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Washington Looks Past Energy Challenges Amid Weak Economy

Energy policy isn't a front-burner election issue this year

Some senators have backed away from any energy bill with cap-and-trade

Even the BP Gulf oil spill disaster hasn't made energy policy a front-burner election issue this year.

Exhaust plumes from cooling towers are seen at the Jaenschwalde lignite coal-fired power station in Janschwalde, Germany.
Carsten Koall | Getty Images
Exhaust plumes from cooling towers are seen at the Jaenschwalde lignite coal-fired power station in Janschwalde, Germany.

Tackling carbon emissions (and a push for alternative fuels) was considered an early priority of the Obama administration, and the House even passed "The American Clean Energy and Security Act" in June 2009.

That bill, focused on cutting carbon emissions via cap-and-trade and promoting of an end to fossil fuel dependence overall, has languished in the Senate for over a year, a casualty of spent Democratic political capital from passing a stimulus plan, health care reform and new financial regulation.

But as the economic recoverysputtered and Democratic approval ratings fell, GOP senators who once co-sponsored climate change legislation, like Sens. Lindsay Graham (S.C.) and John McCain (Ariz.), backed away from any energy bill with cap-and-trade, claiming it would hurt the feeble economy.

Your Money Your Vote - A CNBC Special Report
Your Money Your Vote - A CNBC Special Report

The non-partisan Congressional Budget Office pegged the bill’s net annual cost to the average American household at $175—and about $22 billion economy-wide—by 2020.

Meanwhile, oil-state Democrats like Sen. Mary Landrieu (D-La.) straddled the fence, claiming potential job losses could result.

Cap-And-Trade Capped

In this election season, neither Democratic nor Republican energy positions are saying much about cap-and-trade, and energy sector analysts say climate change policy may be a non-starter for years to come.

Although some environmental and progressive groups blame Pres. Obama and his Democratic allies on Capitol Hill for not pushing the issue, worldwide momentum on carbon emissions reductions came to a grinding halt as the global economy was crushed.

The UN’s COP15 climate conference in October 2009 produced little agreement on any further global actions to curb carbon emissions, much less a replacement for the Kyoto accord as planned.

This past February, the Obama administration set the federal government’s own carbon emissions targets, and announced plans to cut $36.5 billion in oil-and-gas sector subsidies over ten years—about 1 percent of the sector's ten-year revenue.

But with legislation stalled in the Senate, the administration tried to entice moderate senators by promising investment in natural gas, clean coal and nuclear technologies.

Oil And Gas On The Shelf

To further sweeten the deal, the Obama administration planned to open more coastal waters to offshore oil drilling, spurring promises from coastal states like California to take action to stop that activity.

But voter anger over BP's Deepwater Horizon disaster in April prompted a moratorium on new offshore drilling, a shakeup in the federal oil regulators and a revival of the “unsweetened” version of the House climate bill, with promises from Senate majority leader Sen. Harry Reid (D-Nev.) to pass it by summer’s end.

Once the spill was capped in August, and with protests from Gulf Coast states about lost oil sector jobs growing louder in a period of high unemployment, Reid admitted getting any energy bill passed before the election, especially with cap-and-trade provisions, would be tough.

Natural gas development, often discussed as a cleaner energy choice to reduce carbon emissions and the nation’s dependence on coal and oil, also languished, as climate change arguments faded and gas prices stayed at historic lows.

Development of onshore gas fields, like the Northeast’s Marcellus Shale, got bogged down in state and local political battles over land owners’ rights and environmental impacts, giving Washington little appetite to provide direction.

Stable oil and gasoline pricesprices have kept consumers quiet and the pressure off Washington.

Democrats Lower Their Sights

Heading into November, Democratic energy policy has refocused on job creation, but with few concrete ideas at this point.

Dems tout the development of the “green energy sector” in creating jobs, including an increase in vehicle energy-efficiency standards and the generation of 25 percent of the nation’s electricity from renewable sources by 2025—more than twice the current rate, according to the Department of Energy.

They also plan to crack down on speculators who are driving up prices beyond the natural market rate.

And in a late budget-season move, Senate Democrats revived legislation calling for new oil industry taxes to pay for a federal liability fund and a extension of the biodisel tax-credit.

Shortly after that, Interior Secretary Ken Salazarunveiled new regulations on offshore drilling.

GOP Thinks Twice

The Republican position on energy remains as it was in the 2008 election—an “all of the above” approach: investment in new offshore drilling—including contentious locales like the Arctic National Wildlife Refugeclean coal technology and new nuclear power plants.

The party remains opposed to any cap-and-trade legislation, claiming it will kill jobs.

But on renewable energy, there may be a subtle shift.

Rep. Devin Nunes (R-Calif.) introduced a bill in August that would divert federal royalties on any new offshore drilling—as much at $100 billion over 10 years—into a renewable energy trust fund. Renewable energy producers would bid for financing, with the lowest cost-producer of green power winning the funding.

In the past, Republicans have derided clean energy subsidies as government waste.

But in an attempt to undercut the Democrats’ green power job creation message—and perhaps to satisfy energy security hawks on their right flank—“we’ve thrown in the towel on stopping renewables” as the costs have fallen, according to one congressional staffer.

“Stimulus II: The Wild Card”

One big issue could be any new stimulus spending, which could mean big bucks for the energy sector.

Some Dems and their supporters have called for a much larger follow up to the $787-billion stimulus package passed in February 2009, focusing on infrastructure, which would include electricity transmission and other energy-related projects.

President Obama recently called for $50 billion in infrastructure spending as a job-creation effort, asking Congress to pass it before the election—a tall order on Capitol Hill right now.

But some clean-energy trade groups have pointed out that the remaining capital from stimulus package passed in February 2009 could be repurposed.