Tuesday, March 24, 2009

The Political Genesis of Cap and Trade: Late march, 2009

The Political Genesis of Cap and Trade: The Federal Budget Debate in Late March, 2009

What a week this will be in Congress. As they make hay (read obfuscate), on the AIG bonuses (most of which have been paid back) and look for people to blame (Obama, Bush, Paulson, Geithner, Bernanke), they will begin their discussions of the cap and trade provisions in President Obama’s budget.

Republicans on the Senate environment committee sent their strongest message yet that they intend to strip President Barack Obama’s $3.4 trillion budget of the $646 billion the government expects to collect from auction cap-and-trade revenue by 2020. The eight Republicans said the President’s budget included a “risky, ill-defined new energy tax” that has the potential to continue the economic recession "for many years to come." They also argued the program is likely to generate between "two and three times" as much revenue as the White House accounts for in its budget. Under the leadership of James Inhofe, the letter indicated, “We are writing this letter to alert you to this situation and ask that you join us in a budget resolution amendment to strike any such provision.”

Consistent with his campaign promise, President Obama has called for an economy-wide cap-and-trade system that aims to cut greenhouse gas emissions 14 percent below 2005 levels by 2020, and 83 percent below 2005 levels by 2050. Real cost? Republicans, including former House Speaker Newt Gingrich, have begun saying that a cap-and-trade system would create the equivalent of a “$1,300 per family energy tax increase.” Supporters argue that the Republican argument ignores the fact that higher energy prices would be offset with tax credits, and attack their assumption that doing nothing to address global warming would carry no cost. Laurie Johnson, chief economist for the Natural Resources Defense Council climate center, estimates that unfettered global warming would cost the average American household $2,000 a year by 2025 in climate damages alone. Follow the money. . .watch for Goldman Sachs and Morgan Stanley in the debates.

Follow the money...

Key Senate Democrats are convinced they’ll be able to keep the revenue in the budget. Senator Barbara Boxer, chair of the Senate environment committee, told reporters last week, “It is important to keep the revenues from cap and trade in the budget document, and I am confident that we will do that.” Keeping the revenue language in the budget is an important step to many in Congress, even though the proposed cap-and-trade system wouldn’t begin until at least 2012, and revenue from the first auction won’t start filling federal coffers until sometime in 2011. Shall we guess why this is? The money. It is always about the money (see previous blogs). While the budget language alone is not enough to establish a U.S. cap-and-trade system, it is helpful to those in Congress pushing for the passage of a climate bill by the end of the year.

Senator Kent Conrad’s moves to protect agriculture

Democratic Senator Kent Conrad, chair of the Senate budget committee, said he will release a more streamlined version of the budget this week. He said his proposal includes many adjustments, including the elimination of billions of dollars from the President’s budget and protections for agriculture from greenhouse gas emissions rules! There is no way that Conrad will delete the revenues from the phantom cap and trade system.

Reconciling the mess

Optimistically, Senate leadership has ruled out using the budget “reconciliation” process to pass a cap-and-trade bill. We will be watching this carefully. [Parliamentary rules on reconciliation requires only 51 votes to pass the Senate, as opposed to the 60 votes a cap-and-trade bill would require.] Eight Democrats signed a letter addressed to Conrad last week saying they opposed using the reconciliation process to move a cap-and-trade bill.

Stay tuned for a repeat of the credit crisis under the camouflage of climate change and for future Congressional blame on others. Some things never change.

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