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Posted by: Dan Beucke on June 26
By John Carey
June 26, 2009, will go down as an historic moment in world’s efforts to tackle climate change. For the first time, a Congressional body passed legislation that would place mandatory limits on the emissions of the greenhouse gases that cause global warming. By the barest margin of 219 to 212, the House of Representatives voted for a bill spearheaded by Representatives Henry Waxman (D-Calif.) and Edward Markey (D-Mass.). If it becomes law, the measure would require a massive switch to cleaner sources of energy over the next four decades. “This is the landmark energy and environmental legislative achievement of a generation,” says Phyllis Cuttino, director of the Pew Environment Group’s U.S. Global Warming Campaign.
The legislation itself is enormous. It’s more than a thousand pages long, filled with obscure provisions that will keep an army of lobbyists employed for years. It’s been resoundingly panned both by groups on the left, such as Friends of the Earth and Greenpeace, who see it as an enormous corporate giveaway, and by Republicans, who accuse it of being a massive tax that will hobble the U.S. economy. It even was attacked by the powerful farm lobby, despite a cornucopia of goodies added in the last few days to get their champion, House Agriculture Chairman Collin C. Peterson (D-Minn.), on board.
What’s more, the bill lies at the center of a high-stakes political calculation by the GOP. While there’s a strong anti-regulation ideology in the Republican Party, there have been plenty of Republicans who urged passage of climate legislation. Such supporters included governors like California’s Arnold Schwarzenegger and Florida’s Charlie Crist, along with Senator John McCain (R-Ariz.). But those former advocates have gone silent. The party has decided its best strategy for getting back into power is to deny President Barack Obama, who strongly backed the bill, any victories, no matter what the issue. At the same time, the GOP wants to paint the Democrats as the party of new taxes.
Of course, this Republican plan could backfire. Polls show the public supports action on climate, studies from the Congressional Budget Office and the Environmental Protection Agency show the costs of the legislation would be modest. Eight Republicans voted for the bill.
All of this adds up to powerful forces that were working against the legislation. So why did it pass? Why did major environmental organizations, such as the Natural Resources Defense Council and Environmental Defense Fund, and scores of companies, from General Electric and Shell to utilities like Exelon and Pacific Gas & Electric, pull out all the stops to push it through?
Part of the answer is simple. Many in industry have come to believe that, given what science is learning, the costs of inaction are far greater than the price tag of the legislation. “We need to get started,” says J. Wayne Leonard, CEO of Entergy, a New Orleans-based utility. “The idea of moving this problem to our children just doesn’t work for us.” Yes, energy prices will rise, adds Ralph Izzo, CEO of PSEG Energy in Newark, N.J., “but the world we will leave our kids is a lot better than the world we would otherwise leave.”
Plus, companies figure that curbs on greenhouse gas emissions are inevitable, anyway. Better to get the rules now so that they know what kinds of powerplants or cars to build—and where find new business opportunities. For instance, whoever figures out the best technology for capturing carbon dioxide from smokestacks “will make a ton of money on it,” says William L. Sigmon, senior vice president for engineering, projects & field services at American Electric Power in Columbus, Ohio.
The mere fact that the House passed a bill at all also gives the Obama Administration a stronger hand to play in upcoming international negotiations. There’s no solution to the global climate problem unless China and India agree to cut their own greenhouse gas emissions. Those countries won’t sign on until the U.S., which has been the main contributor to the problem, first shows that it’s serious. Getting a bill through the House is a major sign that the country is moving on the issue.
But perhaps the biggest reason why support remained strong enough to win passage, despite the legislation’s many flaws and opponents, is that the measure is actually expected to work. The basic idea is straightforward: The bill sets a cap on emissions of greenhouse gases. By 2020, emissions must be reduced 17% over 2005 levels. By 2050, emissions must be reduced 80% or more. Staying under these caps is done with a system of permits or allowances. Companies must have an allowance for every ton of greenhouse gas they emit. They are allowed to buy and sell those allowances, but gradually the total number of allowances will be reduced, thus reducing overall emissions.
In the week leading up to the vote, industry groups wrangled fiercely over how those allowances are given out. Should be auctioned off or handed out for free? When utilities managed to win 35% of the initial allowances for free, some environmental groups accused the House of orchestrating a massive corporate giveaway. But the “remarkable” quality of a cap and trade system, says Robert N. Stavins, director of the Harvard Environmental Economics Program, is that all this lobbying really didn’t matter. In some cases the messy political process can doom a policy to failure. It can add enormous efficiencies to a weapons program, for instance (by requiring subcontractors in every district), or completely water down a tax (through loopholes and exemptions). But no matter who wins or loses in the allocation scheme in a cap and trade system, the environmental goal will be reached—and the overall cost to society is the same, says Stavins. “That is the very fortunate property of a cap and trade system. There is this marvelous political safety value.” That’s why the main environmental groups stayed on board, even when individual industries garnered goodies in the bill.
There’s still a long road ahead for the legislation. The Senate isn’t expected to take up the issue until fall at the earliest—and the path to passage there will be tougher. But for now, supporters are savoring their victory. “Today we have taken decisive and historic action to promote America’s energy security and to create millions of clean energy jobs that will drive our economic recovery and long-term growth,” Waxman said.
Adds John W. Rowe, chairman and CEO of Exelon, a Chicago-based utility: “Addressing climate change is one of the most compelling causes of our time, and we applaud the House for taking bold and decisive action to pass this pragmatic and balanced legislation.”
BusinessWeek writers peel back the curtain on the economy, business and money matters at the White House, Congress, and federal agencies.