Whether in the form of a carbon tax or cap-and-trade regime, climate-change policy is coming and will have a profound effect on electric suppliers and consumers. EPRI studied the effects of high...
The Politics of Carbon
The 2008 elections portend federal regulation of greenhouse gases by 2010.
form of legislation. Supporters may not have to compromise along either dimension affecting the level of the cap (allowable emissions and the safety-valve price), but the political influence of carbon producers and their ability to weaken any targets and shift the costs of compliance to others should not be underestimated. With just a strong majority in the Senate, supporters probably will have to compromise along at least one dimension to win sufficient Republican support. They may have to compromise further if a Republican is president. With a bare majority, supporters can probably hope for no more than weak legislation even if a Democrat is in the White House. In that scenario, Republicans will be able to filibuster any bill. With a Republican president and only a bare majority, the chance of passing comprehensive GHG legislation falls further.
Will the Democrats increase their control in the Senate, and who will occupy the White House? As this election cycle demonstrates, predicting election outcomes is no easy task. The task is complicated by interdependence between the U.S. Senate and presidential races. One political analysis suggests the Democratic Party stands a better chance of winning a strong or filibuster-proof majority if Obama is the party’s nominee for president. The reason is a Clinton nomination would mobilize many Republican voters who would otherwise be apathetic and unlikely to come to the polls—which would have a negative effect on Democratic candidates in close Senate races, reducing the party’s chances of winning a strong or filibuster-proof majority.
Nevertheless, the Democratic Party has a strong chance of increasing its Senate majority. Of the Senate seats up for election, 23 are held by Republicans and 12 by Democrats. All 12 Democratic candidates are incumbents, and only Mary Landrieu (LA) and Tim Johnson (SD) are considered vulnerable. In contrast, four incumbent Republicans are retiring from the Senate, and seats currently held by Republicans in Colorado, Minnesota, New Mexico and Virginia are considered vulnerable. The state of the economy and the course of the Iraq war will help to determine the extent of Democratic gains.
The best information about the likely party nominees for president and the outcomes of the primary and general elections comes from recent polls and primary outcomes as well as from political futures markets—including Intrade and the Iowa Electronic Markets (IEM). On the Democratic side, the data suggest Obama will be the nominee—although at this writing the race still was contested. On the Republican side, McCain will be the nominee.
Guessing the outcome of the general election is a hazardous endeavor, but the political futures markets expect a Democratic candidate will win. At press time, an IEC contract that will pay one dollar in the event a Democrat is elected to the White House costs 53.3 cents, and a contract that pays one dollar in the event a Republican is nominated costs 41.9 cents.
Given current trends in the U.S. political climate, comprehensive federal regulation of GHG emissions likely will be enacted after the 2008 elections. Odds favor the Democratic Party winning the White House and making