Don’t Like Obama’s Carbon Plan? Fine, Here’s Cap and Trade

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Republican governors who boycott the Obama administration’s new power-plant regulations may instead get an offer they can’t refuse: a cap-and-trade system many of them also oppose.

Five years after Republicans in Congress shot down President Barack Obama’s plan for carbon trading, his administration unveiled rules to combat climate change. They include a provision for carbon trading, which Republicans had criticized as a government intrusion in the workings of the free market.

“It’s clear that what they’re trying to do -- without establishing a federal cap-and-trade program -- is set up a plan that has a very strong likelihood of becoming a de facto federal cap-and-trade program,” said Andre Templeman, managing director of the carbon-markets consultancy Alpha Inception LLC.

While the idea of using pollution trading was initially embraced by Republicans as a way to use markets to lower the cost of environmental compliance, business groups such as the U.S. Chamber of Commerce demonized the push for an economy-wide cap-and-trade program that was pushed by Obama and passed the Democratic-led House of Representatives in 2009. It died in the Senate the next year.

‘Most Efficient’

Now, while the Chamber said it opposes the new Environmental Protection Agency’s carbon regulations, many company representatives say they’re pleased that trading can be used to help them keep down the cost of cutting their use of coal under the EPA regulations.

“Trading is one of the most efficient ways to get the market to act,” said Arvin Ganesan, vice president at Advanced Energy Economy in Washington, which represents companies such as Johnson Controls Inc. and First Solar Inc. “It yields results and minimizes the cost on customers.”

Obama unveiled the landmark regulations to reduce emissions from power plants Monday, a plan designed to bring about cuts in carbon dioxide from power plants of 32 percent by 2030. It’s the centerpiece of Obama’s climate plan, which aims to cut U.S. greenhouse gas emissions and convince other nations to ink an accord to address global warming.

The Obama plan requires states and utilities to use less coal and more wind power, solar or natural gas. Each state must submit plans to the agency by 2018 on how it will achieve the EPA-mandated goal.

State Opponents

Some states, especially those economically reliant on coal, fought the draft rules in court and promise to do so again.

“This rule represents the most far-reaching energy regulation in this nation’s history, drawn up by radical bureaucrats,” West Virginia Attorney General Patrick Morrisey said in a statement. “We intend to challenge it in court vigorously.”

Senate Majority Leader Mitch McConnell, a Kentucky Republican, has urged governors to reject the power-plant regulations and not submit the required plans to the EPA.

“If the final rule is not significantly improved, then Hoosiers can be assured that on behalf of families, businesses and other ratepayers, Indiana will not comply,” Republican Governor Mike Pence said in a statement.

Caps Imposed

But if state leaders refuse to work with EPA, as many are threatening, the agency announced on Monday that it would impose restrictions directly on their utilities. A cap would be imposed on carbon emissions from the power plants and credits could be bought and sold to keep costs down.

“The states that don’t want to do anything will default to a broader trading market,” said Tom Lawler, the Washington representative for the International Emissions Trading Association. The EPA system would allow those credits to be traded with other states, and so the states that “just say no” could all end up in a wider carbon trading system.

To be sure, the EPA has used a trading program as a way to curb the pollutants responsible for acid rain under an update to the Clean Air Act that was signed into law by Republican President George H.W. Bush.

“Cap and trade is a technique that’s been made available under the Clean Air Act for decades,” David Doniger, the head of the climate program at the Natural Resources Defense Council in Washington, said Tuesday. “There’s nothing nefarious here, and there’s a lot of state interest in this approach.”

Feature, Glitch

In addition, representatives for some utilities, clean-energy producers and manufacturers say carbon trading should be viewed as a feature, not a glitch.

“It’s a really big leap forward,” said Bob Wyman, a lawyer representing companies such as Alstom SA, Calpine Corp. and Boeing Co. which support the EPA’s efforts and say they want them to work. The way EPA set it up, states can enter a trading system by default and so that may be the easiest option.

“It makes it easier for the rank-and-file officials to say that this is doable,” said Vicki Arroyo, the head of the Georgetown Climate Center. “It will be relatively painless.”

California and nine northeastern states of the Regional Greenhouse Gas Initiative already have a carbon trading program “and you’re going to see at least another 20 states come up with their own versions,” Templeman said.

“But because the states can interchange through this bank, it really is one federal program broken down into 40 little state programs.”

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