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Congressional Climate Change, Act I

For Henry Waxman (D-Calif.), chair of the House Energy & Commerce Committee, the real hurdle in passing landmark climate legislation isn't Republican opposition. It is his fellow Democrats. On May 12, Waxman finally forged a compromise to get enough of them on board to get the bill out of his committee.

But this is just the first act in a much longer drama.

The GOP is pretty much united against the idea of putting mandatory limits on greenhouse gas emissions, as the bill does. So to pass the bill in his committee, Waxman had to bring recalcitrant coal-state Democrats into the fold. Their main worry: To fight climate change, the bill is designed to impose costs for emitting carbon dioxide, requiring permits for every ton of greenhouse gas emitted. The relative increase in costs will be higher in states with a lot of coal-fired power plants, since burning coal emits more carbon than burning natural gas to create the same amount of electricity. So representatives from states such as Indiana, Kentucky, Ohio, and Virginia have been complaining that their constituents—and their local economies—would take an unfair and disproportionate hit.

This isn't just an economic issue, but a political one, as well. The U.S. Chamber of Commerce has been holding public meetings in coal-heavy states with moderate Democratic representatives, hammering home the message that climate legislation would represent an onerous tax and a massive transfer of wealth from hard-working Midwesterners and Southerners to the liberal coasts. The implicit message is that Democrats might get voted out of office if they are perceived as raising the economic burdens on their communities.

Congressional Compromise

So Waxman needed to give the moderate Democrats a victory. He did that with two key steps. His original proposed bill required that by 2020 the U.S. cut its greenhouse gas emissions by 20% from 2005 levels. Too much, too fast, the moderates said. So the compromise cuts the reduction target to 17% by 2020. Some environmentalists say that Waxman gave away too much. But pragmatic groups are pleased. "His emission-reduction target for 2020—17%—is a retreat from his earlier draft, but it is actually more aggressive than the 14% target put forward by President [Barack] Obama," says Frank O'Donnell, head of the nonprofit Clean Air Watch.

The second issue is dicier. President Obama proposed that all of the permits be auctioned off, requiring companies to buy a permit, or allowance, for each ton of carbon they emit. He even put revenue from that auction in his budget. But from the start, an auction that required companies to buy all their permits was in trouble politically. Coal-heavy utilities like Duke Energy have been lobbying hard on this issue, saying that auctioning off all the permits would dramatically raise electricity prices. They want a significant number of permits to be given away free of charge—at least at the start. Proponents of an auction, on the other hand, have been arguing that giving away permits is the equivalent of giving utilities a huge windfall and doesn't accomplish the goal of reducing emissions.

The compromise forged by Waxman and the moderate Democrats would give away about 35% of the permits at the start to the utility industry.

No Time for Perfection

There is a lot of gnashing of teeth in the environmental community over a giveaway that large. But from a practical and political standpoint, Waxman had no choice. It may not be the best possible approach from an environmental standpoint, but it's essential to getting the votes, climate pragmatists say. "We just can't hold out for the perfect bill. We have to say 'yes' to something," explains one climate expert.

The still unanswered question is how many more compromises (or outright giveaways to key Democratic representatives) will be needed to get the bill passed in the House. The Republicans are already gearing up to delay and obstruct, planning to introduce scores of amendments. And some Democrats may hold out for more concessions on other issues in exchange for their vote on the climate bill.

In early May, for instance, House Agriculture Committee Chairman Collin Peterson (D-Minn.) threatened to vote "no" on climate because of a proposed Environmental Protection Agency rule on biofuels that could hurt the ethanol industry in his state. So expect much more drama and horse-trading ahead in the House. Most experts believe the Senate won't take up the issue seriously this year at all.

But at least progress is being made at last, climate advocates say. "Waxman deserves congratulations," says O'Donnell. "He is on the verge of a landmark accomplishment."

Carey is a senior correspondent for BusinessWeek in Washington.

Carey is a senior correspondent for BusinessWeek in Washington.

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