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Cap and trade legislation, part of a 900-page climate change bill approved by the U.S. House Energy and Commerce Committee on May 21, has largely been opposed by business interests.

Some groups, however, might have more cause to be nervous than others.

“As many things happen in Congress, it is not as well thought out as it should be,” says Chris John, former congressman and president of the Louisiana Mid-Continent Oil and Gas Association. “It’s pitting one industry against another.”

“Cap and trade” is the name for a batch of proposals that seeks to cut down on greenhouse gases while spurring development of green technologies. In the first few years of the program, Congress would set a cap on emissions just below the current level. Over time, the cap would be lowered, in hopes of reducing emissions 17% by 2020.

Industries would be issued polluting allowances that could be bought and sold [traded] among companies. Trading is supposed to keep costs down by letting the market—not government—figure out where and when to cut emissions and who can do it most cheaply. Climate change legislation likely will be debated on one side of Congress or the other throughout the year. Given Louisiana’s dependence on the oil and petrochemical industries, whatever Washington ends up doing will have a profound impact here.

John says electricity generators, who are the biggest producers of carbon emissions, will receive about 35% of the allowances, according to an early version of the bill. Oil refineries, on the other hand, could end up receiving only 2%.

“It’s going to start a shell game of trading these allowances,” he says. Say a utility receives 10 allowances but only needs eight; the other two could be sold to the highest bidder.

“It seems to me you’re driving a wedge between industries,” John says. “It’s not based as much on emission and science as it should be. We are very nervous about it. … This is a tax on carbon, and it’s going to be passed on to the consumers.”

Everyone agrees the new system will cost more, but estimates of how much vary widely.

“This is the cash cow the Obama administration desperately wants,” says Dan Juneau of Louisiana Business and Industry. Early reports said the Obama administration hoped to raise $650 billion through the program, which many observers expected would be plowed into health care. But Juneau says the real number could be closer to $2 trillion, and says Louisiana’s share could be more than $2 billion by 2020. The conservative Heritage Foundation says the state could lose $1.9 billion in gross revenue and 6,577 nonfarm jobs by 2025.

“What Team Obama may not be factoring in is the impact that a not-so-hidden tax on carbon will have in a weak economy,” he says. “If the cap and trade price tag is closer to the $1.9 trillion estimate, consumers are going to riot when those higher costs are passed on to them at a time when wages are stagnant and job security is ebbing.”

Various interests [and their lobbyists] have their own stakes to protect as the legislation moves through Congress. Coal states want to keep burning coal, which happens to be one of the dirtiest fuels on the planet. Farm state representatives are getting pressure from agribusiness. In some cases, different segments within industries will have competing interests. An electricity producer that relies on coal is going to be affected differently than one like Entergy Louisiana, which primarily uses relatively clean natural gas. Entergy CEO J. Wayne Leonard has voiced support for cap and trade.

“Irrespective of how this thing comes out, we know the costs are going to be big on our industry,” says Dan Borné of the Louisiana Chemical Association. “But we’re not sure what sector of our industry is going to bear the greatest amount of the costs.”

But if the final bill eliminates nuclear, which it might, and forces big cutbacks in coal, then natural gas will be the fuel of choice for at least the next 10 years, which the Louisiana chemical industry relies on heavily.

“Anything that puts additional pressure on the natural gas supply is going to drastically increase the cost of natural gas,” Borné says. “If that scenario is envisioned, there’s got to be some compensating scenario that permits more offshore drilling for oil and natural gas.”

Often, industry spokespeople will say cutting greenhouse gases is a laudable goal, then cast doubt on the science of climate change in the next breath. But even cap and trade supporters like Leonard say the stress on the U.S. economy could be for naught if China continues building coal plants at breakneck speed.

“If we’re not careful,” Borné says, “it could send a tremendous amount of American capital overseas.”

Fact or fiction?

Business interests are predicting all sorts of doomsday scenarios if the climate change bill that includes cap and trade becomes law. But supporters say critics are exaggerating the costs while ignoring the benefits.

The legislation will increase utility bills.

Yes, by about a dime a day. The Environmental Protection Agency estimates the bill will cost the average household as little as $98 a year, which cap and trade supporters such as the Environmental Defense Fund say is nothing compared to what will happen to the planet [and the economy] if nothing is done to stop global warming: heat waves, droughts, water shortages, rising sea levels, intense hurricanes and so on.

The bill will increase unemployment.

Jobs are created and destroyed in a market economy on a daily basis. But new, high-paying jobs will be created as U.S. companies ramp up production of clean energy technologies. The Department of Energy predicts total manufacturing employment will be roughly the same in 2030 under cap and trade.

China and India won’t sign on, so any greenhouse gas cutbacks by the U.S. won’t have much impact on global warming.

Once the U.S. passes an emissions cap, other countries won’t have American inaction as an excuse. The bill will spur new green technologies that can be exported to nations like China.

The legislation will chase jobs to other countries that don’t regulate carbon.

Manufacturing jobs have been moving overseas for decades. However, a cap and trade bill will actually create U.S. manufacturing jobs. A single wind turbine, for example, contains 250 tons of steel and 8,000 parts. Jobs making such components can be created here.

Government shouldn’t be in the business of picking winners and losers in the economy.

The whole point of the cap and trade approach is to let private markets, not government, pick the winners. The private carbon market will reward companies that adopt the cheapest and most efficient technologies.

SOURCE: Environmental Defense Fund