The political chatter this morning is all about the new proposal on greenhouse gases that President Obama will unveil on Monday. The impetus is a story by Coral Davenport, of the New York Times, who writes that the Environmental Protection Agency will call upon states to reduce carbon output from power plants by 20 percent.
By itself, the number doesn’t tell as much. Carbon output in the U.S. has fallen substantially in the last few years, thanks to a variety of factors including the recession, cheap natural gas, and new regulations. A 20 percent reduction from the 2013 level would mean a lot more than a 20 percent reduction from the 2005 level, when emissions were higher. But Davenport’s story suggests that the administration has in mind a significant cut in emissions, something that many environmental protection advocates have said they expect.
Davenport's article also says that many states are likely to react to Obama's proposal by using cap-and-trade systems—that is, schemes in which government establishes some kind of overall ceiling on emissions, then allows companies or states to buy and sell the right to pollute at different levels. Obama wouldn't force states to react this way. As the most recent version of Davenport's article makes clear, it would merely give states that option.
This is not surprising. Informed observers, including advocates on both sides of this debate, have long expected the Administration to give states flexibility over exactly how to reduce emissions. Earlier this week, Dan Utech, one of Obama's top advisers on climate issues, told the Wall Street Journal that the EPA proposal is “going to enable states to move forward in a way that works best for them with the energy resources they have.” A well-reported (and widely circulated) May 21 story by Juliet Eiplerin and Steven Mufson of the Washington Post said that Obama's proposal would "spur regional carbon-trading programs on the East and West coasts."
Even so, the return of "cap-and-trade" to the Washington lexicon is sure to set off alarm bells on the right. As Jonathan Chait of New York magazine has pointed out, Obama's effort to regulate power plant emissions hits all the conservative hot-buttons:
Obama’s new regulations can fill that vacuum once occupied by health care. As right-wing hate fodder, it may even exceed it. No specifics have yet leaked, but the general shape of the plan is widely known: Obama will announce new national guidelines limiting emissions for existing power plants, which account for 40 percent of all carbon-dioxide emissions. The plan both fulfills a generational goal of liberal social policy and stokes conservative fears of an unaccountable executive. It’s Obamacare and Benghazi rolled into one.
The fact that Obama’s proposal could lead states to create or join cap-and-trade schemes will only intensify this sentiment, since Obama tried and failed to create a national system via legislation. The bill he supported got through the House in 2009, thanks to then-Speaker Nancy Pelosi and her lieutenants. It never got to Obama because it couldn’t get the 60 votes necessary to overcome a filibuster in the Senate. Conservatives are sure say make the same argument they’ve been making about his tweaks to Obamacare and possible changes to immigration policy—that he is using regulatory authority to enact laws he can’t get through Congress.
Of course, this is another case in which the right's anger will be at odds with policy positions mainstream conservatives once professed to hold. Cap-and-trade is a market-based alternative to a more straightforward carbon tax, which is the solution that many liberals would prefer. It was actually part of John McCain’s 2008 presidential campaign and Mitt Romney, as governor of Massachusetts, played a key role in setting up the market now operating in the Northeast. If states have the flexibility most experts expect, the conservative anger will be doubly ironic, because this is precisely the way that most conservatives think federalism should work—by giving states freedom to solve problems in ways that best suit their resources and preferences.
One x-factor here is how power companies and business interests more generally react over the coming weeks and months. Davenport’s story quotes several utility company representatives who say that, all else equal, they would prefer a cap-and-trade system to other forms of regulation. One reason: A cap-and-trade system would effectively allow states and utilities to offset carbon emissions from coal plants by increasing reliance on lower emission power sources and renewables—or by encouraging consumers and businesses to use less electricity. “By trading on carbon credits, we’ll be able to achieve significantly more cuts at a lower cost,” Anthony J. Alexander, president and chief executive of FirstEnergy, told Davenport. “The broader the options, the better off we’re going to be.”
Such opinion is far from universal, however. Other utilities lobbyists argue that it really doesn’t matter what form these new regulations take. They say that aggressively reducing carbon emissions, as the Administration has pledged to do one way or another, will inevitably impose costs that outweigh the benefits. Large business lobbying groups, such as the U.S. Chamber of Commerce, are making similar arguments. The Obama approach is sure to raise legal challenges, as well—specifically, over the limits of EPA authority and the extent to which new carbon reduction targets lead states or utilities to take action "beyond the fenceline" of the power plants themselves.
Note: This item has been updated, and the correct date of McCain's cap-and-trade endorsement has been added.