White House: Economic Recovery May Stall Without CO2 Bill

By Ian Talley, Of DOW JONES NEWSWIRES

WASHINGTON -(Dow Jones)- Senior White House and Obama administration officials say they are worried the nation's economic recovery could stall if Congress doesn't pass a climate bill this year.

The officials warn that investors are so uncertain about the future cost of emitting greenhouse gases that they are sitting on capital rather than pouring it into "clean" technology, new power plants or energy-intensive manufacturing.

The administration has for months been moving away from advocating climate legislation primarily as an environmental issue and toward a jobs-creation argument. But the comments are a marked shift to a stronger rhetoric: fears of prolonging the recession. The White House says spurring "clean," or low- greenhouse-gas-emitting energy, can help lay the foundation for the 21st-century U.S. economy.

"Right now there's a lot of money on the sidelines," said Energy Secretary Steven Chu. "Capital on hold means investments not being made, investments not being made means jobs not being created," he said at an Export-Import Bank conference last week.

Companies that could capitalize on a carbon-constrained economy, such as General Electric Co. (GE), Alstom SA (ALO.FR), Areva (CEI.FR), Babcock & Wilcox, a unit of McDermott International (MDR), Siemens AG (SI), Chesapeake Energy Corp (CHK) and First Solar Inc. (FSLR), say policy clarity will focus investment. So do emitting businesses that will need to adapt, such as American Electric Power Co. (AEP) and BP PLC (BP).

Ambiguity, however, breeds risk, which begets financiers' reluctance.

The White House is attempting to revive legislation that would effectively curb emissions of greenhouse gases such as carbon dioxide. A bill that passed the House last year stalled in the Senate, and the administration is working to pump life into alternative proposals. However, many lawmakers, officials and pundits say the prospects for a climate bill this year are increasingly dim.

Meanwhile, the Environmental Protection Agency is moving ahead with regulations to cut greenhouse gases under existing law, regulation that industry fears is too blunt and may damage the economy.

But without certainty on how--and how much--greenhouse gases will be curbed, the energy industry has little idea how to factor the potential price of carbon into their cost expectations or even demand. It cuts both ways: Financiers are wary of investing both in conventional as well as new technology.

"The economic team ... is very concerned about the chilling effect on investment of not having legislation," said Joseph Aldy, special assistant to the president for energy and environment, at an event here last week.

The ambiguity of how EPA regulations will affect industry is exacerbating the investment problem, he said. The EPA has said it would delay regulation of the largest emitters, planning to phase in other sources later. The regulations are expected to be challenged, and it's unclear if, like rules for air pollutants such as sulfur dioxide, they will later be discarded.

"There's significant concern that as we're trying to get the economy up and going again, that this kind of uncertainty may stall things some," Aldy said.

Kevin Walsh, managing director of power and renewable energy at GE Energy Financial Services, said the financing community is "grappling for a steady footing to invest" under policy confusion. Legislation or regulation that puts a price on carbon would be a "shot in the arm" for the low-emitting energy industries. But the failure of lawmakers to pass a low-carbon electricity standard--tied up in the politics of the climate bill--is also arresting investment.

Conventional energy sectors are also affected. Although Congress is increasingly unlikely to pass a climate bill this year, the Energy Information Administration has lowered its forecast for new coal-fired power plants based on a future carbon price risk. The EIA historically bases its long-term forecasts only on existing laws, but this year it factored in a three-percentage point rise in the cost of capital for coal-fired power plants based on the "implicit hurdle" of potential policy.

Senior officials at both American Electric Power and BP have said the planned EPA greenhouse-gas regulations may delay refinery plant modifications and accelerate coal-fired power plant closures.

For example, Bruce Braine, head of strategic policy analysis at American Electric Power, said the Clean Air Act rules are "going to be litigated like crazy." Without certainty on the rules or flexibility to use market-based programs, many companies are likely to wait for the courts before making modifications, including those that would improve pollution controls.

The White House is also concerned that without the climate bill spur, the U.S. may lose capital and competition for clean energy to countries in Europe and Asia, particularly China.

"People need to realize this is a global market for our capital," GE's Walsh said. "Our money is going to go where we see long-term certainty ... and if Europe has a better framework, that's where our money's going to go," he said.

-By Ian Talley, Dow Jones Newswires; (202) 862 9285; ian.talley@dowjones.com;

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