Washington (Platts)--13May2008

Arizona Republican Senator John McCain, his party's presumptive
presidential nominees, on Monday called for a mandatory cap on greenhouse gas
emissions, something opposed by President Bush and Republican leaders in
Congress.

He argued that the US should move forward with a carbon cap to deal with
climate change even if large developing nations are not willing to take that
step themselves. "If the efforts to negotiate an international solution that
includes China and India do not succeed, we still have an obligation to act,"
he said in an address prepared for a speech in Portland, Oregon.

His position is at odds with the stance that President Bush and other
Republicans have taken that the US cannot impose mandatory cuts in emissions
unless developing nations do the same.

"It certainly changes the dynamic," Frank Verrastro, senior
fellow at the Center for Strategic and International Studies said of McCain's
speech. "I think it was important that he lay down the marker first."

McCain's plan would create a cap-and-trade system that would mandate
a return to 1990 emissions levels by 2020 and a 60% cut from 1990 levels by
2050. This translates into 15% below 2005 levels by 2020 and 66% below 2005
levels by 2050.

The leading Senate climate bill, introduced by McCain supporters Senators
Joseph Lieberman and John Warner, would be more stringent than the McCain
plan. Their bill would reduce emissions 25% below 2005 levels in 2020 and up
to 66% below 2005 levels by 2050.

McCain emphasized the role that markets would play in the program, adding
that there are currently few market incentives to switch to low-carbon energy
alternatives like renewable or nuclear power. The senator added that up to
40% of emissions reductions could be met through the agricultural sector
"offset" in the first years of the program.

His top energy advisor, Douglas Holtz-Eakin, said that emphasizing the
market theme will help attract Republicans support. "This is an approach
that harnesses market forces to meet environmental objectives," he said in an
interview. "Republicans did that once before with Clean Air Act and we would
expect that they can do it again."

McCain criticized Bush for failing to act on the issue and President
Clinton for allowing developing countries to go forward without any carbon
goals under the Kyoto Protocol. "I will not shirk the mantle of leadership
that the United States bears," he said. "I will not permit eight long years to
pass without serious action on serious challenges. I will not accept the same
dead-end of failed diplomacy that claimed Kyoto."

He signaled that he would expect China and India to enact carbon caps of
their own since they also stand to lose from having a high reliance on fossil
fuels.

"If we are going to establish meaningful environmental protocols, then
they must include the two nations that have the potential to pollute the air
faster, and in greater annual volume, than any nation ever in history," he
said.

"In my approach to global climate-control efforts, we will apply the
principle of equal treatment," he said. "We will apply the same environmental
standards to industries in China, India, and elsewhere that we apply to our
own industries."

He said that if companies in the developing world do not go along with
those standards, then there would be a trade penalty. "If industrializing
countries seek an economic advantage by evading those standards," he said, "I
would work with the European Union and other like-minded governments that plan
to address the global warming problem to develop a cost equalization mechanism
to apply to those countries that decline to enact a similar cap."

Members of his own party wasted little time expressing skepticism about
the plan. "Intentions are not reality," said one Senate GOP staffer. The aide
said too many concerns about China's willingness to get on board as well as
the overall economic dislocation would stop many within the party from voting
for McCain's plan.

"The intention of using cap and trade is going to clash with
the reality of putting the cap-and-trade into practice," the staffer added.
Others within the party, however, welcomed the news and said that the
McCain plan would get a climate bill passed sooner because it would get
moderate Republicans on board. "If McCain became president I think that helps
the Republican party along on this issue," a former GOP staffer said.

He added that if either of the Democratic candidates are elected, many
Republicans would worry about their influence from environmental groups and
not vote for a plan. "Everybody's worrying about the left wing of the
Democratic Party," the former aide said.
--Alexander Duncan, alexander_duncan@platts.com