Blogs & Comment

Cap-and-trade bill passes the U.S. House of Reps in historic vote

In a development that reportedly took even President Obama’s aides by surprise, the United States’ new cap and trade bill has narrowly passed the House of Representativesin Congress. The bill, known as Waxman-Markey, passed by 219 to 212, with 44 Democrats, mostly from coal-producing and industrial manufacturing states in the northeast, voting against.
It’s the first time a national bill that attempts to put a price on carbon has been passed by either House.
Some, including President Barack Obama, heralded the bill’s passage as a major step forward on tackling climate change.
In a radio and Internet address that aired late yesterday, Obama said the bill was designed to spur innovation, rather than hamper economic growth. He called on senators to disregard its critics. “We must not be prisoners of the past,” he said. “Don’t believe the misinformation out there that suggests there is somehow a contradiction between investing in clean energy and economic growth. It’s just not true.”
The president said the bill’s passage is a testament to a changing dynamic in both the scientific community and in the public, which he said have become far more convinced of the dangers of global warming. “There is no longer a debate about whether carbon pollution is placing our planet in jeopardy. It’s happening,” he said. “And there is no longer a question about whether the jobs and industries of the 21st century will be centered around clean, renewable energy. The question is, which country will create these jobs and these industries?”
In the long term, Obama is right. Global warming is happening, whether we choose to ignore the fact or not. In relatively short order a matter of decades the economic impact of legislation such as this will seem like nothing in comparison to what’s in store for those companies that don’t figure out how to hedge their energy costs, or those coastal cities that don’t figure out how best to reduce their exposure to rising sea levels. As the Sir Nicholas Stern and other reports have shown, if left unchecked, business as usual’s economic costs will render debates about the short-term economic impact of carbon-pricing legislation entirely academic.
However, that analysis leaves aside the very salient question of whether nowis the right time to bring in new legislation to price carbon on a significant scale. There is no question that attempting to price carbon during a fledgling economic recovery, when fossil fuels still power 95 percent of the U.S. economy, is going to result in severe economic dislocation for industrial polluters, sure, but also for average American consumers who are existing on marginal incomes. (According to MASSPIRG, a Massachussetts-based public interest research group, Americans on average spend an astounding 20 percent of their annual income on transportation, more than they pay for food or even health care. Approximately 10 percent of Americans spend more than 50 percent of their annual income on transportation costs.)
Given the economic pain the United States is already experiencing, the timing of dramatic new legislation designed to push up the price of emitting carbon is inevitably going to complicate the recovery. What’s more, critics charge new green technology and transportation infrastructure is not yet at a point where it would be able to offset the shock of newly spiking crude oil and fossil-fuel-fired electricity prices.
As for Canada, the implications are even more severe. When oil hit US$63 a barrel, back in summer 2005, our economy tilted dramatically in favour of developing high-carbon unconventional fuels such as oilsands syncrude, as opposed to lower carbon energy plays such as wind farms and solar power plants. This bill, if passed, will amount to a form of economic shock therapy on the increasingly carbon-rich economy those and other decisions created. (It’s also not good news for other, more prosaic reasons, that have to do with new protectionist measures in the bill, covered in yesterday’s blog post here.)
The core of the legislation is a cap-and-trade system that sets a limit on overall emissions of heat-trapping gases. It would allow utilities, manufacturers and other emitters to trade pollution permits, or allowances, among themselves.
President Obama campaigned on a pledge to auction off all the pollution permits as a means of raising revenue that would then go to help industries adapt to the challenges of a world where carbon is priced. However, in order to get the bill passed, bill co-sponsors Henry Waxman(D-Calif.) and Edward Markey(D-Mass.) made significant concessions to industry: for the first five to ten years, many industrial players, including coal producers, will qualify for such permits for free. (From an economic perspective this is a good thing, as the increased costs coal-fired electricity producers would incur from purchasing those permits would most likely be passed on to struggling consumers. Environmentalists, however, charge that giving permits out for free to the largest polluters will function in practice as an incentive to pollute the opposite of the intended goal.)
Another key part of the bill is the Renewable Energy Standard. Bill co-sponsor Henry Waxmanstarted out with a plan that would require 25 percent of the country’s energy to come from wind, solar and biomass by 2025, with some compliance possible through efficiency measures.
The cap would grow tighter over the years, pushing up the price of emitting carbon. The goal is for industry to find cleaner ways of making energy.
Many in the U.S. are surprised the bill has gotten as far as it has, given the range of forces opposed. And the bill has yet to pass the Senate, where opinion on its merits is even more stark than in the House. Regardless of whether it passes the Senate, though, the bill can be considered a marker for the United States’ position when international negotiations on a new climate change treaty begin later this year.
Outside the formal political process, opinion on the bill in the U.S. is also sharply divided. Greenpeace opposedit, and many charge it is a hodgepodge of moves that will not ultimately achieve the goal of lowering emissions sufficiently to prevent cataclysmic climate change. The National Association of Manufacturersand the U.S. Chamber of Commercealso opposed it. It was, however, supported by many large corporations, including Ford.
What’s next out of this extraordinary country? Watch this space.