Cap-and-trade move to limit greenhouse gases has chance

Feb 7 - McClatchy-Tribune Regional News - Dave Michaels The Dallas Morning News

With climate-change legislation picking up support like so many political endorsements, this may be the year that global-warming legislation finally breaks through.

For years, a small group of lawmakers has tried to get greenhouse gas limits through Congress. Wall Street caught up with them this week, as major investment banks announced principles for judging the risk of new coal plants, with carbon-dioxide limits on the horizon.

"There is a sense of inevitability, which is pervasive in corporate America, that the control program is coming," said Rep. Rick Boucher, D-Va., chairman of a House subcommittee on energy and air quality.

"I would predict with a high degree of certainty that if it does not pass this year, it will certainly pass in the next," he said.

The energy industry is divided about how to address climate change. Some of the country's biggest polluters, including Irving-based Exxon Mobil, still oppose mandatory caps on emissions. And many coal-mining companies are lobbying against mandatory controls.

Republicans stand poised to argue that greenhouse gas limits would raise electricity and fuel costs as the country faces a recession.

Rep. Joe Barton, R-Ennis, has assembled a task force to "fight the Democrats" by challenging climate science and the impact of coal regulations on rates and energy independence, according to a December memo he sent to fellow Republicans.

"There is this sense that with the Democrats back in the majority, the environmentalists are such a powerful force that they can ram some of these things down the throat of the economy," said Mr. Barton, the ranking Republican on the House Energy and Commerce Committee.

"When push comes to shove, I don't believe a majority of the House and Senate will pass it," he said.

Mr. Boucher plans to introduce a bill establishing a cap-and-trade system, which would set emissions limits and allow companies to meet targets by buying, selling or trading carbon allowances on a market.

A similar bill passed a Senate committee last year and will probably come up for a full vote before Memorial Day, according to Senate aides. It calls for a 70 percent reduction of 2005 greenhouse gas levels by 2050.

Not every emitter will be covered by the legislation, a loophole that will prompt complaints from industries that have to meet the regulations.

Some oil and gas groups think Congress has rushed too quickly toward cap and trade, instead of considering alternatives such as a carbon tax.

"The bill is deeply flawed, and unless major changes are made to key aspects, we will not be able to support the legislation," said Lou Hayden, a senior policy analyst at the American Petroleum Institute.

For lawmakers, including many Democrats, carbon limits will require a delicate political balance. Lawmakers from coal-producing states, including Mr. Boucher, will have to be satisfy concerns that limits would hurt demand for coal, an abundant raw material that produces much of the country's electricity and its carbon-dioxide emissions.

Critics argue that if limits are applied too soon, it could prompt utilities to switch from coal to natural gas. Without additional nuclear capacity, that would drive up prices for ratepayers in states -- such as Texas -- where electricity generation depends too heavily on natural gas.

Some utility lobbyists have expressed concern that technology to capture and store carbon-dioxide emissions from large industrial sources won't be available by the time the Senate bill's mandates kick in, around 2012.

"When we are lobbying on Capitol Hill, we're talking to members about the barriers of a cap and trade program," said Jim Campbell, an in-house lobbyist for CPS Energy, San Antonio's municipally owned electric company.

"The problem is there is no technology that is commercially available today, nor even in the next 15 years, that by industry expert testimony can capture carbon dioxide," Mr. Campbell said.

Mr. Boucher argues the opposite -- mandates would send a clear signal to companies to speed up investments in cleaner generation. If the government auctions allowances, some utilities want revenue dedicated to technology that captures and stores emissions.

"We need to skip from proving up the technology to mass deployment," said David Crane, chief executive of NRG Energy. "Otherwise, it would take the industry 30 years."

Exxon Mobil hasn't publicly taken a position on the Senate bill. A spokesman said the company is weighing the legislation's details, including whether it would open the door to wild swings in the price of carbon allowances.

"Exxon Mobil is and will continue to be a constructive participant in the dialogue about how to address the risks of climate change," said Gantt Walton, an Exxon Mobil spokesman.

However, some Senate aides said the oil company opposes the Senate's cap and trade bill.

"We don't expect them to modify their public posture anytime soon," said David Hawkins, director of the Natural Resources Defense Council's Climate Center. "We are going to have to get this done without their help."

Mr. Crane, who spoke to House Democrats last week at their annual policy retreat, has played a leading role in promoting cap and trade. He says power companies won't change direction unless there is a financial incentive to do so, although his company is already trying to capture carbon-dioxide emissions at its Sugar Land coal plant.

"Historically, the power industry is very slow to innovate," said Mr. Crane, whose company is planning two nuclear plants in Texas. "The plants that TXU is building in Texas today are not dissimilar from plants that were built in 1975."

A spokeswoman for Dallas-based Energy Future Holdings, the former TXU Corp., wouldn't talk about the Senate's concept. During negotiations to buy TXU, the new owners agreed to support a mandatory cap on carbon-dioxide emissions. (The company is building three traditional coal plants in Texas.)

"They didn't have to commit to a piece of legislation they've never seen, but this is the kind of bill they say they are for," said Jim Martson, regional director for Environmental Defense in Austin.

TXU has also contributed to the Center for Energy and Economic Development, a Washington policy group that opposes a mandatory cap and trade program. TXU donated to CEED in 2007, according to Leah Arnold, a spokeswoman for Americans for Balanced Energy Choices, a group related to CEED.

Mr. Barton said CEOs are misguided to support cap-and-trade. The utilities that support the program have caved after years of pressure from environmental lobbyists, he said.

"It's a little bit of a political mismatch," Mr. Barton said. "They [CEOs] are really not well grounded in the basics [of public policy], so whatever the emotion of the moment is tends to impact" them.

Yet undoubtedly, some of those chief executives see financial advantages in a low-carbon future. NRG is aiming to develop technology that could be sold to utilities in coal-dependent countries like China and India.

The company also thinks that carbon controls could speed the transition to plug-in cars -- which would be "the biggest boost in demand for our product since the air conditioner was invented," Mr. Crane said.Other companies are lobbying now because they think a bill signed by President Bush would be easier on the industry than one signed by his successor. The Democratic candidates favor greenhouse-gas caps, and so does the Republican front-runner, Sen. John McCain.

"There is no question there has been a viewpoint that the industry can get a better deal out of the current White House than they are likely to get from any future administration," said Barry K. Worthington, executive director of the U.S. Energy Association, a trade group in Washington.