As expected, the Kerry-Lieberman climate bill will give states incentives to expand offshore oil and gas drilling. (See Subtitle B here.) That's not too surprising. Kerry is still gunning for votes from conservatives like Louisiana's Mary Landrieu or South Carolina Republican Lindsey Graham, and expanded offshore drilling is one way of enticing them. But there are also a lot of adamant drilling skeptics out there, like Florida's Bill Nelson. So how did Kerry thread this particular needle?

Here's how the bill would work. Let's say South Carolina wants to open up its coastal waters—we're talking the area 3 to 75 miles out—to gas and oil exploration. If it did so, 37.5 percent of the revenue from the leases would go to the state, and 12.5 percent would go to conservation programs. The rest would go to the federal government, as usual. This is the infamous "revenue sharing" idea that's so important to folks like Graham and Landrieu (and opposed by inland senators like Jeff Bingaman, who want all the money to go to the federal government, as it does now). So South Carolina has a fair bit of incentive to allow new drilling.

But there's a twist. Let's say Florida is worried that potential oil spills off South Carolina could sully its beaches. Here's what would happen: First, the Interior Department would conduct a study to see whether Florida would be affected by any potential spills. If so, then the Florida legislature could pass a law vetoing the new drilling and South Carolina would have to comply. Likewise, Maryland could veto Virginia—heck, if New Jersey found that it might be affected by a Mississippi spill (unlikely, but I guess it's always possible), then it could veto Mississippi.

What does this all mean in practice? Realistically, if any potentially affected state can veto new drilling, then it's unlikely that there will actually be much new offshore drilling. Alaska will undoubtedly start opening up some new waters—since an oil spill there won't affect any other state. And it's possible that South Carolina might open up some areas as long as Florida (which will almost certainly get a veto) has a pro-drilling Republican governor in office. But other than that? As best I can tell from talking to informed observers, it's not likely we'll see much new offshore drilling if this is the system.

By the way, there's another twist here. Right now, there are a lot of anti-drilling senators like Nelson and New Jersey's Robert Menendez. It's possible that these provisions are non-starters for them and that they'll filibuster any climate bill with drilling. Maybe. But it's also worth noting that, under current law, there is zero protection for waters more than three miles off the coast. If a new Republican president comes in, it's open season for offshore drilling. This climate bill, by contrast, does offer protection—New Jersey and Florida have the right to veto any drilling off both their coasts and other areas that might affect them. So, for the anti-drilling contingent, this bill is an upgrade over the status quo in many ways. (And, of course, the drilling provisions could change as the bill goes through the Senate, especially if outrage over the BP spill grows.)

Update: Well, Bill Nelson seems to be satisfied with this compromise. That's one big early hurdle cleared.

Click here to see the differences between the House bill and the Senate bill.