Financial Crisis Dims Chances for U.S. Climate Legislation

Environmentalists had been looking to a new president and a new Congress to pass legislation dealing with global warming next year. But with tough economic times looming, the passage of a sweeping climate change bill now appears far less likely.

In the coming months, as Washington struggles to contain the damage from Wall Street’s precipitous financial free fall, one of the first casualties may be the top piece of legislation on the environmental agenda: the adoption of a sweeping national program to control greenhouse gases.

Democratic leaders in the House and Senate continue to rank climate-change legislation as one of their major priorities for the next Congress. So, too, do both presidential candidates. But there’s growing acknowledgement that with the United States on the verge of a deep recession, passing a bill that mandates a reduction of greenhouse gases and places a price on emitting carbon will be extremely difficult.

“Clearly what’s happening with the economy, and the scale it’s happening, takes all the oxygen out of the room for virtually anything else for the moment,” said Debbie Sease, legislative director for the Sierra Club.

The odds are long for two reasons. First, with the nation facing the biggest economic crisis since the Great Depression and high energy prices, many legislators will be reluctant to pass a bill that — at least in the short term — will make all carbon-based fuels even more expensive. “Financial realities will make it much more difficult for the new administration or Congress to put forth a very aggressive, economy-wide climate bill,” argued Sen. James Inhofe, ranking Republican on the Senate Environment and Public Works Committee and one of Congress’s harshest critics of any climate-change action. “I believe the current financial crisis will only reinforce the public’s concerns about any climate bill that attempts to increase the costs of energy and jeopardizes jobs in the near term.”

Second, with the nation’s voters furious at poorly regulated financial markets that helped create the current meltdown, Congress is going to be reluctant to create a cap-and-trade system in which a new commodity — carbon emissions — will be traded on a large scale. Said William Kovacs, vice president for environment, technology and regulatory affairs at the U.S. Chamber of Commerce, “Anyone who thinks you can have a cap-and-trade system in which trillions of dollars of new securities will be traded is just not paying attention to what’s happening on Wall Street.”

All this, as well as the concern that a cap-and-trade system will mean the creation of a federal regulatory system that will further swell the budget deficit, has left environmentalists acutely aware of the daunting challenges ahead on federal climate legislation.

“If you frame climate change as a regulatory program that’s going to have a lot of costs,” said Eileen Claussen, president of the Pew Center on Global Climate Change, “then it will take a while for it to get back toward the top of the legislative agenda.”

Inhofe and other opponents note that last year, despite broad support from the environmental community, Democratic leaders couldn’t muster the 60 votes they needed to prevent a filibuster of their global warming bill. That measure, sponsored by Independent Sen. Joe Lieberman and Republican Sen. John Warner, would have created a cap-and-trade program allowing businesses to eventually buy and sell greenhouse gas emission credits on the open market.

David Kreutzer, a senior fellow at the Heritage Foundation, said that even before the financial crisis hit, climate-change legislation was losing votes because it has the potential to raise the cost of electricity from coal-fired power plants. “When you put this kind of tax in place, you make energy more expensive,” he said. “You lose lots of jobs. You really hit manufacturing.”

Half the battle will be defining what the climate change legislative debate is really about.

Environmental advocates are already adjusting to the new political realities, recasting their global warming proposals as economic recovery packages that will create green jobs. “When we address the threat of unchecked global warming by investing in clean energy technologies and reducing our dependence on foreign oil, we also have a recipe for economic recovery,” noted Sen. Barbara Boxer, the Democratic chairman of the Senate Environment and Public Works Committee.

Those who favor controlling greenhouse gases contend that Inhofe and other critics are ignoring the enormous long-term price of coping with higher sea levels, droughts, and increased disease brought on by global warming. Claussen, of the Pew Center, noted that both presidential candidates are now looking at action on climate change as “a job creation program that deals with the lower cost of climate change now rather then the higher cost” of responding to it in the future.

Environmental advocates are recasting their global warming proposals as economic recovery packages that will create green jobs.

Republican presidential nominee John McCain and Democratic nominee Barack Obama are continuing to support climate-change legislation, although their campaigns are now focused on economic issues.

As for creating another U.S. commodities market, environmentalists argue that climate-change legislation would contain strong government oversight that would prevent a Wall Street-style meltdown. “Cap-and-trade gives you a very effective government oversight role that is absolutely essential,” said Tony Kreindler, a spokesman for the Environmental Defense Fund.

Claussen argued that the proposed emissions trading programs would not “encourage speculation,” noting, “It’s not something where anybody can buy in. You actually have to be a regulated entity to take part. So there will be lots of strings attached.”

The next president can provide more than just legislative leadership. If Congress drags its heels next year, Bush’s successor could nudge lawmakers along by calling on the Environmental Protection Agency to use the Clean Air Act to control greenhouse gases. A 2007 Supreme Court decision urged the agency to do just that. But the Chamber of Commerce’s Kovacs said that the business community fears that a Clean Air Act regulation on greenhouse emissions would apply to millions of small businesses, schools, and churches. If regulators take such a shotgun approach, there might be pressure on Congress to enact a more narrowly targeted law to address climate change.

Meanwhile, big business has been anxiously watching the states move forward with their own global warming programs.

With states moving forward on their own programs, a growing number of companies are backing federal climate-
change legislation.

In late September, 10 Northeastern and Mid-Atlantic states opened the first U.S. market for trading greenhouse-gas emission permits. California continues to adopt an ambitious mix of laws aimed at controlling global warming.
Other states are forging their own paths. Corporate leaders complain that the disparate state and regional efforts are forcing them to comply with a hodgepodge of regulatory requirements. Little wonder, then, that a growing number of companies are now backing federal climate-change legislation.

But while the momentum is still on the side of controlling greenhouse gas emissions, environmentalists will have to settle for a less ambitious bill than they anticipated under next year’s Democratic Congress and a new White House. “The environmental community is going to have to adjust to reality,” Claussen said. “Any bill that’s going to pass the Senate and the House and be signed by the president, whoever it is, will have to come from the middle. The bill will have to address the needs of the manufacturing states and the agricultural states — not just the clean states,” she noted.

Before getting climate-change legislation back on the agenda, environmentalists will have to wait until the dust settles from the Wall Street fiasco. They’ll also have to devote some time to fighting new battles, like stopping efforts to allow oil and gas exploration off U.S. shores and on federal lands. And businesses will have to accept an emissions trading program with more strings attached and more safeguards than those imposed on the ill-fated Wall Street financial gurus.

Climate change legislation isn’t dead. It’s just taking a sobering detour.