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Senate to Take Up Landmark Climate Legislation

With the country in the grips of near-hysteria over soaring gasoline prices, Congress begins debate Monday on landmark climate legislation that critics say will substantially increase energy costs, but produce none of the intended environmental benefits unless other countries take similar action.

“It seems unlikely that as American families face harsh economic times that any Senator would dare stand on the Senate floor and vote in favor of significantly increasing the price of gas at the pump and cost millions of American jobs – all for no environmental gain,” says Sen. James Inhofe (R-Okla.) , a long time climate change skeptic, who still favors a full and open debate.

Supporters of the American Climate Security Act, on the other hand, say the recent spike in gas prices provides powerful new impetus for adopting the bill.

Thus, the stage is set for a spirited debate on the economic consequences of the far-reaching bill -- also known by the surnames of its co-sponsors Senators John Warner (R-Va.) and Joseph Lieberman (D-Ct.) -- that will very likely begin a major overhaul of the country’s energy infrastructure.

Washington D.C.
Washington D.C.

One area bound to receive considerable attention is the price of fuel. Gasoline prices could rise by 13 cents per gallon the first year the legislation is in place, 2012, and by 48 cents by 2030, according to study by NERA Consulting for a National Petrochemical and Refiners Association.

In aggregate that is $624 billion in additional costs between 2012-2030 for the motor fuels sector – 85 percent of which would be passed on to the consumer.

With gasoline prices at record highs, those higher costs may not sit well with consumers, business owners or voters.

“There is no good time to take up a bill like this just because of what it does – increase prices - regardless of what energy costs are currently,” says Bill Holbrook of the NPRA, one of a number of industry groups opposed to the bill.

Supporters say such price increase projections are dwarfed by recent price spikes, which are themselves an argument for reducing demand and dependence on foreign oil.

“If you are looking for the long-term solution to the problem of foreign oil dependence and raising gas process, this bill is precisely the answer,” says Tony Kreindler of the Environmental Defense Fund.

He points to an MIT analysis of Warner-Lieberman which concluded the US would spend $20 billion less on oil imports by 2020 and $81 billion less by 2030.

“To make the argument that climate policy is going to increase the pain at the pump is disingenuous – it’s scare tactics, plain and simple – we have seen the same thing with every major environmental initiative,”

Given the complexity of the climate legislation and White House opposition, few expect the Warner-Lieberman bill --or a broadly similar House version -- to pass in the current Congress.

All three presidential candidates support some form of cap-and-trade scheme, the centerpiece of the current bill, but most observers expect final adoption of climate legislation will have to await a new president, unless some dramatic evidence of global warming jolts Washington into acting sooner.

Still, this week’s debate will provide the American public – and investors - with a critical glimpse of the brave new energy future, in which carbon emissions will start being squeezed from the economy.



The legislation will have broad economic impacts, but also significant, and uneven, effects on particular industries and parts of the country, which has already sparked discontent.

Refiners, for instance, complain they are unfairly discriminated against compared to utilities.

Another controversy is how to allocate emissions permits. Currently, roughly half will be provided to regulated industries free, half will be auctioned.

The billions raised through the annual auctions called for in the legislation will be distributed to dozens of industries as transitional aid. Utilities, for instance, are slated to receive $307 billion through 2050. Oil and gas refiners are earmarked $54 billion.

Sen. Barbara Boxer recently amended the Warner-Lieberman bill to lower adjustment costs to business, while providing nearly $1.7 trillion in tax relief to consumers to cope with higher energy prices and promote energy efficiency.

“In our view she is trying to strike a balance between environmental integrity and yet building in lots of safeguards for industry and the economy,” Manik Roy, Pew Center for Global Climate Change. “This does feel like a step in the right direction.”

It is also just one step in a complicated dance that involves more than the U.S. Climate policy is not just a national problem, it is inherently global as well.

For supporters and opponents alike, a key issue is how aggressively to reduce emissions and whether to proceed before other major polluters, such as China and India, are also on-board.

“A ton of carbon emitted in Cincinnati or Columbus is the same ton of carbon emitted in Moscow or Beijing or wherever,” says Holbrook.

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