy is to incentivize clean energy and discourage the old sources or methods that aren’t’ going to work in the future,” he said, noting that Joe Lieberman (I-Conn.), Lindsey Graham (R-S.C.), and John Kerry (D-Mass.) are working together to “find a workable, bipartisan structure” that includes both energy incentives and a cap on carbon.

“That’s vital. Don’t give up on that. I don’t want us to just say the easy way out is for us to just give a bunch of tax credits to clean energy companies,” he continued. “The market works best when it responds to price. And if they start seeing that, you know what, dirty energy is a little pricier, clean energy is a little cheaper, they will innovate.”

Why yet another turnround? Perhaps floating the idea of separating out cap-and-trade, or dumping it altogether, didn’t play as well as expected.

Either way, the supporters of cap-and-trade are thinking more seriously about how to sell the unpopular concept. Look at how they’re trying to explain why cap-and-trade, or some form of carbon pricing, is necessary: using terms like incentives, the market responding to a price, energy security, and responsibility.  And jobs: Graham said that while he liked polar bear, he really liked jobs.

Meanwhile Argus reports that Carol Browner, White House climate advisor, said the administration is still committed to cap-and-trade. But Jason Grumet, president of the Bipartisan Policy Center, said it’s all about the financial crisis:

“Members of Congress are no longer inclined to vote for large market-based solutions that they do not really understand,” Grumet said. The bill introduced last year by Sens. Maria Cantwell (D-Washington) and Susan Collins (R-Maine) was a direct reaction to fear of market manipulation and “a government welfare state,” Grumet said. The Cantwell-Collins legislation aimed to cut fossil-fuel producers’ greenhouse gas emissions 20pc below 2005 levels by 2020, but barred financial firms from participating in any auctions of allowances. It also established a price collar to prevent price volatility.

Climate legislation is not out of the question, Grumet said, but the approaches are going to be more “creative” and less like the full-economy cap-and-trade model of Waxman-Markey.

Stay tuned.

Related links:

Cap-and-doomed (FT Energy Source)

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