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Hobson's Hamburger

It’s time to end the uncertainty about carbon costs.

Fortnightly Magazine - August 2009

This summer marked a pivotal moment for the energy industry. In June, the U.S. House of Representatives approved the American Clean Energy and Security Act (ACES), a.k.a., the Waxman-Markey bill, which among other things would require the U.S. economy to cut its greenhouse-gas (GHG) emissions 83 percent by 2050.

Of course, Waxman-Markey hasn’t yet become law; at this writing the Senate just had put the bill on its calendar for consideration later in the session. However, the political stars seem to be aligning in a way that might allow enactment. As one Washington insider put it, “It’s now or never.”

Why? Because now, with Al Franken (D-Minn.) having been seated in July, Democrats in the Senate are positioned to break a Republican filibuster and force a floor vote. This situation creates a narrow window of opportunity for climate legislation; next year many members of Congress will be too focused on the 2010 mid-term elections to spend political capital on such a massive and contentious issue.

Additionally, if the United States is going to enact GHG regulation, it should do it this year, so the U.S. negotiation team will be in a position to lead the debate at the U.N.’s Copenhagen climate conference in December.

Those reasons aside, however, the Waxman-Markey bill itself represents a political compromise that Congress actually might be able to approve.

That doesn’t mean it’s a great piece of legislation—not by a long mile. In fact it’s a mess. The bill’s 1,400 pages are crammed full of exceptions, exemptions and caveats, written to win support from wavering lawmakers and their constituents. But that’s exactly what gives it a fighting chance in Washington’s political meat grinder. If Congress can’t enact this bill, it might never be able to enact climate legislation—and that would just prolong the agonizing uncertainty about carbon costs.

Never Say Never

Opponents of mandatory GHG constraints might prefer ACES to fail—hoping its failure would delay GHG regulation in the United States, and perhaps hasten the collapse of the whole carbon-regulation concept. That’s a naïve hope, for at least three reasons.

First, failure to enact Waxman-Markey won’t stop GHG regulation from happening in the United States. Instead, the country’s climate policy would continue evolving as a patchwork of state and regional laws like those in California, 10 Northeastern states and soon several Midwestern states. Additionally, in the absence of Congressional action, the Obama administration’s EPA likely would issue some kind of national mandate. President Obama is on the record favoring an auction for 100 percent of emissions allowances, in contrast to Waxman-Markey’s relatively lenient allocation schedule. So if Waxman-Markey fails and the EPA implements Obama’s wishes, carbon emissions might become more expensive, sooner than they would if Congress acts this year.

Second, the Copenhagen conference will move forward with or without ACES, and the United States will be at the negotiating table. But if the bill fails, then America will be in a

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