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Is Cap-and-Trade on Life Support After Senate Upset?

The fate of cap-and-trade legislation became even more precarious with the upset in Massachusetts last Tuesday as Republican Scott Brown captured the seat of the late Sen. Edward Kennedy.

A Massachusetts state senator since 2004, Brown's victory marked an end to the Democrats' filibuster-proof majority in the Senate, thus placing cap-and-trade and other Democratic domestic initiatives in jeopardy.

"Sen. Brown's victory almost certainly signals the death of the Waxman-Markey economywide cap-and-trade approach to climate legislation," said FBR Research. The House cap-and-trade bill, which was crafted by Energy and Commerce Committee Chairman Henry Waxman (D-CA) and Rep. Edward Markey (D-MA), was passed by the House by the slimmest of margins last June (see NGI, June 29, 2009). It calls for greenhouse gas emissions to be cut by 83% by 2050, and is backed by President Obama.

While the Waxman-Markey model "was never a viable option," FBR Research said efforts to pass a climate bill are only "hobbled, not killed" this year. "We continue to believe that the possibility of enacting climate change is well above the consensus view that greenhouse gas legislation cannot become law in 2010," the analysts said.

Instead of Waxman-Markey, a "Senate compromise would necessarily generate support from conservative Democrats and swing Republicans by supplanting EPA [Environmental Protection Agency] authority, capping carbon costs, preserving coal's share of the fuel mix and incenting new nuclear generation. Our conversations suggest that there may be bipartisan appetite for scaled-back carbon caps, perhaps centered around a power plant-only bill, " FBR Research analysts said.

As a state senator, Brown supported the Regional Greenhouse Gas Initiative climate reduction for power plants, but moved away from cap-and-trade in his Senate campaign.

But Sen. Byron Dorgan (D-ND), who plans to retire from the Senate at the end of the year, last Tuesday said he doesn't see climate change legislation clearing the Senate this year and instead believes the focus will be on the broad energy bill.

"My own sense is that in the aftermath of a very, very heavy lift on health care I think it is unlikely that the Senate will turn next to the very complicated and controversial subject of [climate change] and cap-and-trade legislation. I think it is more compelling to turn to an energy bill that is bipartisan" and addresses a myriad of issues, Dorgan told reporters.

His comments came as a group called Securing America's Future Energy released a new report finding that expanded oil and gas exploration and development in the eastern Gulf of Mexico (GOM) would not adversely affect military missions in that area. Sen. Bill Nelson (D-FL), a long-time foe of drilling near the Florida coastline, condemned the findings, saying it remains the Defense Department's policy that military exercises and training in the eastern Gulf are incompatible with oil and gas drilling operations.

The broad-based energy bill touted by Dorgan has been pending in the Senate Energy and Natural Resources Committee since last June (see NGI, June 22, 2009). It was put on the back-burner in 2009 while Senate committees slugged their way through climate change legislation. Senate Majority Leader Harry Reid (D-NV) at the time wanted to marry the two bills. Critics saw it as a bad idea, saying it would stall or possibly kill both the energy and climate change bills.

The Senate energy bill includes an amendment, drafted by Dorgan, that would permit oil and gas activity in the eastern GOM 45 miles off Florida's west coast and even closer off the Florida Panhandle (10 miles) in the gas-rich Destin Dome. The proposal does not include language that would allow coastal states that open their shores to production to share revenues with the federal government -- an omission that has been criticized by senators from coastal states.

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